40,000 jobs go in GM bankruptcy, how many more to come?

Around 40,000 jobs will go as an immediate consequence of the bankruptcy of General Motors due to be announced by President Obama tomorrow: 30,000 across the United States and another 10,000 in the connected sale of GM’s European operations.

This will be the largest company failure in the history of the US, and it shows much for the incorrigible optimism of Americans that they are trying to portray such a historic failure as the opening of a new chapter for US capitalism. This is of course complete and utter nonsense.

Mounting job losses

The 40,000 job losses are just the opening shot of the consequences of the GM insolvency. There will be secondary rounds as suppliers and subcontractors fail. Nothing can make up for the consequences of the massive collapse in GM auto sales this year.

Now President Obama will doubtless dazzle the crowd tomorrow with a promise of a new GM. But what is this reshaped, debt-free giant going to look like? Has it any more chance of succeeding that the old GM?

The strategy that appears to have emerged from the huge committee meetings in the run-up to bankruptcy is to emphasize production of small cars as the future of GM. Never mind that the US consumer has showed a manifest dislike for small cars and will return to larger vehicles the moment gas prices permit. Never mind that profit margins on smaller cars are, appropriately enough, smaller. And does the Spark pictured look a winner?

You see that does not fit the political mood of the moment which is reacting to the hikes in gas prices seen at the pump since last summer. Nobody has thought anyway too hard about throwing in $50 billion of public money to keep a giant company afloat producing cars that the consumer does not really want. Why would small GM cars prove any more popular than their ugly big ones?

Government intervention

This is what happens when democratic governments go into business: they always get it wrong. They think about the workers, the environment, conserving energy and reckon the consumer will play along with the whole thing.

Now is it not equally possible that oil prices will come down as the global recession proves to be longer and deeper than recovery optimists believe right now? That would keep overall GM sales down and undermine its small car strategy, and send the company back to the tax payer for another bailout further down the road.

Rotten companies should be allowed to die, or at least stripped bare and sold to the highest bidder. This is how capitalism distributes capital to the most productive companies.