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Why GM Should File For Bankruptcy

New America Media, Commentary, Christian Czezatke Posted: Nov 13, 2008

Editors note: The government could provide a $25 billion package to General Motors and another $25 billion down the line. But NAM contributing writer Christian Czezatke thinks its a bad idea, especially in the age of green and hybrid cars. Czezatke is a computer scientist in Silicon Valley.

We should let General Motors file for bankruptcy.

GM is in serious trouble. They are burning through roughly $65 million every single day. They are asking the government for a "bridge loan" and it looks like their request will be met. Apparently $25 billion are already lined up for them, with another $25 billion coming soon.

With that burn rate, they'll spend $25 billion in roughly 11 months and we will be back to square one.

GM claims that its main problem is having a costly work force. However, high labor costs are not necessarily fatal if you are at the top of your game and have innovative products that are flying off the shelves or dealership lots in this case.

Unfortunately GM mostly offers products that seriously lag behind those of its competitors.

While GM is busy trying to figure out ways to cut costs, it is less concerned about building products that people actually want to buy. There have been reports that GM is planning to suspend research and development on a number of future models, at a time when research is much needed to be competitive, especially in the area of hybrid and green technology.

That's like saying that due to a shortage of oxygen you plan to suspend breathing until further notice, notes columnist, Tony Paradiso, of the Nashua Telegraph.

GM officials have conceded that they are cutting back research and development, apparently trying to save $1.5 billion over two years which would allow them to stay operative for another month at best at their current burn rate.

Mercedes Benz, on the other hand, has announced that it will have its entire model line transitioned to alternative fuels by 2015. In other words, Mercedes Benz will not be producing any more gasoline-powered cars seven years from now.

Meanwhile, GM is lobbying hard to prevent California from passing a law that would require car manufacturers to reach an average fuel efficiency standard of 36 mpg (or about 6.5 liters per 100km) for their model lineup by 2016.

This is why GM should be filing for bankruptcy. Bankruptcy does not necessarily mean that a company is getting shut down and liquidated United Airlines went through this a couple of years ago and they are still around today. This might allow those who recognize the fact that the automotive landscape has changed since the 1960s to have some influence on GM's direction.

Otherwise, if the government blows $50 billion on GM, we have a very good chance of being in the same mess again two years from now. Many who currently work for GM are facing layoffs, but even with the $50 billion bail-out package, unfortunately, there will be many more layoffs.

Wouldn't we be better off if we invested the $50 billion in a sector that could create new jobs? Even within the automotive industry there are innovative companies. Tesla Motors, for example, a tiny company in San Carlos, Calif, was founded by Elon Musk, the co-founder of PayPal. Tesla is building an all-electric roadster for the high-end market. It plans to expand into broader markets when the technology becomes cheaper.

Maybe we should look beyond the automotive sector to invest the $50 billion slated for GM.

The availability of cheap and abundant fuel sources cannot be taken for granted anymore. And even the most fuel-efficient car is not going to address traffic congestion issues. It is unrealistic to assume that we can solve this problem by building even more freeways without serious quality-of-life implications.

We may very well be seeing the beginning of the end of the age of the automobile. We need to invest in public transportation. We need to invest in green technology in wind turbine, solar power and alternative energy. What we cant afford to do is invest in a failing motor industry that offers no light at the end of a very dark tunnel.

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