Daily Auto News Should We Just Let Automakers Fail?
Daily Auto News
Amid reports that General Motors has asked the Bush administration for $10 billion in order to help the company secure Chrysler’s $11 billion cash stockpile, a growing chorus of voices is starting to suggest that it might be better to simply let major U.S. automakers go bankrupt.
Washington Post columnist Steven Pearlstein writes, “The rationale for [government assistance in the merger] is pretty simple: If nothing is done, the financial situation of both of these companies is so dire that one or both of them will be forced to file for bankruptcy protection in the next several months. And a bankruptcy filing, we are told, will send an already weakened economy over the cliff, wiping out 2 million jobs, shifting tens of billions of dollars in pension obligations to the government and lopping two percentage points off the nation’s gross domestic product.”
But, he writes, “The real flaw in the government-financed merger proposal is that it spares the companies from bankruptcy reorganization, the very process they need to get their costs and structure in line with market realities.” Only through the mandates of a bankruptcy court, Pearlstein argues, could the automakers ever take the steps necessary to regain competitiveness on a global scale, such as reducing “the burden of pension and health benefits to 600,000 retirees that are slated to cost the companies $90 billion over the next decade,” trimming back “a combined network of 10,000 dealerships, about 10 times more than Toyota has in the United States,” and “impos[ing] on members of the United Auto Workers pay and benefit packages comparable to those paid at the nonunionized plants of foreign manufacturers that have been stealing market share from the Big Three for decades.”
Blogging Stocks adds, “General Motors stock is trading at an artificially high price on hopes that the company will receive a bailout — a bailout for GM that leaves the company’s equity intact amounts to a handout to Wall Street speculators. That’s wrong.”
iStockAnalyst notes that the automakers wouldn’t be the first major industrial players to declare bankruptcy in order to restructure costs, and emerge stronger. “It is only a matter of time before the most wounded among them begins to evaluate the strategy the steel companies and airlines followed: declare bankruptcy and terminate the pension plan, allowing it to be taken over by the [federal government's Pension Benefit Guarantee Corporation]. Emerge from bankruptcy without the onerous and expensive need to support the thousands of retirees that increase the cost of each car produced. Instantly be more competitive with the Japanese and South Korean car companies.”
Tough times for automakers mean the Big Three are competing for your business with heavy discounts on desirable cars. Research the best car deals for October with U.S. News’ car rankings and reviews.
Related with this news Japan Auto Store's other car news
