![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
Entry tags:
Thumbs down on the bailout
Loathe though I am to agree with the Republicans, on balance I'm coming to the conclusion that they're right about the auto bailout.
It's probably true that going Chapter 11 would cause GM an enormous amount of short-term pain (and Chrysler might well just go under), and it's true that there would be a nasty, sharp contraction as a result. That said, if it was packaged correctly, I suspect that it would correct much more efficiently: it would rip the bandage off, and allow the industry to do the necessary restructuring fast. It would to a substantial degree break the UAW (which, even granting that it does *some* good, is doing too much harm at this point), and probably come out with a GM that was smaller but ready to fight back much more quickly.
And I suspect that much of the PR debacle could be offset if the company, from the start, aggressively painted this as "reorganizing to be stronger". (And, frankly, played the national-pride card hard.) They have to move off the defense publically, changing both their thinking and look into that of a scrappy competitor. Granted, they've shot themselves in the foot on this particular point (over and over and over again in recent weeks), but public attention is fickle, and I'd bet that it could still be turned around.
Chapter 11 and the bailout both have essentially the same medium-term goal: restructuring the auto industry to make more *sense*. The difference is that Chapter 11 would probably be much faster and more efficient, because the legal power to change would be stronger. And really, it would be more honest. The bailout has this image of "saving jobs" and suchlike, but that's nonsense -- the whole *problem* is that GM is ridiculously inefficient, and there's no way to save it in the long run without lots of pain. So the choice is between dragging that pain out over the course of years (the bailout) or getting it out of the way in a horrible shock (Chapter 11). The latter would be much nastier in the short run, but I suspect better a year or so down the line...
It's probably true that going Chapter 11 would cause GM an enormous amount of short-term pain (and Chrysler might well just go under), and it's true that there would be a nasty, sharp contraction as a result. That said, if it was packaged correctly, I suspect that it would correct much more efficiently: it would rip the bandage off, and allow the industry to do the necessary restructuring fast. It would to a substantial degree break the UAW (which, even granting that it does *some* good, is doing too much harm at this point), and probably come out with a GM that was smaller but ready to fight back much more quickly.
And I suspect that much of the PR debacle could be offset if the company, from the start, aggressively painted this as "reorganizing to be stronger". (And, frankly, played the national-pride card hard.) They have to move off the defense publically, changing both their thinking and look into that of a scrappy competitor. Granted, they've shot themselves in the foot on this particular point (over and over and over again in recent weeks), but public attention is fickle, and I'd bet that it could still be turned around.
Chapter 11 and the bailout both have essentially the same medium-term goal: restructuring the auto industry to make more *sense*. The difference is that Chapter 11 would probably be much faster and more efficient, because the legal power to change would be stronger. And really, it would be more honest. The bailout has this image of "saving jobs" and suchlike, but that's nonsense -- the whole *problem* is that GM is ridiculously inefficient, and there's no way to save it in the long run without lots of pain. So the choice is between dragging that pain out over the course of years (the bailout) or getting it out of the way in a horrible shock (Chapter 11). The latter would be much nastier in the short run, but I suspect better a year or so down the line...
no subject
With all due respect, this statement especially, and most of your reasoning here only comes close to making sense if you consider the auto industry in complete isolation without regard to the economic environment that has brought us to this point. While there's lots of talk in the media about the UAW and bad management decisions and so on (and remarkably little about brands and dealerships, which are a huge part of the problem), the reason they're in danger of going under now is that credit is nonexistent and auto sales across the industry are down more than 30%, neither of which are the result of any action by these companies. For Chapter 11 not to result in liquidation, it requires credit that would add up to a massive amount for companies of this size, at a time when the unavailability of much smaller levels of credit is the exact short-term problem they're asking for help in dealing with. And on the results side, it's not hyperbole to say that the effect of a "nasty, sharp contraction" of the country's largest industry with the current state of the economy could be the difference between a nasty recession and a worldwide depression. Even if you believe that's necessary for the auto industry, doing it a year or a year and a half from now would be infinitely better than doing it when the economy is already in its steepest decline in decades.
no subject
Quite the opposite, I think. It takes into the account the fact that money for a bailout has to come from someplace - i.e. the taxpayers, and money you use on a losing proposition is money that wasn't used on winning ones. Every dollar used on the bailout is a dollar not used for food, or housing, or medical expenses, or investing in companies you think might actually add wealth to the economy.
Even if you believe that's necessary for the auto industry, doing it a year or a year and a half from now would be infinitely better than doing it when the economy is already in its steepest decline in decades.
So why back a loser. As a thought experiment, what makes any bailout plan the government is likely to come up with better than taking that money and giving it to the winners with the thought of expanding into the territory Chrysler and G.M. leave behind? Giving the money to Toyota, Honda, and yes, Ford, surely would make better sense - they've demonstrated they can operate their companies at a profit.
It is at least partially true that GM and Chrysler don't have much to do with the economic climate, but they do have a great deal to do with their preparations for it. It's no accident Ford isn't in trouble right now - they made moves anticipatory of the downturn in sales and the credit crunch.
no subject
Besides the points made by
First, and perhaps most importantly, there is a *vast* amount of credit sitting on the sidelines -- several trillion dollars by most estimates. That money is waiting for *confidence*: it wants to know that businesses are looking like they are going somewhere.
The bailout is likely to do nothing but hinder that process. It's a tacit (indeed, maybe explicit) admission that this company is dreadfully broken and mismanaged. Moreover, it gets the government involved in a weird ownership stake, with new and ill-defined rules. That means that nobody *outside* the government is likely to invest in it for many years, until that's unwound.
(You'll note that Ford is at pains to emphasize that it neither expects nor wants to take the government's money -- it just wants a backup plan in case things go much worse than they expect. This is probably part of why.)
By contrast, the sharp shock of Chapter 11 is likely to get to an investable state much more quickly, because they'll have court power to untie the complications. Especially if they come up with a plausible plan (much, much easier if they have that court power), they're more likely to be able to convince those investors on the sidelines that there's a real opportunity here. By breaking the union contracts, closing unprofitable business lines (which I gather are in some cases constrained by state laws), and wiping out existing equity, they could pretty quickly turn the company into a very attractive investment proposition. But most of that can't be done by a bailout, even with a supposedly-powerful "car czar".
Further, the fall in sales is at least partly their own damned fault. You'll note that the fall is not consistent across the industry -- it's especially noticeable that GM's sales have fallen significantly further than the industry average, and Ford's significantly less. To me, that's a clear sign that the consumer market has *already* priced GM's bankruptcy in. That is, everyone has gotten the message (sent mostly by GM itself) that GM is about to go bankrupt, and you shouldn't buy from a bankrupt company. It's not clear to me that a bailout is going to do a damned thing to change that: it doesn't make a qualitative difference to that message. Do you really see people as more likely to buy GM after the bailout? Personally, I think it's *less* likely -- I think it'll just worsen the death-spiral.
To put it more bluntly: it's not clear to me that a bailout of GM will do anything but stave off the inevitable for a few months. They need major qualitative changes in both their business and their image, and it's not clear to me that anything *except* Chapter 11 can bring that about, because their hands are tied in too many ways they can't change without court backing. So that bailout money seems likely to simply get poured down a black hole, as effectively a short-term job-insurance program. Which is a fine thing to want, but if that's the real desire, there are better ways to do it...