GENERAL MOTORS 4
TheU.S. Government-proposed bankruptcy plan on General Motors (GM)
Thecost of the bailout plan by U.S government plan on GM was necessaryto avert economic catastrophe given the prevailing economicconditions and also securing the welfare of the vast employees.However, even if one accepts this premise, the government could haveexecuted the bailout plan more efficiently with no net cost on taxpayers. The government would have required the United Auto Workers toaccept standard bankruptcy concessions. There was no rationality ingiving auto workers (UAW) special treatment through subsidies thanother creditors and unions (Nikolai, et al. 2013).
Assuch the bailout plan would cost taxpayers billion of dollars. Underthe bankruptcy law, all similarly situated creditors get sametreatment in the event a company goes bankrupt (Nikolai, et al.2013). GM’s workers are the most highly paid in the United Statesautomobile industries and as such they would have been required totake pay cuts as a condition for bankrupt companies. In normalbankruptcy, the pay and benefits to union workers would have beenreduced to prevailing market rates. If GM’s would have cut laborcosts to market rates this would have reduced operating costs and theamount of government infusion of bailout funds saving billions oftaxpayers money. The bailout was more of UAW bailout than GM Companyas huge funds were diverted to UAW.
However,the bailout plan was advantageous to the UAW members. Without thegovernment infusion of funds, would have forced the Union to increasemembers retirement age. In addition, members would have been requiredto wait till they attain 60s in order to collect health benefits. Theunion would have to reduce benefits for retirees enrolled in Medicareand the retiree benefits would have become adequate supplement toMedicare. Smaller bailout would have reduced UAW labor cost which inturn would have meant low standard of living. Overall, cuts inbailout would have been detrimental to company’s reorganizing forbankruptcy (Nikolai, et al. 2013).
Nikolai,Bezey & Jones 2013, ‘ACPIAC CS EBK Undergraduate Accounting Capstone’1 Year, 11th ed. Course Smart Cengage Publishers. Retrieved fromwww.coursesmart.com/acp–iac–cs–ebk-for-undergraduate–accounting/…jones/…/9781285985169