Does it matter to America if GM ceases to exist? William Holstein is arguing that it does, in a book about to be published called “Why GM Matters.” Holstein, a veteran journalist (and former BNET blogger), has done a video preview of the book. Despite its terrible quality (it’s like a YouTube mugshot) it’s worth listening to. He argues that GM is poised to regain its competitive edge, if it can just make it through 2009. And if it fails, he thinks it takes a much larger chunk of the economy along with it:
I don’t have an advance copy of the book, but watching the video, I think Holstein is using GM as a symbol for whether it makes sense for the U.S. to bother with manufacturing. That might sound odd for a country that for now probably remains the world’s largest manufacturing economy. But Holstein argues that our political and financial leaders don’t get manufacturing, and don’t think it’s important. This is the crux of the Main Street vs. Wall Street debate, and it is shaping up as the core fight of economic policy over the next few years: do we get a justifiable return if we invest in making things, or should we focus on information-driven innovation?
Holstein seems to represent the argument that information-driven companies — such as financial services firms — simply cannot sustain our economy by themselves, and we must continue to be able to manufacture. In fact, he does directly argue that GM can now manufacture head to head with Toyota, and he might be right. Even my mechanic, who’s been in the business for more than 30 years, says U.S. cars are almost incomparably better than they were when he started, and in fact grumbles that cars today are too well made. Less anecdotally, since the downturn, Toyota’s sales have been down on a percentage basis about as much as GM’s, though the January gap, announced today, was a bit wider. Meanwhile, it is obvious that GM has got innovation fever under Rick Wagoner — the Volt electric car, the hydrogen cars, the flex-fuel cars, these aren’t flukes. If GM dies, there will be bidders on the assets. The problem is Wagoner is out of capital well before he can deliver any returns from these ideas. Indeed, the core problem for the Detroit automakers is the Social Security issue in a microcosm - they are being crushed by pension costs, and unlike the U.S. government, they can’t defer it or borrow any more money to fill the gap.
I know people in finance who believe this gap between what pension funds have on hand and what they’ll need to pay out to pensioners was a driver for the tech bubble and the real estate bubble — pension funds desperately needed bigger returns as the Baby Boomers aged, and they started putting more money into private equity and venture capital, trying to get more scale out of the double digit returns such firms were generating.
Whether or not that’s true, such fat, debt-driven returns look gone for years to come, which clearly affects the returns one can get from information-based companies. On the other hand, whether GM can compete with Toyota might be the wrong question in a few years. Can GM, and the U.S., compete with Chinese car makers, or Indian ones? That is the bigger question.
Then there’s the more practical matter that there will be lots of cars produced on American soil, whether or not they’re made by the Big Three. Does it matter if they’re made by a U.S. company?
What do you think? Is Holstein striking a blow in favor of U.S. manufacturing muscle, or just a shill for Rick Wagoner and a company that is not worth saving?
