Car talk

GM has declared a stunning loss--over $15 billion dollars.  Their cash position has fallen by about 10% since last year.  That cash cushion used to comfort analysts, the notion being that GM had the reserves to ride out a long rough spell.   Now liquidity fears are firming up.  I'd put the probability of a GM bankruptcy in the next 10 years at 50%.

The company is scrambling to retool for small cars, and I'm sure we'll hear a loud chorus of voices saying that GM did this to themselves by becoming so dependent on light trucks.  Well, they did, but I'm not sure it's fair to blame management.  GM's historical pension and healthcare obligations, and the vast difficulties they have in permanently laying off workers, mean that the company had to maximize cash flow as best they could.  Indeed, I find it interesting that I spent so many years listening to europhile economists assure me that the Germans were going to kick our ass because their cooperative management style, with labor having a seat on the board, allowed them to engage in long-term planning.  The industries in America where labor has the most power are the ones that have the hardest time making strategic choices to lower profits now in order to raise them in the future.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

Why Principals Matter

Nadia Lopez didn't think anybody cared about her middle school. Then Humans of New York told her story to the Internet—and everything changed.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus

Video

A History of Contraception

In the 16th century, men used linen condoms laced shut with ribbons.

Video

'A Music That Has No End'

In Spain, a flamenco guitarist hustles to make a modest living.

Video

What Fifty Shades Left Out

A straightforward guide to BDSM

More in Business

Just In