Bail out Detroit?

November 17, 2008
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Two schools of thought are emerging over the proposed bailout of General Motors, Ford and Chrysler.

One is that the auto industry is too big to fail. Itâ??s not just because of the manufacturing operations and all the suppliers and their workers, but also the many dealerships that support tens of thousands more employees.

The other is a tough-love scenario of allowing them to slide into Chapter 11 to see if someone else could make a go of the business. A bankruptcy might shed not only unnecessary costs but also incompetent management, the reasoning goes.

Meanwhile, senators from states with few or no plants operated by Detroit car companies are opposing a bailout. Even Indiana Sen. Richard Lugar is lukewarm.

What do you think?
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  • HL Mencken once said for every problem there is a solution that is obvious simple and wrong. To employ tough love is to ignore how interconneted commerce is, to ignore the safety nets we have aleady created and to ignore the fact that the nature of competition is changing.

    1, Honda and Toyota don't want the big 3 to fail. Because it takes all the players to support the part suppliers. If the American fail the cost of a Japanese car will go up.

    2. What will happen to the masses of unemployed? They will begin sapping the dwindling resources of state and local governements, And of course foreclosesure rates will bo up even more, postponing the recovery and harming how many neighborhoods?

    3. Our economy is VERY fragile. At another time perhaps bankruptcy would be ok. But not now. As one industry analyst put it: if you think Lehman Bros was bad you ain't see nothin yet.
    4. It won't be like the airlines. The auto companies will quickly go to Chapter 7 which will mean forced liquidation.
    5. If we wonder what we can do to help the recovery? Go put pressure on your bank to give you a car loan and go buy an American car. Yeah its risky. But it time for us all to help each other. Long term we need to save more. But right now we need to buy more.
  • No way. A bailout is absolutely wrong. Congressman Rupersberger was on the Ron Smith radio show on WBAL in Baltimore, MD Friday. He wants to bailout the autos because then government can act as the board of directors and get the right people in to do the job, people who have been successful in other companies to restructure the whole operation so that it is successful. He wants government to take over decisions of a private company. There is audio of it here http://wbal.com/apps/news/templates/smith_show.aspx?articleid=16359&zoneid=13. As we've seen with the financial industry, there is no end to the needs of companies. Politicians love to give favors. There is no good that will come from any of this. As rough as it will be, companies have to be allowed to fail so that improvements that consumers want will be made.
  • The truth is that the Big three want to declare bankruptcy. The dirty little secret is that they have already shifted production to Asia, Eastern Europe, and Brazil and they are quite profitable in all of these markets.

    Now they want to duplicate the Wilbur Ross strategy. He bought up a bunch of struggling steel companies (LTV, Bethlehem Steel) in Indiana in early 2000, put them in bankruptcy, dumped all the pension and medical obligations to the US government and sold the new International Steel Company to India based Mittal Steel for a HUGE profit.

    The Bush administration does not want this to happen. Wilbur Ross has nearly bankrupted the U.S. Pension Guarantee Fund and eliminated or reduced heath and pension benefits for a complete generation of Indiana's retired workers.

    The truth is these corporations will dump US legacy commitments to our workers and close more US plants regardless of if they get the bail out money or not.

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