Should the fed bail GM out?
An analysis of the dilemma yielded a far simpler equation than I expected. At first I thought it was either "pay now" or "pay later." Now I'm thinking it's either "pay now" or "pay now and pay later." Here's my thinking:
While researching How Do These CEOs Keep Their Jobs, I took a look at GM's CEO Rick Wagoner. From a cursory look, and contrary to my preconceptions, he may have actually done a decent job of playing the hand he was dealt. Sure, he missed the hybrid boom, but he's also had some success in turning the company around before running into GM's insurmountable wall of labor debt.
If we bail the company out, it's just a band-aid. The problem of GM's inability to compete with Toyota et al due to its unreasonably high fixed-cost structure remains. And so does its $1 billion a month burn rate. That's why a bailout just puts off the inevitable.
I'm not sure what happens if the fed does nothing. Chapter 11 reorganization; Chapter 7 liquidation; Toyota, Honda, and Volkswagen take over the U.S. auto industry; or some combination. That's the complicated part.
I do know that the loss of jobs, personal income, and GDP will be huge, and I don't take that lightly. Still, it appears to be the only way to wipe the debt slate clean and bring the United Auto Workers union down to global competitive reality.
There may be a lot at stake here, but the choice appears to be no real choice at all. I say pay now and start the healing process. What am I missing? And if you agree, then how exactly do we get the fed to not bail them out?
(Photo courtesy of CBS NEWS)