As GM Goes, So Goes the Country 2

By now, you probably know all about General Motors (GM) and its recent filing of the largest bankruptcy in U.S. history. You probably also know that the federal government now is the de facto decision maker for one of the greatest companies in American industrial history.

For a long, long time, the vitality of GM was directly associated with the vitality of America. In fact, in 1953, at the peak of its dominance, GM President Charles Wilson reportedly declared before Congress during his confirmation hearings to become Defense Secretary that what was good for the country was good for GM and vice versa. Although his exact wording is open to debate, his sentiment was unmistakable.

Sadly, the company’s rise to power and subsequent decline towards insolvency parallel the rise and fall of the Great American Republic. This is the conclusion of a great story I read on the Web site, The Market Oracle. In his excellent and very detailed piece on GM, author James Quinn goes through the history of the company and relates that history to America’s history.

Bill Gross, managing director of the PIMCO Funds and a man whose opinion I respect immensely, wrote a report in May 2006 that compared the plight of GM with the plight of the United States.

Mr. Gross’ comments were quoted in The Market Oracle piece, and I want to quote them again here as they are extremely prescient and poignant.

"I think it is important to recognize that General Motors is a canary in this country’s economic coal mine; a forerunner for what’s to come for the broader economy. Their mistakes have resembled this nation’s mistakes; their problems will be our future problems. If the U.S. and General Motors have similar flaws and indeed symbiotic fates, they appear to be conjoined primarily by the un-competitiveness of their existing labor cost structures and the onerous burden of their future healthcare and pension liabilities. Perhaps the most significant comparison between GM and the U.S. economy lies in the recognition of enormous unfunded liabilities in healthcare and pensions."

Bingo!

If you’re concerned about the direction our country is taking — and I know you are — then I highly encourage you to read Mr. Quinn’s piece at The Market Oracle. I assure you it will be well worth your time.