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Tuesday, November 18, 2008

GM should file for bankruptcy

By Dennis Byrne
Chicago Tribune

President-elect Barack Obama and Democrats are facing the first important test of their promise of change, and they are about to land heavily on the side of the status quo in the most embarrassing and contemptible way.

In their hyperventilated drive to "save" General Motors (read: the United Auto Workers union), they are deploying our wallets to save a failed business, when real "change" would be bankruptcy, from which would emerge a better and more competitive enterprise.

The $25 billion lifeline, to be sliced from the $700 billion Troubled Assets Relief Program meant for the financial industry, rewards GM for decades of incompetence, greed and sterile thinking. We should scram as far as possible from GM's legacy, not resuscitate it. But if Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi and President George W. Bush, with Obama's blessing, put GM on life support, they would be wallowing in exactly the kind of capitulation to special interests that just weeks ago Democrats condemned.

The UAW has spent $24.6 million in campaign contributions, virtually all to Democratic candidates, in the last 20 years, while GM has spent $10 million on lobbying in just 2008, according to the non-partisan OpenSecrets.org. A few weeks before the election, the UAW announced a $3 million ad campaign in support of Obama.

These millions don't include the uncounted piles of dough that the company and union have spent in the last few weeks to pressure Washington into a bailout.

Over the weekend, Pelosi assured us that GM and the UAW wouldn't get off scot-free, that the $25 billion would come with "strings" attached, such as requiring Detroit to embrace the technology of more fuel-efficient cars—never mind that a different $25 billion of our money already has been set aside in loans for that purpose. Pelosi said the additional $25 billion wouldn't be "new money" because it was coming from "existing" bailout funds. You mean that $700 billion, which suddenly showed up in the last month from who knows where, isn't new money? Stop it, Nancy.

Pelosi's other strings would include a vague company "restructuring" to assure its "long-term" viability. Yeah, sure, we can trust the auto industry and UAW, which made this mess in the first place (GM's car sales began sliding a long time before the current financial crisis arrived), to do what it should have done decades ago.

The best, and perhaps only, way to accomplish what needs to be done is for a bankruptcy judge and his appointed trustee to oversee a top-to-bottom reorganization of the high-bound, uncreative and sluggish company. (For example: How about breaking up GM, which has too many models and divisions, into separate companies, freeing themselves of the brain lock imposed by a lumbering bureaucracy and an unimaginative central management?)

What's needed is a start-over. And a bankruptcy judge has the power to force the company to go back to square one by, among other things, forcing a recasting of the ridiculously rich union contracts. Stockholders, bondholders and other creditors and suppliers will be hurt by a bankruptcy, so why should organized labor escape whole?

If there absolutely must be a government cash infusion, New York University business professor Edward Altman says it should only be made on the condition of GM declaring bankruptcy, to protect the public's interest. No one can predict that the economy won't suffer greatly if GM is ushered into bankruptcy, but anyone who insists that he knows that a nationwide depression will surely follow if we don't cough up $25 billion more for GM is a faker, even a liar.

Declaring bankruptcy doesn't mean that plant and dealership doors would be padlocked the next day and hundreds of thousands of workers would be instantly on the street—an impression that GM and UAW propagandists would like everyone to believe.

Bankruptcy requires an orderly process, prescribed by law, under which the company can be reorganized and emerge strong and resilient. Reorganization would allow the assembly lines to continue running while arranging reasonable warranties, maintenance and service for customers.

Sure, it will take creativity and skill to handle a meaningful transformation, but that will never happen if the Washington friends of GM and UAW plop $25 billion in their laps.

Your comments are welcomed here or at the Tribune Forum

4 comments:

Stephen Schade said...

Mr. Byrne:

Once again, you are clueless.

First of all, while GM has been mismanaged in recent years, its current problems have nothing to do with that. All auto companies and other firms whose sales depend on credit have experienced a downturn.

Secondly, bankruptcy will discourage customers. Who will buy when there is no guarantee of warranty service down the road?

Third, organized labor will not escape whole. Thousands of workers have already been laid off.

Anonymous said...

The goverment is the problem not the solution. The cafe standards and all the other regulation and taxation imposed by government, as well as the strangle hold labor unions have on wages, pensions, and befifits are millstones that GM and other companies can not bear. Why can other car companies come here and make a quality product and a profit? When do we give GM the relief that they really need? Let's unshackle them from the unions and management, turn back the most recent cafe standards, let them reorganize and go on. No, that is not acceptable to the bought and paid for Democratic congress. The government has regulated the auto industry into submission. If they are bailed out they will have no control over their business model any more. Nancy Pelosi and Barney Frank will decide what cars will be built. And it will be a perfect model. Why? Because they do not have to worry about what cars will be bought! If no one buys their cars, they will pass a law, no problem. All we need is more right minded legislation. No problem. We just need more government. Don't worry Stephen, you are going to get it.

Stephen Schade said...

Relaxing CAFE is not the answer. Honda and Toyota do better, in part, because they produce higher mileage cars. Yet they are also experiencing a downturn because of the current tightening of credit.

As even Republicans in Congress have admitted, Detroit's business model needs to be changed. They pushed SUVs and ignored the rest of the market.

Health care costs are indeed a millstone on auto companies and other sectors as well. Ours are twice as high as those in Japan and other developed countries. Though conservatives are loath to admit it, the free market has not worked in this area. It's time to try something new.

Anonymous said...

Ahhhhh, such refreshing liberal honesty. "Though conservatives loath to admit it the free market has not worked in this area. It's time to try something new". The free enterprise system has created an economic engine that is the envy of the world. It has been able to perpetuate freedom not just in our own country, but throughout the world. From the Marshall Plan to the war in Iraq, the objective of our foreign policy and indeed our existence has been to perpetuate freedom. The right to life, liberty and the pursuit of happiness.

So, we are not the envy of the entire world you say? Are we constructing fences at our southern boarder to keep people out or to keep people in? We are trying (currently) to keep terrorists out of our country. To fight them abroad so that we do not have to fight them at home or at Wrigley field. But I am not sure what the terrorists look like any more. Can you watch the you tube video of the democrats on the Banking Committee defend the actions of Freddie, Fannie and Franklin and not think that these people are deliberately trying to insure the collapse of some institutions that are at the heart of our financial industry? Why? Why would elected officials even try to perpetuate such a ruse on the American people, our economy, our freedom? I believe that the answer is simple. Freedom and free enterprise does not suit them. Too many decisions are being made in this thing called the market place that they do not understand or agree with. How can their omnipotence, their hegemony, flourish without absolute power? This thing called the market place is bigger than they are, just like God, so they despise both and seek to destroy each. Best of all they have figured out how to blame Bush. How to blame free enterprise. They break it so that they can fix it. The incessant carping of the left is potent enough to freeze the actions of a spineless republican majority. No wonder they were voted out of power.

And that is exactly where we are today. The democrats want to be called to bail out everything, every company, every industry so that just like Pelosi said, they can affix their strings. Should GM be bailed out? They may as well sell out to some other foreign car manufacturer. Submitting to the will of the state is a death knell. Government guarantees are guarantees of failure. What has the government done effectively, efficiently? I submit that the only reason they are effective is that they have an unlimited budget. Oh, and that is another reason that the left loathes them as well. They are powerful.

The bailout is our bane. Let the free market work. We want change? Then give us term limits. Change is what we need, not bail outs. We do not need to fix what is not broken. Freedom is not broken. We do need to have an honest assessment of what is broken. Though liberals hate any such type of honest appraisal, it must be done. The resolution of ANY problem requires the identification of that problem. Our political leaders, and I do mean all of them are the problem. We need change; we need a Tea Party. Let GM do anything but take one dime of Government money.

Do you want to fix the current economic malaise? Wait don't read any further, answer the question. If yes, let me give you the answer. Reduce capital gains rate to 9%, pledge not to do anything to the income tax rates for four years. The trillions that are locked up in safe, safe, safe, locations will be turned loose into the marketplace where they will be able to produce some sort of return. Where they will create jobs, opportunities, raises. The government does not create jobs. The free enterprise system creates jobs. The government creates an environment that promotes the creation of jobs. It allows the free flow of capital, the ability to risk to win and to loose. Take away the ability to loose and you take away the ability to gain. No thanks. Where has Obama been? We used to see him incessantly on the news. Where is he? He is simply and sadly in no hurry to fix or help anything in our marketplace. For the same reason that the democrats lied about the state of Freddie and Fannie. If this thing really breaks, and I do mean really breaks, then any harebrained solution (including those that revise history) will be palatable to the American worker, and consumer. Life will finally be good, they will have absolute power. We all know that absolute power corrupts absolutely.

The free market has not failed anywhere it has been tried, China, Iraq, the United States, health care, automobiles, football. Steven, I hate to tell you, the free market is the only thing that does work. Our ability to blog, to disagree, to risk, to loose, to gain, to worship are all threatened. Remember that Freddie and Fannie are GSE's (Government Sponsored Enterprises). GM needs to be given the chance to reorganize. If you want them to be a GSE, then let them get bailed out. It is the free market or else. Or else what? I wonder which one of the big three will be the first to come out with the Pelosi? If no one buys them, no problem, the government will pass legislation and funding and insure its success!