This post is only loosely related to supply chain, but the death spiral of GM, Chrysler, and I think to a somewhat lesser extent Ford is certainly sad to watch.

How many years has it been going on now? All three were losing big dough even in the relatively good times of the past few years. Then came high gas prices, which killed sales of highly profitable SUVs and trucks, and they are now in deep, deep trouble with the credit crisis, which hits auto companies as bad as the home builders, and the recession.

What is just hard to really grasp is the scope of the cost structure that GM and the others built. I mean, with US automakers in a multi-year decline, they are still paying hundreds of millions or maybe even billions per year for the idle workers playing cards in the “jobs bank.”

The health care costs were staggering. The cost per vehicle to GM for retiree health care costs, not even current employees, was said to be $1400. That was before it shed many of those costs with the union agreement in 2007 that put the UAW in charge of retiree health care – after GM seeded the program with $50 billion.

$1400 per car; hundreds of millions to job bank workers; $50 billion in seed money for health care. It’s almost like it was surreal, if you really stopped to look at it.

Word also came today that parts maker Delphi, the unit GM spun off a few years ago and which has been in bankruptcy for three years now, received $5.69 billion from GM in the third quarter. The funds came in the form of cash as well as GM's assumption of certain unfunded pension liabilities for Delphi's work force, all related to terms of the original spin off. Now a deal is a deal, but $5.69 billion more out the door in GM’s current condition?

This is no way to run a railroad. 

Yes, the US OEMs need to design cars customers want to buy and all that, but the cost structure and financial position GM, Ford and Chrysler put themselves in for the future when times were good is just hard to comprehend. 

The pain of strikes and labor strife is very real and understandably to be avoided, but not at all costs, it should seem clear now. I am also happy to see autoworkers make a good living, as they do at Toyota and Honda. But the legacy cost structure for GM is just insane.

The airlines used bankruptcy to bail themselves out of much of these legacy and structural costs. The OEMs want to avoid that path, especially Ford, as a lot of the Ford family’s wealth is in Ford stock, which would be wiped out in bankruptcy. A government bail out of some kind is almost assured.

Will that help? Who knows.

The whole thing boggles the mind.

I’d love your thoughts on this.