Having a General Motors plant in the Mahoning Valley, we naturally are sensitive to the recent upheavals affecting the auto industry. We are also accustomed to politicians taking advantage of photo ops at the Lordstown plant to claim credit for the auto bailout.
Considering that the plant is such an integral part of the local economy, we should take a closer look at those claims to better understand what the future may hold.
First, let me discuss the term itself and ask if it applies to what was done with GM. Webster defines a bailout as the rescuing of a company in financial distress.
Was GM rescued? If you owned a company in distress, and after being ''rescued'' you no longer owned it, would you consider that being rescued?
Picture it. You have a company with, let's say, 1,000 employees, and you're about to go under; you're considering bankruptcy.
You have borrowed all the money you can and turn to the government, hoping for a loan to help keep you afloat while you reorganize. What if the president of the United States, instead of just granting the loan, came and took ownership of your company, told your lenders that they weren't getting a penny and informed your stockholders that they, too, had to relinquish ownership?
What if he then sold half of your company and gave half to your employees? Would you brag about how your company was saved?
I have read that the president personally called the mayor of Detroit to reassure him that he was not going to move GM's headquarters out of the city. Just where does a president get the power to do this? Moreover, how did 535 congressmen and senators sit back and accept this?
The government could have provided a ''bridge'' loan to GM, much like they did with Chrysler in 1980. The company then could have sought bankruptcy protection that would have allowed them to correct some of the bad management decisions that got them into their predicament.
But those options did not satisfy a president who has no understanding of economics and no respect for the Constitution that limits his powers.
What's worse is that these irresponsible actions probably have sealed the doom of the very company that politicians brag about saving. None of the structural defects that caused the company's demise have been corrected. Contracts granting compensation and retirement benefits that cannot be sustained were left largely unchanged.
No one likes to see people who work hard have to give back any of what they negotiated, but what if a company's finances change, making it impossible for the promises to be kept? Should they keep the promises even if it means that the company ceases to exist?
The promises GM made that will ultimately destroy it were made when they had a much bigger market share of the world's demand for automobiles. That large market share no longer exists, and I'm told that GM now has 10 retirees for every worker. Does anybody not understand the math of how that will work?
It is up against companies that are just starting to retire some of their workers and you can bet the retirement packages are smaller. This, in a world that has a 60-million-car demand, is shared by manufacturers who have a 90-million-car production capability.
The fact that GM hasn't already slipped beneath the waves is due to the fact that we loaned it $50 billion, stiffed the bondholders, and cheated the stockholders by reselling their stock. Even with this massive infusion of money, GM is still struggling. Once the company has to rely solely on money generated from sales alone, it will be right back where it started.
Moadus is a Girard resident.