GM and Chrysler are on Deadline to Submit Their Restructuring Plans Today
General Motors and Chrysler are on deadline today to submit to the U.S. Treasury their recovery plans, showing how they intend to restructure operations after receiving $17.4 billion in government aid. The Detroit auto companies have to present their reports to Treasury secretary Tim Geithner, White House economic advisor Larry Summers and others.
The details will be made public today, but some of the key elements of the auto companies’ plans are known. GM, for example, is expected to list plants that will close, models that will be discontinued, and other steps to return to profitability. That will hardly be easy. According to a Dow Jones report, GM has lost more than $70 billion on its operations since 2004. Moreover, any reorganization plan will need to involve a deal with the United Auto Workers union, but negotiations so far have failed to produce an agreement. Medical costs continue to be a major sticking point.
These problems are the cumulative result of strategic mistakes that the Detroit auto companies have made over several years, as Wharton management professors John Paul MacDuffie and Lawrence Hrebiniak explained in a Knowledge at Wharton podcast last October. According to MacDuffie, GM and other car companies have been “hit by more or less the equivalent of a perfect storm.” Just when the automakers were trying to brace themselves for a recovery plan that would lower labor, health care and pension costs, they were slammed by high oil prices and the credit crisis, which increased costs and reduced demand. Hrebiniak notes that the auto companies not only made strategic errors in failing to respond to global competition, but were also guilty of the “inability to manage their companies well.”
Whatever options the restructuring plans include, bankruptcy will not be among them – at least for today. “It’s not like an airline,” says MacDuffie. “We’ve seen airlines go into bankruptcy sometimes twice and come out, and still have customers. But I think the feeling is – no one’s really tested it – that with a car company, it would be very different.”
