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Thursday, November 13, 2008

Detroit: needs a restructure, not a bailout

President-elect Obama has proposed a bailout for Detroit auto firms, but this proposal reeks of political favor rather than rational economic policy.  From Tom Friedman's column on the proposed bailout:
Bob Lutz, G.M.’s vice chairman...has been quoted as saying that hybrids like the Toyota Prius “make no economic sense.” And, in February, D Magazine of Dallas quoted him as saying that global warming “is a total crock of [expletive].”
Is there any question as to why an industry led by these idiots is sinking in a down economy with gas prices having been higher?  Oh, there's the health care thing, but Friedman has a thought on that:
please, spare me the alligator tears about G.M.’s health care costs. Sure, they are outrageous. “But then why did G.M. refuse to lift a finger to support a national health care program when Hillary Clinton was pushing for it?” asks Dan Becker, a top environmental lobbyist.
It's not just the car companies themselves, their Congressional representatives have done them an ill turn, as well.
The blame for this travesty not only belongs to the auto executives, but must be shared equally with the entire Michigan delegation in the House and Senate, virtually all of whom, year after year, voted however the Detroit automakers and unions instructed them to vote. That shielded General Motors, Ford and Chrysler from environmental concerns, mileage concerns and the full impact of global competition that could have forced Detroit to adapt long ago.
 In other words, we should finally show them the tough love, or we'll be doing this all over again. 
“In return for any direct government aid,” he wrote, “the board and the management [of G.M.] should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp G.M. with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company ... Giving G.M. a blank check — which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant — would be an enormous mistake.”
Given this advice, I think the companies (and unions) are likely to go for bankruptcy instead.  That's lousy, too, because either way there are a lot of good, union jobs going down the toilet.  But I'm not convinced there's any way to save the car companies from themselves, in a fashion that would prevent this kind of bailout again.

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