Alex Filonov

The Right Kind of Bailout

There are no good options here, the choice is between bad and worse. Which is compounded by the main problem at GM and Ford: they didn't make money on vehicles even in good times. Main source of profit was in financing, GM and Ford were making money like banks. Now, when banks lose money, Detroit is doomed. I don't know situation at Chrysler, but GM and Ford don't have anything to survive in their current shape. No bailout would help. Bankruptcy might, especially if it frees companies of their union contracts and pension obligations. BTW, bankruptcy will trigger automatic rescue from government, because gov will have to take over pension obligations. But even then, both companies have to go through drastic restructuring, closing at least 50% factories each, streamlining development, retooling and doing a lot of things which require a lot of money (and the source of this money?...)

Nationalization, proposed by some, is not a cure, it's a funeral. The only examples I know are Britain and France. There is almost no auto industry in Britain anymore. In France, Renault cost taxpayers huge money until it was finally privatized. If we don't want national automakers in this country, then let's nationalize them. But I'm afraid it's cheaper to close them outright and just pay pension to all workers.