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Should GM Be Allowed to Fail?

Author: Michael J. Gerson, Roger Hertog Senior Fellow
November 19, 2008
Washington Post


The founder of General Motors - the charming, risk-taking Billy Durant - was never as famous as Henry Ford. But while Ford built reliable black boxes, GM focused on variety and color, feeding an exuberant American consumerism. During the initial months of the Great Depression, GM had the nerve to introduce the Madame X Cadillac boasting 16 cylinders. Who could be depressed with that kind of vroom? In the late 1930s, GM's "Parade of Progress" - a traveling showcase of the latest auto technology - visited 251 towns where 12 million Americans saw the shape of a gleaming, streamlined future.

But in our current downturn, General Motors has become a symbol of decay rather than of renewal. As one senior administration official recently told me, "The biggest economic question is now: Should GM be allowed to fail?"

Few companies more deserve failure. General Motors overproduces cars that few people want to buy, propping up demand with financial incentives that result in consistent losses. The company is weighed down by massive overhead and crippled by unsustainable labor contracts. GM has made incremental progress on labor costs and product quality, - the Cadillac CTS has plenty of vroom - but these changes have had the effect of a watering can on a three-alarm fire. General Motors - the first company in the world to make $1 billion in a year (1955) - is now losing nearly $1 billion a month.

For many, the answer is simple: GM should declare bankruptcy. With its creditors in charge, GM could restructure, sell off assets and perhaps emerge on the other side a leaner, more competitive company. A government bailout, in this view, would only reward mediocrity and delay the inevitable.

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