GENERAL MOTORS was the greatest American business of the 20th century. In the first 50 years of the Fortune 500 list of major US companies, GM was in first place for 37. It dominated the automobile age, helped the United States to win the Second World War and played a larger role than any other company in making America the world’s leading industrial economy.

In the 1950s President Eisenhower’s Secretary of Defence said that “what’s good for General Motors is good for America”. He received some criticism, but was telling the truth. In the postwar period GM gave American industry its global edge. Even 25 years ago GM still had a 45 per cent share of the United States market for new vehicles, more than twice that of Ford, three times Chrysler and nearly three times the Japanese manufacturers put together. Even now GM still has the largest share of the market, but it has fallen to about 27 per cent, and is still falling.

In its current issue, Fortune, the business magazine, devotes its cover story to “The tragedy of General Motors”. The report, by Carol J. Loomis, is detailed and convincing. The front cover gives a summary of the conclusions: “It is the instinctive wish of most business people that General Motors not go bankrupt. The company remains so central to the economy, so sprawling in its reach, that going into Chapter 11 would be ominous almost beyond contemplation. And yet the evidence points, with increasing certitude, to bankruptcy. ‘I know that things will turn round’, says Rick Wagoner, GM’s chairman and CEO. But he cannot know that. And deep down he may not even believe it.”

Insiders in the automobile industry have been pointing to the danger of a GM bankruptcy for some time, certainly for the past two or three years. Whichever analysis one chooses, GM is in a dire position. That is true of any financial analysis, whether in terms of the balance sheet, profit and loss account or cash flow. It is true of comparative costs. It is true of the management structure, and of market appeal. It is true of relations with labour, customers and dealers.

In Britain we have our own examples of badly designed conglomerates, but nothing on this scale. The Fortune article sums up the problem of GM’s structure: “In character, today’s GM is a weird and painfully scarred combination of businesses. It is a car company doing poorly, and it is an insurance company engulfed by obligations way beyond its ability to pay. Such an enterprise probably cannot escape bankruptcy. The securities markets flash their warnings with regularity. The prices of GM bonds have fallen severely and its stock plunged in December to below $19, the lowest price since 1982..”

At its present price, the market capitalisation of GM shares has a value of about $13 billion. That is less than the $20 billion of cash that is still in the business. It is far less than the $64 billion of unfunded liabilities for health benefits to retiring staff. In Britain we sometimes hear complaints from industry about the tax costs of the National Health Service. GM is being bankrupted by the cost of an over-generous staff health plan, a commitment made in the years of prosperity. In those days it looked like a cheap way to keep the unions quiet.

William Pitt once observed that there is a great deal of ruin in a nation. There is certainly a great deal of ruin in a large business, and GM was once the largest business on Earth. Fortune expects that GM’s recourse to Chapter 11, the twilight home for bankrupt companies, can be postponed at least until after the end of this year. It could well be postponed until long after that. It took a long generation to strip British Leyland down to its final bankruptcy; it may take a long time for GM to reach Chapter 11. There will always be some further asset to sell or some deal to be done.

In the end, there may be only four or five surviving global mass producers of automobiles. One will almost certainly be Toyota, the leading Japanese manufacturer, which is probably the most efficient producer in the world. One may be Ford; its large family holdings give Ford more flexibility than GM, though Ford shares some of GM’s difficulties. Perhaps DaimlerChrysler will survive, with a balance between Europe and North America. Perhaps there will be a second Japanese or South Korean producer or a Chinese national automobile company. There will also be surviving niche producers, outside the global mass market. GM does not look likely to be among the survivors. The Asian market and Asian production costs will be the decisive factors. At present there is hardly any component that cannot be made in China at a price well below the Detroit cost, usually about a third. Here again GM is at a disadvantage. GM sold its own auto-parts maker, Delphi, in 1999, but has retained close contractual ties. Delphi retained GM’s level of costs. Where is Delphi now? In bankruptcy.

When central businesses run into temporary cash-flow problems the banks, the stock market or even the government will often help them through. But GM is not in that sort of situation. There is so much wrong about the company that cash, though obviously critical, is not an answer. The bureaucratic management is wrong, the businesses owned are wrong, the liabilities are almost unlimited, the trade unions have already bled the company dry. Worst of all, the company is not competitive in markets or in costs.

In any case, President Bush seemed already to have decided there is no future for him in bailing out GM. Last month he told The Wall Street Journal that the automobile industry needed to cut its costs and produce “relevant” products. That is a “get lost” message to GM. In any case no Republican candidate is likely to be elected president on the Detroit vote. Perhaps a Democrat president after 2008 would feel differently. For General M otors 2008 is a long way off.

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