Let them fail, Let them fail, let them fail


let-it-snow1

Sometimes there’s a good reason to throw something out rather than to try and fix it over and over.  In following the discussions on the automakers bailout, I  realize that there are severe consequences that will stem from a collapse of the auto industry in Detroit, but there comes a time when the current system cannot continue to be repaired, and should be left to its own devices.  If that means that GM and Chrysler will fail, they should be allowed to fail.  Perhaps what comes out of that meat grinder would be an improved system.  GM sells a lot of cars, not as many as they have in decades past, but about as many as profitable Toyota.  GM, however, cannot make money with its current business plan, as the collective bargaining agreements to which it is beholden as well as the legacy costs which it has incurred are weighing it down.  Chrysler has already received a bailout, and now that they are back asking for another one, let’s review what have they done since being bailed out.  They manufactured the Jeep and convinced Daimler AG to bail, uh, buy them out.  Daimler, makers of some of the world’s best engineered cars, got indigestion and threw them up like some bad figgy pudding.  Now they want round three!  I like the Jeep, but there needs to be more — nothing less than a wholesale restructuring of the way in which the Big Three do business.  Short-term bridge loans are really not going to achieve that result.  The Big Three’s game-plan has been to ask Congress for a handout and some help in squeezing their unions to cut wages.  To get the money, the Big Three are promising to produce greener vehicles.  Unfortunately, even Congress couldn’t get the unions to accept pay decreases.  In refusing to agree to these cuts, the unions have underscored the point that the Big Three can’t survive with their current collective bargaining agreements, and when you lump in their legacy costs, such as pension plans, I don’t see how short-terms loans are going to help them.  Perhaps then, it is time for the Big Three to fail, and have these union agreements and pension plans restructured through the bankruptcy process.  Bankruptcy filings by GM and/or Chrysler will be enormous, messy and costly as, in the current credit environment, finding the debtor-in-possession financing to fund a Chapter 11 restructuring will be arduous.  These filings will also be detrimental to the economy, as massive amounts of jobs will be lost, and consumers may not be inclined to purchase products  that require parts, service support, and warranties from bankrupt companies.  Still, these companies can’t continue to do business as they are currently structured, and auto workers are going to have to change their line of work.  The Wall Street Journal makes a good point in noting that the Big Three can’t pay their creditors in greener emissions standards, and the federal aid being requested is just a $34 billion “bridge loan to nowhere”.  Nevertheless, as they are asking for this bailout, the Big Three are engaged in high-stakes, high cost litigation with several states, including California and others that have followed California’s strict environmental standards, in a multi-million dollar attempt to avoid producing these fuel-efficient cars they are promising Congress they will build.   

We need to get real! 

The past few months have seen the enactment of TARP, the so-called $700 billion bailout plan, which has assisted companies like AIG and Citibank, and there’s now speculation that bailout money is going to pay bonuses.  Some banks that received bailout money are stating that bonuses will be down by 30%, if not 50%.  Really!  How about no bonuses at all. 

As much as I enjoy debating these issues, this may very well be a holly jolly time to just let them all fail.  I think the pieces we’ll pick up can be rebuilt into a better whole.

 

 

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