In continuing to question the government's involvement in the General Motors bankruptcy, George Will and others are now using market capitalization in their arguments. In a recent column Will recently asked whether Harley Davidson is now too big to fail given the fact that its market capitalization is higher than that of General Motors. Will is being disingenuous. All you have to do is look at the first quarter Forms 10-Q filed by GM and Harley to see the impact GM has on this (and the world's) economy. Harley employs roughly 9,300 people while GM has about 54,000 employees. Neither employment number includes dealerships but since GM dealerships significantly outnumber Harley's the margin gets much larger if you consider them. GM also disclosed in its 10Q that it makes annual purchases from Delphi (which GM spun off in the late 90's) in the range of $6.5 to $10.2 billion. So, you have to wonder about the impact of GM being liquidated on an already weak Delphi.
Anyone who is not George Will can see that GM has a huge impact on the economy and much more than market cap needs to be considered when deciding whether it is worth saving. That said, I'm not arguing for or against the government's bailout (and now ownership); I'm just saying that the decision should not be oversimplified in order to make a point.
1 comment:
I agree. Size is not measured by market cap when talking about "too big to fail" and it should not be.
GM was simply ruined by the union and sub-par managers. Oh yeah - and the cars sucked too. Maybe that had something to do with it. This is not the first time the government has bailed out an American car company that was floundering - and those other companies wound up going bad anyway (i.e. Chrysler).
The less govt involvement the better. But in this day of entitlements, govt corruption, and back-scratching, I would expect no less from DC.
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