Sunday, December 14, 2008

Bankruptcy is Best Solution for US Auto Companies

Argues Nobel economist Gary Becker:

One should not confuse the politics of the situation with what is the better economic outcome for consumers, and what is the effect of bankruptcy of the big three automakers on overall American employment and unemployment.

Bankruptcy would strengthen rather than weaken the competitive position of the American automakers, especially when combined with government debtor-in-possessor financing. The bankruptcy proceedings would likely break the union contracts and reduce their pay to levels comparable to those received by American employees of foreign car manufacturers. They would also break the contracts for health payments and pension obligations, which have been significant factors in causing their financial distress. Bankruptcy would also help the companies restructure their debt so that interest payments are much lower. I do not know whether even after all this, the Big Three can compete effectively in the long-run market for cars--almost surely Chrysler cannot--but bankruptcy combined with management changes, especially at GM, would give them their best chance.

This is certainly true compared to the alternative proposed by the Democrats, which includes the preposterous idea to create an auto "czar" who would oversee the industry. Since when does the American approach to market structure include czars and congressional management of an industry? Such an approach is just an encouragement to the development of a chronically sick patient (American auto producers) who never gets better, and continues to rely on taxpayer support.


At 12/15/2008 12:09 AM, Anonymous Anonymous said...

The Socialist Dems and those who vote for them should be happy. The two have done everything in their power to kill Industry in the USA and now want to save the Big 3? Why?

This is nothing more then the DNC paying Billions back to the Unions for the 400 Million Dollars the Unions paid out in the 08 election cycle. Quite a Return on Investment for the Unions and yet another hosing by the DNC onto the American Tax Payers.

As any Californian would tell you (America's version of Tijuana). You guys are going to love this socialism stuff.

Sacramento Republic of.

At 12/15/2008 1:58 AM, Blogger sethstorm said...

Anon 12:09:
You forget to give credit to their enemies.

Since there has been militant opposition on both sides, I'd add one more thing. Bring in every union-busting group possible and grill them the way the Big Three got grilled.

Follow that up with talking to the transplants - and ask them what kinds of cars would they build should these companies be liquidated? Then ask them what they think of affordable performance.

At 12/15/2008 2:21 AM, Blogger juandos said...

"Bring in every union-busting group possible and grill them the way the Big Three got grilled"...

What a insanely silly comment...

What is a, 'union busting group'?

Someone or several many someones who don't want to have deal with the monthly extortion to a group of liars and parasites (also known as national union leadership) who do NOTHING for them?

Define 'union busting group'...

How about dragging in the union honchos and grilling them before a grand jury and see if there could be a RICO case made against them?

At 12/15/2008 4:15 AM, Blogger sethstorm said...

What is a, 'union busting group'?

Labor relations focused firms such as:
• Jackson Lewis
• The Burke Group
• Grigsby & Cohen

Agents Provocateurs:
• Vance International
• Pinkerton's (now out of that specific business of labor-relations "security")

Others of note:
• Walmart and it's team of folks. They don't mind using their jet to bring in people who can intimidate.
• Ford's Security forces that physically intimidated those of the union and their families. Thanks to the "Battle of the Overpass", they only helped strengthen what is today's UAW presence.

Individuals who have to work behind front groups for fear of reprisal as a lobbyist:
• Rick Berman - the person who runs that organization that you quoted.

There should be more than enough to give Congress a good view of who these people are and what they do.

If you haven't gotten the idea yet, unions and La Cosa Nostra are not always one in the same as you might want to think. Of course, that's your (prejudiced) opinion.

They are as much part of the equation as the unions are. They helped fuel the animosity between unions and management. They're also part of the reason you have large contracts (consider it a defense against the dirty legal tricks of labor relations).

At 12/15/2008 4:30 AM, Blogger juandos said...

So you are talking about people who don't want to be encumbered by the grasping parasites who use racketeering methods to shake down companies...

Thanks sethstorm, I thought that's what you meant...

At 12/15/2008 5:28 AM, Blogger PeakTrader said...

U.S. automakers face two big problems. Higher labor costs (because of union contracts) and lower prices (because of perceived lower quality). However, autoworkers benefited from higher compensation, consumers benefited from lower prices, and the government benefited from collecting taxes. Costs include lower profits (e.g. losses), and a slowing of the Creative-Destruction process (e.g. keeping unnecessary jobs longer). It seems, allowing GM to fail will result in greater costs to society than benefits, except in the long-run. Also, allowing GM to fail, because of a systemic problem in the financial industry facilitated by allowing Lehman to fail (which froze the credit market), will make a severe recession even worse.

At 12/15/2008 9:32 AM, Anonymous Anonymous said...

Everybody says that Chrysler is the sickest of the three, but their cars appeal to me the most. the Charger, Challenger, the Dodge trucks, the 300 and others. I think that Chrysler has the coolest cars out there. I'm not saying that I am for a "bailout", but I hope that the Chrysler brands and models wouldn't stop being made by someone.... It would be a tragedy. Some of us don't want subcompact Euro cars, you know. I think that BMW's and Mercedes are butt fugly.

At 12/15/2008 11:56 AM, Anonymous Anonymous said...

The Big 3 can be saved and it would not be that hard. Tell ya what. Have Nancy Palousy contact me and I will buy GM for One Dollar saving the American Tax payer Billions.

I have spent all of about 40 minutes on this issue and the solutions are simple. Consgress has spent Millions of Dollars and Thousands of Man Hours to dream up a mess.

Sacramento Republic of.

At 12/15/2008 12:31 PM, Blogger sethstorm said...

If that's the way you see them, fine. However, they force people who actually want the services of the unions to vote against their will. Should there be anyone that shows any support - they get intimidated by the company by the prescribed means of the consultant. They're the parasitic ones - they only can exist if they're called upon to fight.

Also, they like to flood in no-voters should there be a genuine >50% situation that they can't crack. Unlike regular elections, there is no cutoff - they can flood until they're sure they have 50%+1.

Anon 11:56:
I'm thankful Sherrod Brown is representing the more difficult part, the Senate to put such requests in check. Ohio has tried allowing trade to work. However, the only thing we seem to get is a slap in the face for it. We tried at least twice, we finally get the messsage and throw them out.

While not being Michigan, we recognize that there is a balance between business and their employees. That has been lost, and we're glad that someone has decided to stand up for people of all types of work, union and nonunion.

Anon 9:32:
That is a concern I have as well, since they have cornered the market in affordable muscle. You don't see them making much 4-cylinder cars without affordable 6-cylinder options, and/or 6-cylinder cars with affordable 8-cylinder options.

The only MB I want to buy would be from their older, more angular styling. If I really was daring, a 12-cylinder, environmentally unfriendly BMW 850i or a more tame 6-cylinder 3-series hatchback. I hope that I don't have to go to these options.

However, there are people like 1 who don't care about that. They only care about removing unions. They won't say that now, but watch what they say should Chapter 7 roll around. They would rather have us have to choose between a shiny-wheel/shoddy electronic filled compact or have to fork over fortunes just to get anything beyond that.


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