The scaling back of General Motors

General Motors is back on the road only forty days after filing for bankruptcy. This is a good example to use of a failed business that is seeking to reinvent under state ownership itself by dramatically scaling back the size and scope of its operations. The Guardian reports that

” The US government owns 60.8% of the new GM, while Canada’s government holds 11.7% and a union-controlled pension fund has 17.5%. Creditors of the old company, who were owed $27bn (£16.67), were compensated with a stake of just 10% to the dismay of Wall Street bondholders who fought a short, unsuccessful battle for a larger slice. But the transformation has been painful for thousands of employees, parts suppliers and car dealers. Once cutbacks are complete in 2011, GM is likely to have just 38,000 blue-collar factory workers in the US, compared to 113,000 three years ago. The number of GM plants will fall from 47 to 31 and, through a clear-out of senior management, GM’s executive team will shrink by 35%.”

Leaner and meaner? There is chronic surplus capacity in the global car industry and General Motors will not be the only business to realise the burden of diseconomies of scale. Smaller businesses are frequently more nimble and innovative.