Saturday, February 21, 2009

GM's Back! And It Brought the Begging Bowl Again.

General Motors of Canada (wink, wink) wants more money, more federal and provincial money.

Way, way back, in December, GM told Ottawa and Queen's Park that it needed $3.4-billion. Now, two months later, it's tweaked that figure up to somewhere between six and seven billion.

Federal industry minister, Tony Clement, took it all in stride:

"I would have to say this is a good first step. We are moving as quickly as possible in these negotiations, keeping in mind that any measures must be in the best interests of Canadian taxpayers and the Canadian economy."

What goes unmentioned is the "pay up or the kid gets it" factor in these negotiations. GM is holding a gun to its head and another gun to Ottawa's head. If it doesn't get bailed out it pulls the pin, sending a tsunami of unemployment sweeping through southern Ontario with aftershocks hitting much of the rest of the country.

The problem.

General Motors holds most of the cards. It appears to be essentially insolvent at the moment, unable to continue operating on its own revenues. No one should be surprised at this. The Big Three were on the ropes when the economy was still buoyant. There was no way they could withstand a recession.

Sometimes the debtor has the upper hand. Remember that old line attributed to Lord Rothschild about how when you owe the Bank of England a hundred pounds and cannot pay you have a problem but when you owe the Bank of England a million pounds and cannot pay, the Bank of England has a problem.

By its very size and the manner in which it has integrated its business into the economies of entire states and provinces, everyone gets badly hit if General Motors fails outright, if it goes out of business. Ask the guy who runs the 7-11 kitty corner to the GM factory if you don't understand.

It's very size also affords GM certain bargaining positions that, in lesser circumstances, would be offensive at best. Give us the money or the kid gets it. Give us what we want or we sink your economy. Give us what we want or we'll close our Canadian plants. These are threats you don't even have to utter. They're always on the table, and there's the problem.

If you sense an element of coercion in this negotiation, you're probably right. And it's a card that can be played again and again and again.

Who's to say that seven billion isn't just money spent to buy time? Who's to say that this bailout will actually save General Motors from bankruptcy?

Lending money to a healthy company is one thing. Lending money to a company that by its own admission is at bankruptcy's door is something else altogether.

It strikes me that this is a gamble, a huge gamble at very poor odds. That doesn't mean it's not worthwhile taking but only if there's a reasonable chance it will save General Motors. If not, we might as well let GM go now and put those billions toward something with a good prospect of returns.

1 comment:

Anonymous said...

No job guarantees.
No clear plan.
Bailout for pension plans.
Only 7000 or so direct jobs (that's expensive per job)...

Let them sink...