Web Letters: GM-Chrysler: Too Dumb to Fail

Read with considerable interest this piece about the possible merger and government bailout of GM and Chrysler. The structural problems of the US Big Three automakers go back roughly thirty years, to when they agreed to provide their retired workers with lifetime defined benefits and lifetime healthcare. In 1990, FASB ruled that they had to expense their healthcare expenditures on their P&L statements and carry their pension and healthcare liabilities on their balance sheets. This coincided almost exactly with the rise of the SUV. In a word, with massive legacy and healthcare obligations, they were locked into a price structure in which they were forced to manufacture SUVs to meet these obligations. GM currently provides healthcare for 1.1 million people.

If there were a time when the Big Three could have been saved, it was probably about six years ago. They needed to make a joint Chapter 11 filing similar to Texas Air's in the 1980s to have the federal government assume their healthcare obligations. GM would also shed all but three of its nameplates. In 1960, GM had half the US car market and five or six nameplates. There is no sound reason for them to have more than three: GMC truck, Chevy and Buick.

This, of course, would have been bad for the UAW. I am very sympathetic to their cause. But this was triage. They held out for every last cent of what they thought they had coming and wound up with fewer and fewer jobs. Today, I cannot foresee them surviving with the UAW.

So now I am not sure that any amount of money can save them.

Pete White

New Haven, CT