Bankruptcy Now or Later?

There are two key things to remember when considering bailing out the automobile industry.

First, never reward destructive behavior unless you want more of it. Second, never throw good money after bad.

Taxpayers should not be held accountable to bailout the automobile industry or any other industry for that matter. There is constitutional authority for the decades of poor management decisions, forecasting and labor deals that have put GM, the U.S.’s largest automobile maker, perilously close to going belly up.

That constitutional authority is the basic freedom everyone in America has: to succeed or fail on your own, and accept the consequences or the benefits.

The $700 billion bailout Troubled Asset Relief Program (TARP) was to be used only for bailing out financial institutions, not automobile companies skating on thin financial ice. If he is a good and honest steward of taxpayer dollars, Treasury Secretary Paulson will deny the
Big Three’s request to be included in TARP.

Congress created a $25 billion loan program through the Department of Energy to help the Big Three. This loan program should be utilized by the Big Three instead of wanting to be included in TARP.

GM, Ford and Chrysler are sinking ships. With cash reserves dwindling, their only viable option is to try and stay afloat in these turbulent economic seas is bankruptcy.

Truth be told, it is not a question of if GM will file for bankruptcy protection, but rather when. Bankruptcy will provide GM the necessary protection and some time to possibly turn a dying automotive dinosaur into a smaller, lithe, profitable company that is sized for its shrunken market share. "Possibly" being the operative word.

Filing Chapter 11 protection protects GM from itself. Bankruptcy could free GM from costly labor contracts, provide them the opportunity to restructure hugely expensive pension programs, and renegotiate health benefits. Other unprofitable assets could also be amputated. Bankruptcy puts all options on the operating table to try and stop the massive bleeding of cash.

Should GM emerge from the bankruptcy operating table with a heart beat, odds are GM is never going to be the global automotive giant it once was. The automotive world is much more competitive than, say, forty years ago when GM, Chrysler and Ford ruled the automotive world from my beloved Motor City.

While the UAW may believe GM, Ford and Chrysler are in business to provide automotive workers a salary and other costly benefits, the reality is that car companies are in business to make a profit. Period. Write that down.

The UAW’s costly benefit demands over the years coupled with weak automotive management who historically caved into the UAW’s demands put the automotive bolts, so to speak, to the shareholders and, to a certain degree, has put the Big Three on the path to possible extinction.

Contrary to Michael Moore’s disingenuous and anti-free market automotive movie (Roger and Me), profit must drive all business decisions. Even a goofy guitar player knows that a business that fails to focus on profits and does not constantly look to the future to open up new markets, develop new products and upgrade services for a changing world, cutting costs, etc., is a business that is ultimately going out of business.

Those of us who have lived and worked in and around the Motor City have watched it slowly rust into oblivion over the last twenty-five years. The decline of the Motor City should be used as a case study in every business school in America on how not to sink an industry and destroy a city in the process with denial driven feelgood liberal suicide policies.

Bailing out GM with billions of taxpayer dollars is the wrong approach. GM is not too big to fail. What GM may be is too unprofitable to stay in business.