State of the Economy – March 2009

Well it looks like Chrysler and GM are going in to bankruptcy. The December bailout money was just to get us into late spring, but now comes the time of the reckoning. The fact is that the autoworkers union will not freely bend to cut all the benefits that they have been fighting for over the past decades. I think we all knew this. GM had time to try and negotiate, but they failed. The White House is not giving any more money, because the current model is not sustainable… and not competitive. The best thing that could happen is a bankruptcy, in which a judge will renegotiate all contracts and pensions obligations. GM will rise again… at the expense of the autoworkers. On the other hand it is better to have a job that pays the same as foreign auto manufacturers than have no job at all.

Currently the US airlines are the best performing, because they are, through bankruptcy, more streamlined then their foreign counterparts.

If GM  and Chrysler file the world wont end. Not everyone will be laid off. A fair share of the dealers will go under (would happen anyway), which will be good for those who remain. Some suppliers will go under, but the best performing will remain. Industry verticals need hard love every so often. The unfortunate result of this recession will be structural unemployment, which will last a life time.

The brands that do come out of this restructuring will be competitive and strong.


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