Below The Beltway

Varifrank asks the question that nobody in Washington wants to answer:

Question of the day -

“So why can’t GM be allowed to go into bankruptcy?”

Seems to me that United Airlines and half a dozen other companies I can name have gone into bankruptcy without also going out of buisness. GM goes into bankruptcy it gets relief on some of its debt but gets “reorganized” which can’t be a bad thing if you ask me.

(…)

Having GM shed a dozen asinine contracts and unjustifiably expensive health and benefit plans would seem to me to be a good thing for everyone. I dont have a problem giving GM money, but like any investor I want to see the business plan that goes with it before the dollars cross my desk. So far the business plan seems to be to keep doing the same moronic things they have been doing only on a whole new class of investors dollars. Since when did working at GM become an entitlement?

To which Stephen Green adds:

GM needs C11 if it’s ever going to recover, Ford just might, and the very best Chrysler can hope for is a brutal strip & flip from Cerberus. Otherwise, it’s liquidation.

They’re both absolutely right, of course.

The situation that General Motors is in — an old, sclerotic company burdened by far too many contracts, obligations, and benefit plans finds itself burning through reserve cash at a rate that is, quite frankly, insane — is one that’s tailor made for the Bankruptcy Courts and its quite possible that GM could emerge from bankruptcy a much better company. Yes, it would be smaller — say goodbye to all those different brand names, most likely — but it would be a company that could actually survive, rather than one clinging to memories of an auto industry dominated by American companies that hasn’t existed for 40 years or more.

If GM were any other company, their third quarter results alone would have been enough to send them into the protection of Chapter 11 reorganization. Instead, we get pronouncements from their CEO that bankruptcy is “not an option” that the company is even considering — a statement I don’t believe at all, by the way — and GM joining the rest of the auto industry in Washington to beg for more public money.

Dave Schuler suggests that, if there is going to be a bailout, then certain questions need to answered first:

Here are some of the questions I think that we should be considering before handing over any cash to the domestic automobile industry:

1. What are the prospects for the loan being repaid?
2. Will $50 billion given to the automobile industry result in the greatest amount of economic growth for the country? Frankly, I think there are other industries that could make better use of the dough.
3. Will $50 billion given to the automobile industry result in the greatest benefit to the people of Detroit and Michigan. I suspect you could divvy the jack up among the people in the Detroit metro phone book and get a better outcome.

If you’re bound and determined to hand $50 billion to the automobile industry, what requirements will you place on them in the areas of corporate governance? The domestic automobile industry got itself into its current fix. If the rest of us get them out of it, we need to make sure we don’t do so just to have them come back for another handout a couple of years down the road.

The first three are essentially political questions that go to whether the government should be bailing out any industry at all. The last one, though, is precisely the kind of question that bankruptcy is suited for. The Federal Government — especially a Federal Government controlled by Democrats beholden to the unions and Michigan politicians — will never be able to come up with a reorganization plan that actually puts the survival of the company ahead of the interests of all the parties whispering in it’s ear.

The best thing that the Obama Administration could do would be to say no to General Motors, Ford, and Chrysler, and let each of them deal with their financial problems in their own way. Politically, it would be painful because it would hurt loud and vocal interest groups, but there’s no justifiable reason to spread the pain caused by union cronyism and years of making cars people don’t want to buy to the American taxpayer.