Several people are pointing to the British auto industry back in the 1970s. Apparently, they went through this same sort of thing, and the government intervention screwed them all up. Go figure, huh? The bottom line is that a bankruptcy and relaxing of the CAFE standards is the absolute best way to fix the real problems in Detroit. In other words, kick the government as far out of the picture as possible!
Here are some of the reasons bankruptcy is best:
[C]onsider that the fundamental question to ask of any firm facing bankruptcy is whether it is "economically failed" or simply "financially failed."
If a typewriter manufacturer were to file for bankruptcy today it likely would be considered an economically failed enterprise. The market for typewriters is small and shrinking, and the manufacturer's financial, physical and human capital would probably be better redeployed elsewhere, such as making computers.
A financially failed enterprise, on the other hand, is worth more alive than dead. Chapter 11 exists to allow it to continue in business while reorganizing. Reorganization arose in the late 19th century when creditors of railroads unable to meet their debt obligations threatened to tear up their tracks, melt them down, and sell the steel as scrap. But innovative judges, lawyers and businessmen recognized that creditors would collect more if they all agreed to reduce their claims and keep the railroads running and producing revenues to pay them off. The same logic animates Chapter 11 today.
General Motors looks like a financially failed rather than an economically failed enterprise -- in need of reorganization not liquidation. It needs to shed labor contracts, retirement contracts, and modernize its distribution systems by closing many dealerships. This will give rise to many current and future liabilities that may be worked out in bankruptcy. It may need new management as well. Bankruptcy provides an opportunity to do all that. Consumers have little to fear. Reorganization will pare the weakest dealers while strengthening those who remain.
If a typewriter manufacturer were to file for bankruptcy today it likely would be considered an economically failed enterprise. The market for typewriters is small and shrinking, and the manufacturer's financial, physical and human capital would probably be better redeployed elsewhere, such as making computers.
A financially failed enterprise, on the other hand, is worth more alive than dead. Chapter 11 exists to allow it to continue in business while reorganizing. Reorganization arose in the late 19th century when creditors of railroads unable to meet their debt obligations threatened to tear up their tracks, melt them down, and sell the steel as scrap. But innovative judges, lawyers and businessmen recognized that creditors would collect more if they all agreed to reduce their claims and keep the railroads running and producing revenues to pay them off. The same logic animates Chapter 11 today.
General Motors looks like a financially failed rather than an economically failed enterprise -- in need of reorganization not liquidation. It needs to shed labor contracts, retirement contracts, and modernize its distribution systems by closing many dealerships. This will give rise to many current and future liabilities that may be worked out in bankruptcy. It may need new management as well. Bankruptcy provides an opportunity to do all that. Consumers have little to fear. Reorganization will pare the weakest dealers while strengthening those who remain.
So why are the Big 3 and the unions so desperate to prevent a bankruptcy? It's politics, so follow the money. Both the top leadership of the Big 3 and the unions will likely have their pay cut into little pieces through the process. They are quite happy to let the American taxpayer shovel money into their clogged toilet, as long as they get their fat checks. People are figuring this out, though, and a majority of the country believes that these problems are of the industry's own making and oppose this bailout (and, by the way, they don't believe bankruptcy will collapse the economy). Interestingly, even 53% of union workers oppose the bailout. As I've said before, the problem is the unions and the business model:
It's absolutely true that the Big Three are buckling under the weight of massive health-care obligations, but this is because the companies over-promised benefits to their retirees — a mistake their competitors with U.S. manufacturing plants are not making.
As Shikha Dalmia explained in this piece from more than a year ago, before concessions were made in 2005, the typical UAW retiree got all of his health care, for life, virtually for free — and most blue-collar workers were retiring well before age 65. Today, after concessions, the typical UAW retiree still has to pay only about $750 out-of-pocket for his health care per year, which is far below what most other Americans, including retirees, pay. Consequently, GM alone is facing an estimated $80 billion in unfunded health care expenses.
The Big 3 made promises to workers years ago, and those promises were unsustainable. It sucks for those people who are relying on those benefits, but the fact of reality is that those promises cannot be honored any longer. The answer is not to bail them out, but to force those companies to revise their commitments and come up with a workable, sustainable business model that does the least amount of damage to the least number of people. Letting them continue uninterrupted will not correct anything, but bankruptcy will force those critical changes.Another interesting conclusion in the Wall Street Journal is this:
Those Washington politicians who repeat the mantra that "bankruptcy is not an option" probably do so because they want to use free taxpayer money to bribe Detroit into manufacturing the green cars favored by Nancy Pelosi and Harry Reid, rather than those cars American consumers want to buy. A Chapter 11 filing would remove these politicians' leverage, thus explaining their desperation to avoid a bankruptcy.
Sound familiar? The secret's out. The government is using the problems in the auto industry to try to force the greening of that industry. Case in point:
Environmentalists are already salivating at the opportunity to force Detroit to make more environmentally friendly cars. They will try and exploit this situation to have the Car Czar order green technology, even if the demand for small plug-in cars is lower than the demand ordered by D.C. bureaucrats.
"I want to see the precise production plans and timetables for the hybridization of all your cars and trucks within 36 months," writes Thomas Friedman of The New York Times. "I want every bailed-out car company to move to hybrid electric drive trains, because nothing would both improve mileage and emissions more -- and also stimulate a whole new 21st-century, job-creating industry: batteries."
If "batteries" and "hybridization of all your cars and trucks" would make Detroit competitive, don't you think the highly educated managers of GM, Chrysler and Ford would have already transitioned to Al Gore's dream of a Prius in every American garage? As a proud owner of an American-made, gas-guzzling Jeep Liberty, I would argue that not all Americans want to drive a tiny, battery-powered mini-car, especially now that gasoline prices have dropped.
Markets make better decisions than politically motivated government officials.
"I want to see the precise production plans and timetables for the hybridization of all your cars and trucks within 36 months," writes Thomas Friedman of The New York Times. "I want every bailed-out car company to move to hybrid electric drive trains, because nothing would both improve mileage and emissions more -- and also stimulate a whole new 21st-century, job-creating industry: batteries."
If "batteries" and "hybridization of all your cars and trucks" would make Detroit competitive, don't you think the highly educated managers of GM, Chrysler and Ford would have already transitioned to Al Gore's dream of a Prius in every American garage? As a proud owner of an American-made, gas-guzzling Jeep Liberty, I would argue that not all Americans want to drive a tiny, battery-powered mini-car, especially now that gasoline prices have dropped.
Markets make better decisions than politically motivated government officials.
But it's not just the auto industry that is at stake here, as the quote above indicates. We're talking about the fundamental understanding of how we want America to be. It really does come down to socialism versus capitalism. Ignore the politicians when they say that capitalism failed - the only failure here is that of government (by forcing ridiculous CAFE standards, for example). It's dishonest to say that capitalism failed when it was shackled to begin with.
[T]his legislation furthers the march toward a managed economy. Sen. Richard Shelby (R-Ala.), a staunch opponent of bailout fever, expressed his overriding concern with the government's credo that some businesses are too big to fail. Last week at a Senate hearing on the bailout, he declared that "the strength of the American economic system is that it allows us to take risks." Risk means that businesses need to be allowed to fail, or America will slip into a system where big companies will enjoy privatized gains and socialized failure.
When we get socialism, then we also get policies driven by politically motivated government officials rather than common sense, economics, or freedom. The potential forced greening of the auto industry is a prime example - some people want to buy hybrid cars. That's fine, they should be able to. But, not everyone wants them. If the environmentalist wackos (and Congress) get their way, they will artificially force the market into cars that most Americans don't want, partly because they are more expensive and less safe. And yet, when the government controls the industry, this is what will happen.
And it won't stop with the auto industry. Congress forced mortgage companies into approving risky loans based on stupid and irrelevant factors like race rather than sound factors like income level. And now look where that meddling has put us? They're currently manipulating the banking industry to take controlling shares in huge financial institutions, which means the government will be able to control those institutions. Now they're looking at the auto industry.
What's next?
The auto industry is in trouble, yes. But the fix is not to nationalize it - that will only cause vastly greater problems in the long run because the government is fundamentally unable to correctly run or dictate ANYTHING as competently as the free market. That's why conservatives are deeply concerned by all of these bailouts - they are a direct, fast route to socialism because it is a direct, fast route to government control of private industries and free markets.
It must stop. NOW. Call the White House and tell them what you think.
There's my two cents.
Sources:
http://michellemalkin.com/2008/12/14/good-news-white-house-stalls/
http://corner.nationalreview.com/post/?q=MmIzMmU5ZjUxNDgyZWU1ZGI4Mjc4YjFlMGFhNTU1MWM=
http://corner.nationalreview.com/post/?q=YTYxZDI5MmVlMTg5N2IxMGRhYTEyNmE5MjJlMTdjN2Y=
http://www.nypost.com/seven/12152008/postopinion/opedcolumnists/big_3_bailout__bushs_bogus_beliefs_144207.htm?&page=0
http://online.wsj.com/article/SB122939117718809261.html
http://www.washingtonpost.com/wp-dyn/content/article/2008/12/15/AR2008121502727.html?hpid=topnews
http://hotair.com/archives/2008/12/16/abcwapo-poll-majority-of-americans-oppose-big-3-bailout/
http://corner.nationalreview.com/post/?q=ODJjMzZhYTEzMDNmNjUzMmM3ZTk1MmRiNmNjMTg0MDE=
http://www.humanevents.com/article.php?id=29849
http://corner.nationalreview.com/post/?q=MWJjNWViZTM3ODA5OGU1ZjMxZGRlOWQxZmI2NGVlODE=
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