Yesterday I was on the fence in whether or not a bailout would be the cure or a treatment of symptoms for the auto industry.  First, it's a series of guaranteed loans, not a bailout, and second, why should they get the cash infusion they claim they need from the government solely b/c the economic turndown has dried up credit...especially when the government has already given hundreds and hundres of billions to the credit dealers--the banks? 

 

While it is unfair that the banks got so many green lights without much scrutiny and the autos are being treated like red-headed stepchildren, what remains is the fact that government assistance for failures are not the path to improvement.  I was muddling yesterday between is Ch11 the way to go or is "bailout" the way to go.  I concluded with Chapter 11 you do not get to deal with industrywide, structural, systemic problems (like reasonable labor agreements), but rather company specific issues (like retiring debt).  I also concluded that with "bailout" or government assistance you will not have the change in management, nor the change in operations. 

 

I was listening to testimony last night and again early this morning and the Big 3 are not doing a good job at describing why they need the money or what they would do with it.  The CEO of GM, the biggest of the 3, said what they would use the money for is to continue their product programs (such as the volt and higher mileage products and technological development), and for suppliers (who are an adjacent and crucial industry that could or would suffer if the big 3 don't get bailed out and  "go under").  Other testimony said they'd use the money to also support day-to-day operations, and to pay local and state taxes.  These are all terrible answers.  These guys are trying to get more cash to continue the status quo, which hasn't been working.  Now it's not all their fault, but they need to focus on the problems affecting the industry, not going to get taxpayer loans so they don't have to reorganize and lose their own jobs.  They also flew to their meetings with the government in private jets.     They sound just like the AIG guys.  A professor from the Business School of the University of Maryland testified that there is no way the domestic industry improves if all they do is get bailout funds or loans like what the government has been handing out.  Like AIG, and like Paulson, the Big 3 are saying that if they don't get the loans before the end of the year, the world will end. 

 

What Mitt Romney is advocating is that the only way to come out improved and competitive is to go through bankruptcy.  Many think when something goes bankrupt, that means suddenly it's closed forever and business stops.  That's liquidation, not restructuring.  That's Chapter 7, not 11.  Companies reorganize in Chapter 11 all the time, and what that does is wipe out speculators and investors and retire debt.  Romney's speaking about a sort of managed bankruptcy.  I suppose what he's refering to is a unique fix where the government oversees a restructuring of the labor agreements and pensions between the UAW and the domestic automakers while Ford, GM, and Chrysler go through the restructuring process in Ch. 11.  Fixing ailing companies is the sort of thing he did his entire career in the private sector, coordinating with government to rescue plagued establishments is what he did in the scandal-ridden Olympics, and building consensus is how he managed to be the only person, ever, to deliver universal healthcare anyplace in America.  An accomplished guy and his opinion matters greatly to business types and fiscal government officials as much as it does to me, and so I think the call for him to be some sort of Car Czar is the right thing to do on this one.  The solution has to be real, not a propping up of a zombie industry on life support. 

 

Anyway, read the Romney position to compare and contrast it to Pat's.  I'm still unsure of how I think the solution is best-delivered to the domestic auto industry, but I do not like hearing the misinformation out there that if they file for Chapter 11 bankruptcy then suddenly America is out of the car business.  Chapter 11 exists for one purpose:  to save ailing companies by reorgnazing them, removing barriers, retiring debts, and lessening burdens so they can continue to do business.  Given Romney's business expertise in precisely this area, and his roots to the auto industry, hey, I'll easily fall on his side of the fence I was sitting on since he's far more qualified to be the Car Czar than Pat Buchanon, who likely is advocating his position from the perspective of what it could mean politically for Republicans to oppose automaker bailout funds or loans.  This could represent the first big opportunity for Republicans to regain their fiscal feet, their sea legs because we are out to it, far, far out to it.  Do we measure what we should do based on political fallout, or do we do what we have always stood for in making things smaller, more efficient, and more competitive.