March 24, 2005

HARLEY-DAVIDSON is worth more than General Motors:
In 1955, Time named GM President Harlow Curtice as its "man of the year"; the magazine credited Curtice with steering the United States into a "new age of wide-open affluence." Because the company sold more than half the nation's cars, it could afford to pay high wages, offer generous pensions — and be grossly inefficient.

Today, amid ever-intensifying world competition, those happy days have gone the way of tail fins; GM's share of the automobile market has fallen nearly by half. And although the company is still profitable, Wall Street looks at its debt load, about $360 billion, and judges the future burden of cash outflow to be unsustainable.

So the automaker's stock has tumbled 70% in five years, its bonds have been downgraded to junk status, and the b-word — bankruptcy — is heard on Wall Street. Yet as GM flounders, another domestic motor maker is doing well. Surging Harley-Davidson now boasts a market capitalization — that is, the total value of all its stock market shares — of about $17 billion, $1 billion more than once-huge General Motors.

But here is the big news: little motorcycle maker Harley-Davidson is more financially sound than is the United States:
Just as an overconfident GM made financial commitments it couldn't keep, so has Uncle Sam incurred too many future obligations. On Wednesday, the feds announced that the Social Security trust fund would run out of money in 2041 .. Meanwhile, Medicare will empty out in 2020. And now Standard & Poor's projects that American bonds will reach junk-bond status by 2030, as pension and health liabilities surpass 200% of gross domestic product.

A reckoning is coming; in some form or fashion, the government will have to downsize its cost structure.

It would be a shame if the United States went the way of General Motors, but if present trends continue, that's exactly what will happen.

Posted by Greg Ransom