Better to Let Automakers Go Bankrupt

It’s a bull market in bailouts. The banks were first. Now it’s the auto companies. Whose next?

The banks perhaps made sense since the whole economy collapses if there is no lending. But the auto companies? Sure, they have received government support before. But it’s mostly been about politics, hasn’t it? The fear of big unions at election time?

The problem with using taxpayers’ money to bail out the auto companies — as they are presently structured — is that their high costs of production will be left intact and North American cars will remain uncompetitive. In short, it’s not a long-term solution. Foreign manufacturers will continue to eat their lunch and there will be a need for more bailouts down the road.

The real solution is to get costs down and productivity up. The best thing then for the auto industry, taxpayers, and consumers – indeed, just about anybody not working on an auto assembly line — would be to let the car makers file for bankruptcy protection. Then they can be released from the crushing weight of their labor costs to start over in a more competitive position.

Of course, this is not good politics. Well, let’s try a more pragmatic solution then. Allow the bailout but make it conditional on changes that lead to a more competitive industry. In essence, the unions should accept a reduction of their monopoly power in the labor market.

The required adjustments will not easy. So part of the bailout could be allocated to helping workers and retirees adjust to the new realities of the global economy. From the way the economy is going now, it looks like we all will need to tighten our belts. Why should auto workers be exempt?

Comments

[K. Ramesh Babu:]

The viewpoints expressed in this article appear right. Part of the problem that Detroit faces is due to its own doing. Even if part of the R & D were directed toward developing fuel-efficient and cleaner fuel cars, they wouldn't be in this mess.

2008 Nov 13 11:51 PM

[shaky investor:]

two things have caused this board of directors decisions,and related to that labor costs have gone totally out off sight
those on the board are worried about their bail out money.
Big labor have in effect priced themselves out of a job.
Its all about money,for me too.
Shakey

2008 Nov 14 12:11 AM

[bs_o_meter:]

GM and F must reorganized under bankrupcy. if Pelosi and company allow loans to the auto industry without management and union changes, this will be just one more nail in their coffin for the next election as they will be staking their political careers on the Volt's success.

Voters are already mad. They have had enough of the Bush failed approaches. If whatever they do does not work, the voters will be in no mood to forgive.

My suggestion is for them to tread softly.

2008 Nov 14 12:15 AM

[Aceamt:]

yes we should go back to the early days of no unions the american people are fat companies should not have to pay for health care (buy your own) no (pensions) save your own money and in the government's defence eliminate social security right you saved your own retirement you don't need it and nobody should make more then 500 dollars a week (including CEO's) because the people making those cars and other products in Japan and China don't that should fix all the global economy

On Nov 14 12:11 AM shaky investor wrote:

> two things have caused this board of directors decisions,and related
> to that labor costs have gone totally out off sight
> those on the board are worried about their bail out money.
> Big labor have in effect priced themselves out of a job.
> Its all about money,for me too.
> Shakey

2008 Nov 14 12:40 AM

[Jack B.:]

I think that everyone is missing the point that GM was and is downsizing and reacting to the market place as quickly as possible. Do not forget that they will be able to hire new workers at $15.00 an hour with no benefit costs. That should drive Toyota nuts. Also did anyone forsee the BIG RIPOFF GREEDY OIL COMPANIES DRIVE GAS UP TO $5.00 A GALLON?? Any of you out there that really think all of the nonsense that the oil companies have done for the last 10 years is really for real. Ever wonder why $2.20 a gallon would go up to$3.20 in a week because a Fly sneezed in a refinery??THERE IS NO SHORTAGE OF GASOLINE. WE ALL HAVE BEEN DUPED. I used to be a die hard republican(as is most of white collar GM) I also was a UAW member for 6 years until I went into management with GM. and Now I am all in favor of letting the govt take over the oil companies. Also for the last 30 years that I worked for GM, Management was ALWAYS supporting the Republicans. How intersting that the Republicans are turning their backs on GM but are Throwing Billions at the banks and AIG so that their execs can get big bonus's and AIG can continue to throw big parties. Larry, how pompous of you to decide that the auto workers make too much money and should sacrifice their retirement benefits?? How many millions do you make Larry??? Are you corrupt like the rest of your breathen??? How would you feel when you are retired and a person like you wants cut your retirement in half. By the way Larry most retirees make $800 a month, how much did you want to cut. You sir are a BIG JERK like all of your other Republican friends. You denied GMAC any money because its not a bank. That caused GM to not be able to finance any cars or do leases.( I lose at least 5-6 customers a week because we cannot lease. I agree that GM has made many mistakes, but have you looked at their cars?? Malibu, CTS, ALL WITH TREMENDOUS QUALITY BUT its OK to help American EXpress??????What kind of bank are they??I am sure all of you baffoons will be cheering when GM goes under. WHen that Happens, I suspect that this country will go beyond a Huge depression and I do know for sure The Republicans will have caused this and will be voted out of office. After all, they and their BEST friends in the oil companies have destroyed this country. They are selfish,greedy,corrupt and deserve to have lost this last election.Everyone of you Americans should be ashamed that you have let big oil and the republicans DESTROY THIS COUNTRY. WHERE IS GAS GOING NEXT $12.00 A GALLON, DOES THAT NOT BOTHER YOU AT ALL??? IT SHOULD.... GOD BLESS AMERICA AND DAMN THE REPUBLICAN TURNCOATS...thanks for listening The GM Kid- a Decorated Combat Vietnam Veteran and 30 great years with General Motors...


On Nov 14 12:15 AM bs_o_meter wrote:

> GM and F must reorganized under bankrupcy. if Pelosi and company
> allow loans to the auto industry without management and union changes,
> this will be just one more nail in their coffin for the next election
> as they will be staking their political careers on the Volt's success.
>
>
> Voters are already mad. They have had enough of the Bush failed approaches.
> If whatever they do does not work, the voters will be in no mood
> to forgive.
>
> My suggestion is for them to tread softly.

2008 Nov 14 01:14 AM

[Lazaris:]

All the talk about not bailing out the automakers, where is it going to stop etc.. is nothing but another attack on labor and unions.
For your information, the U.A.W. has already agreed to all replacement workers wage to be reduced 50% to $14.00 per hour
and the the union is going to assume the retiree health care liability
(gm will pay into it then they are done with it) so GM's labor and legacy costs have already been addressed.
And when GM, Ford and Chrysler are paying half the wages, do you think ANY of that savings will be passed onto the consumer. The price of that vehicle wont go down a dime. All that savings will go into CEO bonuses, to the stockholders, etc...
But all you labor and union bashers will sure be happy won't you, to see us take that huge pay cut, that's all the less we will have to spend WHERE YOU WORK.
Oh, and by the way, labor unions helped create the middle class in this country, which is disappearing just as fast as the bailout money to the banks is.

2008 Nov 14 01:28 AM

[Jack B.:]

AMEN!!!!


On Nov 14 01:28 AM lazaris wrote:

> All the talk about not bailing out the automakers, where is it going
> to stop etc.. is nothing but another attack on labor and unions.
>
> For your information, the U.A.W. has already agreed to all replacement
> workers wage to be reduced 50% to $14.00 per hour
> and the the union is going to assume the retiree health care liability
>
> (gm will pay into it then they are done with it) so GM's labor and
> legacy costs have already been addressed.
> And when GM, Ford and Chrysler are paying half the wages, do you
> think ANY of that savings will be passed onto the consumer. The price
> of that vehicle wont go down a dime. All that savings will go into
> CEO bonuses, to the stockholders, etc...
> But all you labor and union bashers will sure be happy won't you,
> to see us take that huge pay cut, that's all the less we will have
> to spend WHERE YOU WORK.
> Oh, and by the way, labor unions helped create the middle class in
> this country, which is disappearing just as fast as the bailout money
> to the banks is.

2008 Nov 14 01:48 AM

[PeteK:]

When politicians promised too much,
there's no way out for them.

2008 Nov 14 02:55 AM

[PeteK:]

lazaris,
It is what they had done in the past that makes it beyond repair.
They can agree whatever they want but it's too late now.
Remember the old newspaper said : "UAW won't Blink." during a Strike ?
Now blink all they want, but won't help. Plus, Americans have not much
confidence on the products they made. Just a sad situation.

2008 Nov 14 06:02 AM

[Mister Jimmy:]

Larry, I understand why a Canadian would voice this opinion, but unlike your country, the U.S. has no national health care plan. Private companies insure their employees, which is precisely the main reason companies like GM are in trouble. Foreign competitors Toyota and Honda also have nationalized health care plans, giving them a competitive advantage.

If GM goes BK, the other US auto companies and many, many suppliers will follow. As demand for unemployment benefits, welfare, Medicaid, and other Federal relief swells, the U.S. taxpayer will pay....and much more dearly.

2008 Nov 14 08:51 AM

[curiouscat:]

I agree. Mismanagement leads to failed businesses. That might not be nice or pretty but that is how things work. Here is a article my father wrote in 1986 about bailing out AMC - williamghunter.net/art... "American Motors is an old, weak fish with bad eyesight in a turbulent sea populated with aggressive, healthy predators. These predators are familiar - both foreign (Japanese and European) and domestic (General Motors and Ford). Some are new, unfamiliar breeds from such places as Korea.
I predict American Motors will stop making cars in Wisconsin in the near future, whether or not the state's money is used for a temporary propping-up operation." Obviously times have changed and GM is not an "aggressive, healthy predator" any longer.

2008 Nov 14 04:45 PM

[MellowGuy:]

Bailouts primarily help bond holders. Without a bailout bond holders have to assume ownership of a company and will only get a small portion of their investment back.

2008 Nov 14 06:07 PM

[Sandbuckeye:]

If I recall correctly,back when NAFTA was introduced to this country.I recall tax incentives were given to foriegn manufacturers to help them introduce their cars. The one I most vividly recall was the introduction of Toyota trucks into the U.S. and they counted them as cars because of some tax or import laws.,so they started out with an upper hand.They came into this country and opened plants that were not around major manufacturing areas and were able to hire people at a lesser wage scale. Because of the plants being new and with the lastest inovations of manufacturing,the labor didnot not have to be as mechanically inclined and were taught along the way.The foriegn auto companys looked for areas for development where they received the best tax considerations to build their plants whereas most of the American auto plants were in areas that had developed a larger tax base because of being in the area so long so as to help the tax base in that area to grow and had to pay the increase in taxes..The areas developed over the years and grew into developments that had to have improvements and grew into small cities.As far as the manufacturing of American autos,the general public wanted big vehicles to ride in and built what the public wanted and then the gas situation arose and the Hummers and big utes and large vans suffered with gas milage because the public wanted them. With the gas crunch it will take our auto companys to get up to speed and at this writting we have attained parity and beginning to pull ahead.Now with the new techno;ogy that is being introduced we will surpass the foriegn companys once again except for some of the people thinking that driving a foriegn vehicle is a status symbol. I am amazed at all my retired Republican friends who are by the way Republican mostly drive foriegn cars,even the veterans who fought in the wars against them. Yes, the companies drug their feet but they were selling vehicles and why kick the laying hens out of the hen house.I believe our troubles all came about with the drastic increase in oil and all at once. Sandbuckeye .

2008 Nov 20 11:05 PM