Perspectives on the US Government Bail-Out of the Auto Industry

The US government is still struggling with the issue of what to do with the big car manufacturers (whose CEOs flew to Washington on separate private jets to ask for billions of dollars of government money to help their companies survive). Yesterday, Congress set a deadline of December 2nd for the car makers to present a plan to show how they would become financially viable.

Should the government be bailing out these companies?

Wall St Journal:

"Big companies. Big numbers. It is hard for any politician to say, “So what, let them go bankrupt.” But the sad reality is that to save Detroit, Washington will have to destroy Detroit. A merger of GM and Chrysler won’t do away with Detroit’s ever-expanding pension and health-care liabilities or its onerous UAW contracts. And it won’t fix the Big Three’s issues with poor product design or quality control. The Big Three needs a radical restructuring dictated by the bankruptcy process–or some variation on it–and not a government plan that tinkers with the status quo. So here is a proposal: Let each of the Big Three do what is in the interest of its shareholders and creditors. Let them try and merge with each other–if they can. Let them each file for bankruptcy-law protection–when or if necessary. When Chrysler goes bankrupt, let GM or Ford or a foreign rival pick up Chrysler’s assets on the cheap. If GM or Ford head into bankruptcy, let the government step in–but only on punitive terms.

Punitive terms? Reduce all management, worker and retiree pension and health-care benefits. Remove all union contracts. Replace senior management and the boards. Haircut the creditors and recapitalize the companies."

BusinessWeek:

"Washington would impose conditions and promise strict oversight, but it simply can't push through the kind of transformative change the industry needs. There would be too much political opposition, and regardless, the bailout sums being bandied about—$25 billion of taxpayer dollars, for starters—would only keep the Big Three heaving along, basically as they are. It's a life-support solution, not a cure.

That's why the boards of the automakers should take the courageous step of putting their companies into bankruptcy."

Harvard Business Publishing:

"The same people who want GM to live or die on its own will often use Darwinian concepts of "survival of the fittest." But evolution is about life or death, eat or be eaten.

If you see a dog about to be hit by a car, you don't say, "that dog deserves to be weeded out," or "What about the other dogs that are competing for kibble?"

No; you save the dog. Business isn't about evolution, it's about existing lives. If we can spare some suffering, why wouldn't we?"

New York Times:

"If G.M. or Chrysler were to go under, tens of thousands of people would be thrown out of work. Pensions would be in danger, potentially putting taxpayers on the hook for the bill. Auto suppliers would start defaulting on their debts. Dealers would close. But if General Motors and Chrysler were to merge, with some sort of government assistance, the story might end pretty much the same. The combined company would probably limp along, laying off thousands of people every few years. Then — bet on it — G.M.-Chrysler would come back and ask for another bailout. It has happened before: Chrysler was rescued by the government over two decades ago. Now here it is again, cup in hand.To make a combined General Motors-Chrysler work — let alone flourish — the company would need to do everything that is impolitic. It would have to virtually win big concessions from the U.A.W., cut salaries and benefits, and lay off a lot of people, fast. Oh: and it would also have to make cars that people actually want to buy. Washington cannot help there."