It’s something of a long-running joke among local editorial writers that everyone cribs from either the New York Times or the Wall Street Journal‘s editorial boards. The two papers tend to lead opinion on either side of the spectrum, with the mainstream left taking its cues from the Grey Lady and free-market business types following the WSJ. If this theory still holds true in these ideologically confused times, the worm has certainly turned on the bailout. Both papers are running prominent and well-reasoned editorials against the bailout, from Thomas Friedman on the left and Paul Ingrassia on the right. Taken with the recent bad news from DC, this editorial one-two punch may just mark the high-water point for pro-bailout momentum.
Though Thomas Friedman has generally been pro-market compared to many center-left commentators, his progressive credentials are well established. Or at least were before the Iraq War (Friedman Unit, anyone?). Anyway, in his latest column the author of the Lexus and The Olive Tree makes no bones about his lack of sympathy for Detroit’s self-made hell. Friedman recalls listening to ChryCo CEO Bob Nardelli angling for retooling loans a few months back, arguing that the handout was not a bailout. Friedman’s reaction? “We have to subsidize Detroit so that it will innovate? What business were you people in other than innovation? If we give you another $25 billion, will you also do accounting?” And though it would have been nice if Friedman had made his views a little clearer at the time, he now has nothing but scathing criticism for Detroit’s congressional enablers. “The blame for this travesty,” reckons Friedman, “not only belongs to the auto executives, but must be shared equally with the entire Michigan delegation in the House and Senate, virtually all of whom, year after year, voted however the Detroit automakers and unions instructed them to vote.” So where does Friedman go for the next step in this mess? Directly to cross-town rivals, the Wall Street Journal, and former Dow Jones exec Paul Ingrassia.
Ironically, the free-market advocate Ingrassia believes that some form of government intervention is probably unavoidable for political reasons. If that can’t be stopped, he believes in a tough-love approach to any assistance. “In return for any direct government aid, the board and the management should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp GM with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others, and downsizing the company. After all that, the company can float new shares, with taxpayers getting some of the benefits. The same basic rules should apply to Ford and Chrysler.”
This worked for airline restructuring, argues Ingrassia, and it’s the only well to prevent what he calls “pouring taxpayer billions into the same old dysfunctional morass.” If political pressure creates an irresistable force for some kind of bailout, Congress had best heed the words of these two opinion leaders. There’s simply too much at stake to not. [thanks to MgoBLUE for the links and the link between the links]
Both NYT and WSJ against a Detroit bailout… my belief in the capability of humans to think rationally has received a boost today.
And a government-appointed receiver — someone hard-nosed and nonpolitical — should have broad power to revamp GM with a viable business plan and return it to a private operation as soon as possible.
Is this the car czar?
https://www.thetruthaboutcars.com/bailout-watch-171-obama-eyes-georgetown-egghead-for-us-car-czar/
“Government” and “nonpolitical” are mutually exclusive. I dread to think of the power unions would have over a car industry run by Obama’s people.
Just watching the banking bailout and the gluttony occurring there is ridiculous. GM and Ford, based on the Death watch series, would make no better decisions.
I hate to see them and everyone suffer but … they’ve done it to themselves.
I want the point to be conceded that the nuclear destruction of GM could create havoc in our economy. Once we’re there, we can talk about a better way:
The graceful fall of GM.
Any government assistance should be conditional on GM going bankrupt. How the government becomes involved in GM’s administration while in bankruptcy is not as important – although I believe a significant stake or stacked board is fair game. However, in this scenario, the government would be able to pay suppliers so they don’t go bankrupt. A chain reaction of supplier bankruptcies will force all other motor companies to cut production and cause Chrysler and probably Ford to go belly-up and Honda and Toyota to lose billions of dollars and likely lay-off thousands of people as well.
So, let’s not mince words here:
Any “bailout” should be targeted at protecting the industry from GM’s bankruptcy, not preventing the bankruptcy of GM.
Call me a pragmatist, but I don’t believe the free-market is going to treat anyone very kindly if GM were to explode. Sorry, RF, but as much as you hate the domestic auto industry, it is not in our best interest to just let it die a sudden and tragic death.
Ingrassia is right in his begrudging admission that the government will have to become involved. However, it will be MUCH more expensive and complex to be involved cleaning up the aftermath of a nuclear bomb than cutting it off before it can be dropped.
Problems with the fairness of the system (VEBA cost, pension takeovers, liability shifts) according to other automakers will have to be addressed as well. I imagine Ford and Chrysler (if it still exists) will ask from the federal government and the UAW anything that GM gets, and I don’t have an ideological problem with them getting it, either as long as it is limited to worker-related costs and financing for plant overhaul (the money already allocated). But these are still easier issues to tackle if you allow a soft landing of GM.
Expediency, as has been pointed out, is not the answer. So, I think this is our more prudent option. It buys us time, gives the government a foothold to restructure GM under its terms (ie – no more Slick Rick) to protect taxpayer investment and will help prevent potentially millions of lost jobs and hundreds of billions of lost tax revenue.
What say you?
This is politics, not ideology.
On the Dem side: UAW, Nancy, Harry, and Barry
On the Rep side: Cerberus (Snow) and Bush
I think it’s gonna happen.
@Robert SD, excellent post.
@indi500fan,
This has everything to do with ideology AND political reality.
Ideologically the leaders and board of directors operate in a self-serving manner and focus on immediate share-holder interests without balancing the interests of all stake holders for long term viability.
The political reality is that if the industry fails we’ll have an economy with larger problems than now. The point goes to Robert SD’s comment about protecting the industry rather than saving the Big2.8 from themselves.
RobertSD:
I agree that a pre-package bankruptcy deal for GM is the best idea with the Government being the debtor financer. However, I think that if this were to occur it would be a very long and costly process. The day that these prepackage deal hits the courts there would be multiple law suits filed objecting to it. You would see the UAW, Shareholders, Suppliers, Dealers, Bond Holders, and anyone else with an interest filling these suits. A long drawn out process would in effect kill any chance GM has of coming out the other side of this deal. I think as long as GM is sitting in court it sales would be nil. With very little revenue coming into GM during this period the Government would have to increase its already large investment to prop up GM through this time period. I could see even a prepackage chapter 11 deal taking a year or more to work itself out.
What a mess.
Don’t get me wrong. As much as I talk about the government reshaping GM, I don’t actually believe anything vaguely resembling the current GM will emerge on the other side. And I certainly don’t expect it to take less than 12 months.
I also don’t doubt a slew of lawsuits, but unless it’s a normal filing with a bankruptcy court claiming part of the bankrupt GM, a lawsuit directed at the governemnt would have to prove that the government plan was fundamentally damaging to you. The government would also likely hold funds of companies currently in court – so would you go to court and fight for $1B in a year or two with no guaranteed payout and hope you stay afloat or take your $500M-700M now and run? Most suppliers don’t have an option. The ones that do, we’re not trying to save.
The only group that might have some recourse is the dealers, but that’s the point of the government being involved in the bankruptcy – you can figure out who is most impacted by all of this and lessen the blow to the economy.
Right now, the bankruptcy of GM looks inevitable – so it’s time for the government to protect the industry from GM’s fall. I haven’t answered all questions here, but that’s not my job. But I think my original point stands.
What emerges after 12-18 months of reorg, though? I really don’t care. The benefit in the $25B or so it probably will cost to softly kill GM will be saving the $400-500B in potentially lost NPV tax revenue otherwise. How’s that for an investment?
Though Thomas Friedman has generally been pro-market compared to many center-left commentators, his progressive credentials are well established.
Disclaimer: I hate Friedman. That said, he is not even close to being representative of mainstream leftish economic thinking. He’s a free market globalist, plain and simple whose viewpoints would mesh well with the WSJ.
America is Sick innovation has been replaced with stagnation. knowledge has been replaced by willful ignorance. Optimism has been replaced by pessimism. Can do attitude has been replaced with every excuse in the book. Foreign car companies have Unions Foreign car companies have factories in North America. The quality is better the mileage is better the design is better. During WW2 we turned Cadillac factories into tank factories in months. American car companies make the fuel efficient cars now in Europe there are models in Europe ford makes that get 40mpg The excuse Car companies give that “we cant possibly make fuel efficient cars here it will take Years is Utter BS”. Perhaps having board members on oil companies and Car companies has something to do with it. You cant give bail out money to companies with 1000s of vps presidents board members who have managed there companies into the ground money to do it again; if they want tax dollars it should come with strings you must produce vehicles to x fuel efficiency standards all trucks run on diesel or turbo bio diesel HYbrid trucks. People who think less regulation is the key to innovation How did that work for you? America already produced an electric car pulled it out of service destroyed the cars and the blue prints for them. Not a big secret battery companies that have invented technology for lighter more powerful batteries have been bought out by car companies to prevent the innovation of more fuel efficient or zero emission cars. The Morgate industry and wall street innovated new ways to sell and package the same morgate 25 times so by the end it wasn’t really worth anything because it required the other 24 packages it originally came out of to all increase in value to give each subsequent made up package have some kind of value but what the morgate was worth was just the 1200 bucks joe blow paid each month on his morgate and the subsequent 23 made up morgate mutual funds or bond like packages could have been worth 100 times that its phony money, buying and selling the same debt over and over again. The cost was calculated to be somewhere far less then 300 billion to just give every home owner money to pay there morgates which would have stoped the foreclosure crisis and bailed the companies out at the same time; but we have spent 700 billion to bail out the companies that screwed up and instead of pumping that capital into the financial markets to bring up business they used that capital to monopolize and buy up other banks its complete insanity. If you think free market is the answer with no regs then let GM die only the strong survive and someone will come and take there place. If you want to blame the unions because they wanted health care and it costs too much meanwhile other car companies that are foreign do the same but kick our butts who is really to blame. Anyone who’s 401 k has disappeared can tell you hmm maybe it would have been a good idea to regulate some of those financial instruments it turns out if you let someone do something that will hurt a company long term but you make a quick buck up front people take the quick buck. Design a better car no excuses. You do not get to retain control and keep your job managing a company if you can not keep it running hit the bricks.
That’s a nice chart.
Pity that extremists on both ends tend to see everyone who doesn’t agree with them as an extremist of the opposite persuasion.