Tuesday, November 18, 2008

Let the Automakers Fail - and be Reborn

It's ok to let them fail, because they won't disappear. They will go through bankrupcy, re-structure, and return to business without the unions that are currently choking them to death. George will explains:

In Detroit, Failure's a Done Deal
WASHINGTON -- "Nothing," said a General Motors spokesman last week, "has changed relative to the GM board's support for the GM management team during this historically difficult economic period for the U.S. auto industry." Nothing? Not even the evaporation of almost all shareholder value?

GM's statement comes as the mendicant company is threatening to collapse and make a mess unless Washington, which has already voted $25 billion for GM, Ford and Chrysler, provides up to $50 billion more -- the last subsidy until the next one. The statement uses the 11 words after "team" to suggest that the company's parlous condition has been caused by events since mid-September. That is as ludicrous as the mantra that GM is "too big to fail." It has failed; the question is what to do about that.

The answer? Do nothing that will delay bankrupt companies from filing for bankruptcy protection, so that improvident labor contracts can be unraveled, allowing the companies to try to devise plausible business models. Instead, advocates of a "rescue" propose extending to Detroit the government's business model for the nation -- redistributing wealth from the successful to the failed, an implausible formula for prosperity. [...]

We must not throw good money after bad by rewarding failure. Read the rest, to see how the unions of the big three automakers are strangling them. The other automakers in the US do not have their problems, they don't need a bail-out, because they don't have these choking unions.

The Democrats were heavily supported by the Unions in our recent elections. While it would be hard for the Dems to say "no" to an automakers bail-out, they had better be very careful. If they start throwing massive amounts of taxpayers money into a never ending black hole, in financial times like these, it could come back to bite them in the next election. It will be interesting to see how they are going to handle this.

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