GM Marked Down to $9.98
General Motors stock closed below $10 per share yesterday for the first time in 54 years. The stock’s 15 percent one-day drop followed a report by a Merrill Lynch analyst that bankruptcy was within the realm of possibility for GM if current trends continue.
The decline of GM has been long in coming, although it has accelerated with the economic downturn and rising gas prices. Its stock has fallen more than 42 percent in the last month, nearly 60 percent since the start of 2008, almost 74 percent in the past 12 months, and 85 percent in the past 10 years.
It is easy to think of a large corporation such as General Motors as an independent entity, whose fate is determined solely by its management. General Motors operates in a market that is shaped by rules and policies set by government, however, so we should not ignore the impact of such policies.
CNBC displayed a comparison of the market value of General Motors and three of its competitors that prompted me to look beyond the management decisions that have affected the company to consider public policy decisions that might have led to a very different result.
The following figures show the market values (the total dollar value of all outstanding shares) of four major automakers, according to what CNBC displayed on its broadcast (which I could not find in one place on CNBC’s website):
GM $6 Billion Ford $10 Billion Volkswagen $118 Billion Toyota $144 Billion
In other words, as a company, Toyota is worth about 24 times as much as General Motors, based on how the stock market determines their values.
Clearly, there is a huge chasm between the U.S.-based carmakers and their German and Japanese counterparts. Would this situation be the case if different choices had been made in the United States about how the nation should use its common wealth and how it should enable workers to organize?
What if the United States had adopted a national health care program decades ago, as most industrialized nations did? Would the fate of General Motors be different if it had not become responsible for more than $50 billion in health care costs for retirees and their dependents, an obligation that it ultimately transferred to its workers’ union in a complex and costly deal?
What if the nation had responded to the oil shocks of the 1970’s with a policy that committed the U.S. over the long term to achieving much greater fuel efficiency and the development of vehicles and transportation systems that do not depend upon petroleum? Would General Motors now be producing a far more competitive and appropriate mix of products if the U.S. had chosen that course?
What if the U.S. valued workers consistently, rather than making it harder for workers to organize in some states than other states? Would General Motors be on sounder footing today if foreign carmakers that manufacture in the U.S. also did so with unionized workforces?
There are many ways to explain what has become of General Motors. I don’t intend through these questions to point to a definitive cause for its troubles or those of Ford and Chrysler. I instead want to raise the issue of resilience. Whether a society recognizes systemic problems as such and responds appropriately can determine whether its people and the companies they work for can bounce back after a crisis or a fundamental change.
One path is to recognize systemic problems that cannot be adequately resolved at the individual, corporate, or state level. In this path, we commit our common resources to set high standards and long-term policies that advance our security and well-being. The other path places the burden on individuals to deal with problems that are systemic in nature. For example, an individual might recognize that oil is becoming increasingly scarce, but find no investment in mass transit in her area and no cars for sale with sufficient fuel economy. In some cases, such as health care, individuals may be able to organize and compel their employer to take on much of the burden, but there is no guarantee that such problems can be resolved by individual companies, no matter how large.
When systemic problems are beyond the ability of a large corporation to solve, their continued, unchecked growth can threaten the firm’s existence and the livelihood and security of its workers. This is a lesson we ignore at our peril.
Evan
