Taking good news about GM with a grain of salt

Taking good news about GM with a grain of salt

It was good to hear a General Motors official say that work to prepare the Lordstown complex for the production of the Chevrolet Cruze is on track. And even more encouraging to hear Dave Green, president of United Auto Workers Local 1714 say that the Cruze is such an integral part of GM’s future that the car and Lordstown would survive any restructuring that the company were to go through.

But the Mahoning Valley’s future is tied to the fate of General Motors Corp. in ways that go even beyond the immediate future of the Lordstown plant.

For that reason, we remain convinced that it is best for this region — and, indeed, best for Ohio and the nation as a whole — for General Motors to avoid filing bankruptcy.

Describing something as “too big to fail” has become almost trite in these days of rationalizing the bailouts of banks, brokerages, insurance companies and, yes, automakers.

Fear the fallout

But, some things are too large to fail, not because they deserve to be saved on their own merits, but because of what the loss would mean to thousands of other companies and millions of people.

Those losing companies would include GM parts suppliers, of course, but also companies that supply everything from food service, cleaning services and transportation to GM facilities. It would also include dealerships, some of which would survive and some that wouldn’t, but all of which would stand to lose money that GM owes under various contracts at any given time. Other independent fleet buyers from GM would also stand to lose under long-standing contracts.

Some of the same groups of people and companies would face similar losses if Chrysler LLC were forced into bankruptcy. We hope a merger can save some remnants of that company as well, but clearly the larger impact here would be from a GM bankruptcy.

And, of course, thousands of local GM retirees could face severe losses in incomes and benefits, which would not only affect their individual standards of living, but the Valley economy as a whole.

A little encouragement

The administration of President Barack Obama has sent one of its more encouraging signals by making about $500 million available to Chrysler through the end of this month as it seeks to reach an alliance with Fiat, and up to $5 billion through May to help GM restructure outside of bankruptcy.

Success hinges on both automakers being able to reach new agreements with the United Auto Workers union. GM must also reach an agreement with bondholders on converting at least some of nearly $50 billion in debt into equity. The unwillingness of bondholders to budge — along with the political self-interest of some powerful Southern Republican senators — blocked Senate passage of a GM bailout package last year.

If the administration and GM can’t get the bondholders or the UAW to make concessions, bankruptcy will become virtually inevitable. If that happens, the bondholders may do marginally better by having first claim to GM’s assets, but virtually everyone else will lose.

And when the depth and breadth of the losses are felt and begin rippling through the economy, even some of those senators who thought they won something in the waning days of 2008 may find themselves getting dragged down.