It's been clear for a while now that General Motors, like Chrysler before it, was headed for bankruptcy. But it's still a huge development. And, at least from the perspective of history, it's still a little stunning.
GM was the symbol of American industrial might and, for three-quarters of a century, the world's largest carmaker. Now, in order to qualify or government financial assistance, GM is eliminating half of its brands, shedding dealers by the thousands, and laying off a third of its already diminished hourly workforce.
Even if the Obama administration's plan works--even if GM re-emerges from bankruptcy as a leaner, more competitive company--it will never regain its iconic status. It will be just another company, albeit one whose majority owner is the U.S. government, at least for the time being.
It's not the kind of result that inspires great enthusiasm. And perhaps that helps explain why the administration has been collecting critics not only on the right but, lately, on the left as well. Alongside the conservatives who are angry that the government is doing too much, there are now liberals angry that the government is, in effect, doing too little. One of them is Robert Reich, with whom I generally agree on policy and who had this to say a few weeks ago:
Having General Motors or Chrysler cut tens of thousands of jobs in order to be eligible for a government bailout reminds me of 'saving' Vietnam by bombing it to smithereens. Aren't we giving these companies billions of taxpayer dollars to save jobs? If not, we're just transferring money from taxpayers to GM and Chrysler bondholders and shareholders.
As a Michigan resident, believe me, I understand this frustration. But I'm not sure what the alternatives were.
No serious expert disputes that GM had to get much smaller in order to become competitive. Job losses were inevitable and, for that matter, imminent. Long before the economic crisis, GM was planning to downsize further. Maintaining the company at its present size, or anything close to it, likely wasn't feasible unless the government wanted to subsidize it indefinitely.
But if it's difficult to imagine a future with substantially more GM jobs, it's easy to imagine a future with substantially fewer GM jobs. And that's quite possibly what would have happened if the government had stood by and done nothing, which is what conservatives like George Will have been urging.
Remember, most experts believe that, because of the banking crisis, GM couldn't have obtained financing to reorganize under Chapter 11. So without the government's support, GM probably would have ended up in liquidation, shedding 60,000 hourly jobs instead of 20,000. And the pain wouldn't have stopped there. It would have spread to GM's suppliers and, eventually, to all of the communities where these workers spend money.
According to the Center for Automobile Research, a liquidation of Chrysler and GM together would have destroyed 1.3 million jobs. Instead, the likely hit from the twin restructurings is 250,000. As Debra Menk, one of the Center's researchers, told the Wall Street Journal, "It's still an impact, but a more tolerable impact."
To be clear, the Obama administration's strategy raises plenty of valid questions. Can the government really avoid meddling in GM's day-to-day management, as Obama has promised? Will GM really reinvent itself, as it has promised? I'll leave that commentary to people more familiar with the industry (and less distracted by other issues).
But on general principle, at least, the administration's approach seems sensible. This is the end of GM as we know it. But it's not the end of GM. In these times, it wasn't realistic to expect much more.
Update: Dean Baker chimes in with a more detailed brief for the rescue package.