What Would Happen if GM Went Under?

Last year, I wrote an article that identified Toyota's relentless rise in the United States as being the real source of General Motors' problems. At the end of the piece, I put a wry twist to the old axiom that what's good for GM is good for America. "With a new automotive order emerging," I wrote, "it may not be long before someone in Washington—or even Detroit—observes: 'What's good for Toyota is good for America'." I got the location wrong, but something close to those words appeared two months later in a piece by New York Times' Pulitzer Prize-winning columnist Thomas Friedman, headlined "AS GOES TOYOTA ..." In that column, Friedman said he was rooting for GM to go bankrupt, explaining: "The only hope for GM's autoworkers, and maybe even our country, is with Toyota. Because let's face it, as Toyota goes, so goes America."

Since then, GM actually has appeared to teeter close to bankruptcy, as it suffered through $10.6 billion in losses last year and announced plans to cash out 30,000 workers. Toyota, meanwhile, earned a record $12.1 billion last year—as much as two thirds of that in the United States—and, with more than $30 billion in cash, could easily buy out beaten-down General Motors. There's no chance of that, though, since Toyota is cruising along just fine, thank you, and doesn't need GM's problems to slow it down. In fact, Toyota will likely overtake GM as the world's No. 1 automaker in the next year or two. But the real action these days is not the dogfight for automotive world domination. It's the verbal smack down between Friedman and GM, which here in Detroit has become the equivalent of the celebrity slapfest between "Apprentice" feuders: the Donald and Martha Stewart.

Here's the latest in this dust-up: Friedman recently compared GM to a crack dealer for offering $1.99 a gallon gas cards to buyers of some of its cars and SUVs—including the guzzling Hummer. GM's promotion, in Friedman's view, was providing aid and comfort to terrorists at a time when American soldiers are dying in an oil-stained war in Iraq. "Is there a company more dangerous to America's future than General Motors?" he wrote May 31. "Surely, the sooner this company gets taken over by Toyota, the better off our country will be." GM fired back with an attack on Friedman's "shrill hyperbole" on its corporate blog (yes, GM actually has a corporate blog). That compelled Friedman to respond to GM's response in another column last week.

Now nobody loves a good fight more than I do. But all this red-hot rhetoric was starting to make my head spin. And no one had answered the fundamental question: would the United States really be better off if GM went under and Toyota took the top spot? So last week, I called GM and Toyota and told them I wanted to move the debate off of geopolitics and just take a clear-eyed look at the economic impact each company has on America. I asked each to respond to identical criteria on how much they have at stake in the economy and how that has changed over the last 10 years. After all, Toyota and GM don't want to be part of the culture wars. They just want to get you behind the wheel of their cars. They don't care if you're Red or Blue, as long as your money is green. And riding on their success or failure are thousands of American jobs.

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Just how many jobs? Well, GM, even in its diminished capacity, easily wins this comparison. As of the end of last year, GM employed 146,700 Americans, compared to 32,000 for Toyota. But the trend is clearly shifting in Toyota's favor: 10 years ago, GM had 437,000 U.S. employees, while Toyota had 19,000 Americans on the payroll. And of course, as I said, GM is planning to cut another 30,000 jobs, mostly in the United States, as it closes a dozen factories to match up production with its shrinking market share.

Still, GM has many more factories in America than Toyota. At the end of 2005, GM had 24 U.S. assembly plants, just two fewer than it had 10 years earlier. Toyota has four U.S. assembly plants if you include the pickup-truck factory it is opening in Texas at the end of this year. Next spring, Toyota will add another U.S. assembly plant when it converts an old Subaru factory in Indiana into a Camry plant. One or two more Toyota factories are rumored to be on the way. Surprisingly, though, GM also has a new $1.5 billion assembly plant coming on line later this year in Lansing, Mich., to build Saturn, Buick and GMC crossover SUVs (the more fuel-efficient kind built on car chassis.)

To sell all those models, GM also has far more dealers than Toyota. As of the end of last year, GM had 7,371 U.S. car dealers, compared to 1,427 for Toyota. Ten years ago, GM had 8,773 dealers to Toyota's 1,362.

The downside of GM's bigger numbers: It no longer has the sales to support all those dealers and factories. Back in 1995, GM had 33 percent of the U.S. auto market, but today controls only 23.8 percent as its SUVs struggle to gain traction in an age of $3 gas. Meanwhile, Toyota, with its growing array of gas sippers, has seen its share of the American market jump to 14.6 percent, from just 7.4 percent in 1995.

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The most stark and telling difference between the two companies comes in their retiree rolls. GM has 448,763 retirees depending on it for pensions and medical benefits, compared to just 1,600 at Toyota. Ten years ago, GM had 395,309 retirees and Toyota, a young company in America, barely had any. If you do the math, you'll see that GM has three retirees for every active worker. All those pensioners have become a huge financial burden on GM. Just providing medical insurance to all its retirees and workers adds nearly $1,500 to the cost of each car it builds. In fact, GM has become the nation's largest private insurer, spending more than $5 billion a year in health-care coverage for more than 1 million people.

For the bottom-line analysis, I asked each company for a dollar total of how much they've invested in the United States over the last 10 years. I received qualified answers from both. So this is not an apples-to-apples comparison, but it's still illuminating. Toyota said the current value of its U.S. investments is $13.9 billion, up from $6.1 billion in 1995. GM said it couldn't go back 10 years, but has invested $31 billion in the U.S. since 1999.

So what does all this data tell us? Well, for starters, it shows GM ain't dead yet, but is surely very sick. Secondly, it shows that the idea of a thriving Toyota taking on GM's problems and pensioners is ludicrous. But most important, it shows that suggesting America would be better off if GM went out of business is cavalier to the point of crazy. The livelihoods of hundreds of thousands of Americans ride on GM finding a way to pull itself out of the ditch. And rooting for GM to fail is cheering for U.S. taxpayers to take on the burden of all those pensions and paychecks. There's little doubt that GM's $1.99 gas promotion was a bad idea, proving once again that GM has a tin ear for the climate of the culture (which could explain why many of its models fail to connect with consumers). But come on. A bad idea, no matter how distasteful, should not be punishable by death for the company and its vast sea of dependents.

What Would Happen if GM Went Under? | News