GM collapse would be no big deal to the military

Dear readers: It seems that everything these days centers around the ongoing economic crisis, even national security issues. Will the American public have the patience for the inevitable costs of the president’s new strategy in Afghanistan? Will billions of dollars in aid in Iraq suddenly seem intolerable? How much must the Defense Department cut its one-time burgeoning budget in the current climate? And on and on.

As such, we started asking what effect GM and Chrysler potentially filing bankruptcy could have on national security. Those images of Detroit car production halting so that workers could build vehicles for the troops serving in battle was somehow seared in my mind. The auto industry and the military are inevitable linked, I thought.

So if they file for bankruptcy, will it cost more for the military to acquire tanks and armored vehicles? And could that hold up affect the wars in Iraq and Afghanistan?

It turns out the answer is no. The American automakers largely started getting out of the military vehicle business as early as the 80s and again in the late 90s/early 00s, when the economy was booming. Government contracting rules limited profit – and the cost of building such specialized vehicles was relatively high – so the thinking was the better return on investment was in the commercial market. (I wonder if anyone in my beloved Detroit, my adopted hometown, is kicking himself now.)

Through that, a niche defense contracting market emerged, complete with its own suppliers that focus almost exclusively on military vehicles. Indeed, General Motors was awarded a mere $10 million dollars in DoD contracts in FY 08. By contrast, General Dynamics, its one-time subsidiary dedicated to military vehicles, was awarded nearly $74 million during the same period. That is, there is a whole industry completely separate from the Big Three.  The Pentagon is even issuing a statement these days that essentially says no one is sweating it if two of the Big Three file for bankruptcy because they depend so little on them for their equipment. “The domestic automotive giants had basically exited the defense business in the 1980s and 1990s,” the statement read.

That is not to say that the potential collapse of GM and Chrysler does not pose a national security threat. Certainly millions losing their job is a threat to everyone. But the military will still have its vehicles.

 

Comments

[Texasoilfinder]

As more and more of GM's problems come to light I have to admit it. Maybe bankruptsy is their best solution. It seems that GM's culture is so ingrained that changing it may be impossible. With a breakup maybe at least a ghost of GM would survive. Their locomotive division for instance. Tragicly a great company became comfortable, a recipe for disaster in a free market.GM hasn't been a market leader or innovator for many years. They managed to survive by shear size. What a tragedy coming from a once great company. Will it hurt? Absolutely. Can they reinvent themselves? Excellant question but I'm not optomistic.Like a political party that destroys itself and can not change it's culture, a company that destroys itself and can not change it's culture is I suppose progress. I suppose in a way that's a good thing, though very hurt full.