Thumbs down on the bailout

[jducoeur]

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...

Comments

[its-just-me.livejournal.com]

I am also in agreement despite the flogging I'm getting for having such thoughts. The union has them by the balls, and even if that weren't the case there is a bloated inventory, no hopes for getting rid of it, no feasable plan and five other things you've heard before.

[goldsquare.livejournal.com]

I agree. Injecting money into a dying business is like burning it. There are two means for reorganizing a business - a plan, or a bankruptcy.

If Michigan had come to Congress with a plan and a defined need, or had presented their old plan clearly and discussed how diminished sales had damaged their redesign plan, I'd be more sympathetic.

I'm still somewhat disturbed that the Republicans managed to negotiate almost a pre-packaged bailout and then scuttled it in a demeaning manner.

I will object to one of your comments. I looked up (not long ago) the efficiency of car manufacture itself. American car companies are as efficient as any others in terms of man-hours per car. The problem is that union labor costs are far higher per hour, and then there is the overhead for benefits and pensions, which are also far higher. As much as 2,500 or 3,000 per vehicle.

For an American car to price-compete with a non-union labor car, they have to be MORE efficient. They are. But it isn't helping.

[hudebnik.livejournal.com]

Jobs are going to be lost in Detroit, regardless of whether there's a bailout: there's a big inventory of unsold cars, and a lot of people who suddenly can't afford to buy cars, so factory lines are going to shut down, period. Giving the car companies a big loan, or even a big gift, won't change that unless they take the course of "run a factory to produce cars that we know we can't sell," which would be even worse management than they've shown so far.

If you want to keep the workers afloat, it would be much simpler and more efficient to give the money directly to the workers, e.g. through unemployment compensation. Which will happen anyway, so why do we need a bailout?

The rhetoric I've heard from Detroit CEO's and Democratic Senators keeps talking about a car company "failing", but (IMHO) intentionally conflates two notions of failure: bankruptcy and ceasing operations. A car company can file Chapter 11 without necessarily costing ANY jobs (although layoffs MIGHT turn out to be the best way out of the situation). It strikes me as another case of terrifying the public in order to get what you want, just like the invasion of Iraq.

I have to admit grudging respect for those Republican (and a few Democratic) Senators who act as though the free market meant freedom both to succeed AND to fail.

[doubleplus.livejournal.com]

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...

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.