No New Deal For Big Three

National Review: Bankruptcy, Properly Approached, Is The Best Option For U.S. Automakers

(National Review Online)  This column was written by The Editors.

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Last month, it was $25 billion. This month, it is $34 billion. Does anyone need a clearer illustration of what we’re getting into if we bail out the Big Three automakers?

Nothing in the plans they submitted to Congress this week modifies our understanding of their predicament - the only thing that has changed is that extra $9 billion added onto the amount of money they want. They are facing the same problems they faced before, and the solutions they have devised are unconvincing. A bailout for the Big Three would only postpone their day of reckoning, at which point they would be back for more money. Bankruptcy, on the other hand, would spare the taxpayers and put the Big Three on a sounder footing for the future.

House Speaker Nancy Pelosi has declared that bankruptcy for the Big Three is not an option. But bankruptcy, properly approached, is the best option. It seems that Pelosi has succumbed to the fearmongering of people such as Chrysler’s vice chairman, who said letting his company fail “could trigger a depression.” Such claims are based on faulty evidence.

The Big Three execs and their confederates in the automakers’ unions (they’re all in this together now) claim that bankruptcy would mean an immediate liquidation of their companies, the loss of three million jobs, and a reduction in U.S. personal income of $150 billion.

The first claim is based on surveys purporting to show that 80 percent of Americans would not buy a car from a bankrupt auto company, because that company might not be around to service the warranty or to provide parts. The latter two claims come from a Center for Automotive Research (CAR) study on the economic impact of letting the Big Three fail. The study assumes a major wave of supplier bankruptcies and therefore that “not only does domestic production by the Detroit companies fall to zero in the first year, but that domestic production (in the U.S.) by the international producers also falls to zero.”

The assumption that all automobile production in the U.S. will fall to zero is plainly preposterous. The Big Three will not cease to function if they enter Chapter 11 bankruptcy. They currently supply nearly half of the U.S. auto market, meaning that, as a practical matter, 80 percent of Americans couldn’t stop buying from the Big Three even if they wanted to - the “transplants” (foreign companies making cars in the U.S.) simply don’t make enough cars. Demand for cars, depressed though it may be, will give the banks - particularly the Big Three’s creditors - plenty of incentive to provide the automakers with “debtor-in-possession” financing, which will keep them operating through bankruptcy.

Without bankruptcy, however, the Big Three will continue to struggle with labor contracts that have left them unable to produce cars cost-effectively. The United Auto Workers union made vague gestures toward reform after a meeting Wednesday afternoon, but offered few specific concessions. The union refuses to give up the work rules and product commitments that have hobbled the Big Three’s ability to shed jobs and eliminate brands in response to market signals. A bankruptcy judge could throw these provisions out and force the automakers’ unions to accept reality.

Even though a radical restructuring in bankruptcy would redound to the Big Three’s long-term benefit, the auto execs are opposed to it because there is nothing in it for them. This is the kind of short-term thinking that led these companies to their present straits. Rewarding them would open the door for any number of large companies to cry “Great Depression” the next time they want a bailout. In this case, the only thing we have to fear is the fearmongers themselves.

[hitoyou11]

No bailout. If we bail thge auto companies out, every company in the U.S. will be asking for money. NO. NO. NO. NO. NO. No BAILOUT. THe comgerss is wrong to give tax payer monay away. 63% of the people say no bailout.

[lewiston14]

"auto execs are opposed to it because there is nothing in it for them"

That says it all.
Good read

[hitoyou11]

If I don''t run my house the right way, save money for the bad times, I loss. So why is it that the Auto Companies cab do as they please and then ask the tax payer for 35 Billion and it is ok? It is not ok. NO BAILOUT. TO HE___LL WITH THE CAR COMPANIES.

[forasongca]

The US auto industry has been making this particular bed for the last 30-40 years, fighting every safety and mileage improvement and forcing the foreign carmakers to reduce imports in the early 80s rather than taking the opportunity to (*gasp*) try to make better cars. I say let them die in it. American cars last five or six years; Japanese cars last 10-15 years. ''Nuff said.

[joepack61]

Starting around 2010, new UAW workers will start at $14.00 per hour pay under concessions already made by the UAW. Landscapers and construction workers can make around $18.00 per hour pay, believe it or don%u2019t.

[joepack61]

As pointed out in testimony today, the US automakers have finacial units that should qualify for the $700 billlion TARP money, but they have been denied so far. Have not the other financial companies like CitiCorp that have recieved billlions of TARP bailout money not been mismanaged too? If it weren''t for these companies that caused the financail meltdown and received billions of BAILOUT Tarp money from the government, we wouldn''t even be talking about the U.S. Three.

[joepack61]

Consumer Distorts magazine carries some blame for the decline of the Detroit 3. They seem biased towards the imports. They compared the Pontiac G6 to the Nissan Altima in one issue. The two were almost identical in the numbers comparison, and the G6 exceeded in some categories like braking distance. Yet the CR eggheads gave the nod to the Altima because the G6 "had a small backseat." It is only up to the consumer to decide if the backseat is too small for their purposes. These same eggheads gave the Chrysler Pacifica a "recommend" rating in an early model year, but then revoked that same "recommend" in later years because the %u201Cwindow beltline was too high%u201D, something that never changed in the vehicle, is entirely subjective, and didn%u2019t bother around 60,000 buyers each year.

[joepack61]

I see early model Ford Contours (1996 and 1997) and Ford Tauruses on the road. Many people confuse durability with initial quality (how many times the buyer under warranty goes to the dealer for any little complaint about any little squeak or rattle). Edmunds dot com consistently lists many US models as a "best used car value".

[ltthomas13]

This is the end result of the union experience...greedy and lazy workers who want higher compensation for less work.
This is the end result of over the top executive compensation...greedy suits flying around in corporate jets and not understandingy why it''s a bad idea.
This is the end result of the free market...consumers will no longer pay for a very expensive product that is inferior to the product of the international transplants (Honda and Toyota) that remain profitable.

Is anybody really surprised. If so, you probably are an exec at one of the big three or a member of the UAW.

[jeannettelj]

At first I was all for the government helping the auto industry. Now, after all that I''ve been reading I am absolutely against it. They have dug their own grave and the UAW gave them the shovel. Paid for not working, sleeping and cooking meals while they were suppose to be working, getting paid $400. per week if they are laid off, getting their health insurance paid for when laid off, and so many other things that make the rest of look like fools for working and making an honest living. When we get laid off we have to file for unemployment and wait 3-6 weeks for a check. They need to file for bankruptcy and let the chips fall where they may.

[salliemb]

SO, NANCY PELOSI SAYS BANKRUPTCY IS NOT AN OPTION FOR THE AUTO MAKERS. WELL, WHO DIED AND MADE HER THE SUPREME DECIDER? SHE NEED TO LISTEN TO THE AMERICAN PEOPLE. OVER 60% SAY NO TO A BAIL OUT. THE AMOUNT THEY WANT KEEPS GOING UP. FIRST $25 BILLION AND THEN $34 BILLION AND NOW SOME ARE SAYING $75-125 BILLION. WHERE IS THIS MONEY COMING FROM? THE $700 BILLION BAIL OUT FOR THE FINANCIAL INSTITUTIONS HAS DONE VERY LITTLE IF ANYTHING. NOW WE ARE ASKED TO BAIL OUT AN INDUSTRY THAT SPENDS MONEY LIKE THERE IS NO TOMORROW. MANYBE THERE SHOULD BE NO TOMORROW FOR THEM.

[imnho]

Letting the big three go under to distroy the UAW is penny wise and pound folish. If the automakers go under it is likely that they will bring the economy over the cliff as they go under. They need a conditional bailout.

[rational_1]

Letting the big three go under to distroy the UAW is penny wise and pound folish. If the automakers go under it is likely that they will bring the economy over the cliff as they go under. They need a conditional bailout.
Posted by IMNHO at 10:47 PM : Dec 04, 2008

Did you not read the article? What proof do you have they would go under? Just because a company goes into chapter 11 doesn''t mean it''s the end of that company. United Airlines is a case in point. If we give the Big 3 any money it will just delay the inevitable. Again United Airlines is a good example - they underwent significant reorganization before emerging from bankruptcy. The car companies should do likewise. By the way, if we bail out the car companies, why not also Circuit City? A bunch of people will be losing their jobs due to Circuit City going bankrupt. And if we bail out Circuit City why not the corner Mom and Pop grocery store who might otherwise have to lay off a stockboy? Where does it end?

[sparks224]

The Conservatives had no problem handing $700 Billion to their banking freinds, no questions asked.

They want the auto companies to file for bankruptcy because it will destroy the UAW. It''s about union busting plain and simple.

Conservatives are at least very consistant.

[spinproof]

"Last month, it was $25 billion. This month, it is $34 billion. Does anyone need a clearer illustration of what we%u2019re getting into if we bail out the Big Three automakers?"

U.S. Automakers were asked to revise their business plan not their figures, adding $9 billion to the request was an error and makes the entire request now look shady, they know how Americans think, it was a dumb move that may sink their entire effort. Chrysler was already bailed out before and now they want to be bailed out again, sorry, only one bailout per customer!

[hitoyou11]

What a wast of time. Letting them go to the hill was a wast. They are no good. Let them "CLOSE" SOON. Real soon, like today.

[hitoyou11]

The Conservatives had no problem handing $700 Billion to their banking freinds, no questions asked.

They want the auto companies to file for bankruptcy because it will destroy the UAW. It''''s about union busting plain and simple.

Conservatives are at least very consistant.

More name calling. What deos this do. Does it make you look like an IDIOT? YES.

[peteeupnorth]

I do not understand why when anybody interviews this Governor of Alabama who does not!! want the bail out for the big three will not ask him how many foreign car companies have manufacturing plants in Alabama if the big three are gone this would line his and Alabama pockets immense''ly.

[noloyalisti]

Why don''t they just listen to Michael Moore? Fire the current right wing Bush supporter CEO failures and then tell them what they are going to build, when they are going to build it and how much it will cost. Simple.

[kdub0035]

I don''t understand why the gov''t needs to buy out the big three. If they do, the public still won''t have the money to pay for a vehicle so more and more cars will just be sitting in the car lots and we will be having this same conversation in a year when it doesn''t work. The reason automakers are going under is because we don''t have the money to buy their vehicles. So why doesn''t the gov''t give $50,000 to every tax payer making less than that a year so that we can put that money back into the economy ourselves?

[paton7]

I see no reason our Goverment has to bail out the 3 big car manufacturer. I believe if everyone who works for these companies whether it be blue collar, white collar or for the multitude of people who sell there products should all be taking consessions to save there own jobs at least through the remainder of this contract and maybe the next one and get there selfs out of debt. You would think that the union and nonunion workers alike would be better off with a cut know then to lose there job forever. It would be interesting to know the 3 big ones yearly payroll including the bonus they give out. I would think that even 5% a year of there total payroll would go a long way. paton

[hitoyou11]

The big3 abd the UAW mean nothing in the BIG PICTURE. The U.S. will, and can get along without them. Let them shut down, and stop all the B.S. There are better things to spend the time on. Like housing.

[ksc5408]

So let me see if I have this right. AIG and several others in the financial world get billions of dollars with no questions asked. Of course that is following them playing a shell game with the American public and after getting the money continuing to give bonuses and trips to executives. None of that money, that was supposed to free up credit was dictated by government to be used for lending....

The auto industry produced thousands of SUV''s purchased by the American public almost faster than they could be produced. We wanted those SUV''s and purchased them without being forced to do so. The auto industry produced what the American public wanted and now their the bad guys????

The American auto industry has always been known for muscle. If you want to tow a boat or travel trailer, you buy American. The foreign car industry has always been known for fuel efficiency. As the price of fuel changed, the American auto industry has done a substantial amount of research and development and produced several fuel efficient cars. Change in any kind of business takes time.

So while we are handing the fiancial companies free money at main street''s expense, we are running our auto executives through the mill.

This is very unfair. As for Thomas Friedman, the company that offered $1.99 gas to car buyers was Crysler, not GM. If you''re going to fight the fight, get your facts straight.

concerned main streeter