Smith Faculty Opinion Article

January 26, 2006

Hope Is Vanishing at GM
By Dr. Peter Morici, Professor of International Business

GM lost $4.8 billion in the fourth quarter of 2005. The losses are getting bigger, and GM seems headed to bleed cash until it is broke, all the shareholder's assets are squandered on lavish executive compensation and outsized worker benefits, and the company is forced into bankruptcy.

This record loss clearly indicates Rick Waggoner's turn around plan is failing. GM's boat is taking water faster than Waggoner and his managers can bail.

It simply costs more to make GM cars and trucks then GM vehicles can fetch in the market. These problems far exceed those imposed by legacy costs, the absence of government provided health care and other excuses GM managers and UAW officials offer.

Alibis and half measures will no longer do. The time for honesty is past due. Either Waggoner changes GM and the UAW accepts change, or both GM and the UAW will perish.

Recent comments by Robert Lutz to suggestions by Kirk Kerkorian that GM revise compensation structures, whining from UAW president Ron Gettelfinger, and the unavailability of Waggoner for dialogue with critics indicates a fortress mentality has emerged at GM and the UAW. Hope is quickly vanishing.

The present management and union leadership are not capable of achieving systemic change.

Either the Board of Directors map out plans to take the company through Chapter 11, or one million good jobs will slowly evaporate as a consequence of GM mismanagement and UAW ideological obstinance.

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Peter Morici is an economist and professor at the Robert H. Smith School of Business, the University of Maryland, College Park, MD. E-mail: pmorici@rhsmith.umd.edu.