Tuesday, November 11, 2008

Will a Bailout Save GM?

Or Ford or Chrysler?

Not very likely. Which is why Obama’s begging GWB to take responsibility for it, so that he doesn’t get the blame when the deal goes south.

A bailout is not likely to solve any of the core problems facing the American automakers:

1. Congress hates them. Pelosi, Reid and company have been piling on increasing levels of mandates and regulations from safety, environmental controls, etc. etc. etc. The push to force uneconomical “green” cars is only going to add to the costs generated by the government for the industry. Transitional costs and unemployment will likely render what’s left of Michigan and much of Ohio into an economy indistinguishable from one of the Trashcanistans.

2. Management has allowed themselves to be repeatedly beaten by the Japanese, Koreans, and Europeans on issues ranging from vehicle quality and reliability to attractiveness, performance, comfort, and economy. India’s Tata is looming on the horizon as well.

3. The UAW. Granted, there’s more than enough blame to go around between the UAW and management for work rules, featherbedding, exorbitant benefit packages, pensions, etc. But at the end of the day, the UAW is going to prevent any meaningful restructuring, and hope that Congress bans secret ballot voting on unionization so that they can bankrupt any remaining American auto plants.

I’m not sure how handing GM, Ford, and Chrysler a big bucket of taxpayer cash is going to solve any of these problems. Any “deal” generated by Washington is going to come with so many restrictions that it won’t do much good. For the short term, they are going to impose terms favorable to the UAW, and in the longer term, the Greens. Both spell long term collapse for the Big 3.

After all, most politicians of a leftist bent hate the very idea of the common man owning a car. A car is something you can get into and go places when you want. They would much rather have you reduced to riding a bus, and only going places where the bus runs, and at the appointed times.

The most straightforward way out it bankruptcy, voiding the union contracts, dealer relationships, and a complete restructuring.

However, there’s non-trivial transaction / transition costs there as well. And we're adverse to taking significant short term lumps for longer term gain.