Mar 08 2009
GM and Chrysler need to file for Bankruptcy
“If Detroit’s automakers go under, we’re talking about not just 300,000 to 400,000 jobs, we’re talking about 2.5 to 3 million industrial workers who depend on auto,” said Leo W. Gerard, the steelworkers’ president. “One can’t let the auto industry die and think you’re going to revitalize manufacturing. And it will certainly make it harder to revive the economy.”
GM and Chrysler have had problems for years. They have been out done by foreign and domestic competition, their costs have sky rocketed and their sales have not grown sufficiently to cover the increasing costs. So why are we bailing them out? Why aren’t we insisting they file for bankruptcy, redo their debts, restructure the company, renegotiate their contracts and come out a healthier company? Why are we continuing to prop up a model that has lost money for decades? What is this “too big to fail” crap we keep hearing? GM is the single largest drag on the DOW. We aren’t just losing jobs, we are losing wealth! For every job we try to save in the auto industry we are destroying jobs elsewhere in this economy. What about these companies and their employees make them more important than other employees in other industries at other companies? Ford isn’t going out of business. They don’t need billions of dollars today in order to survive another 6 months. What happens in 6 months when they have run through this second infusion of cash? Do we just keep loaning them billions of dollars? Its time to let capitalism work. When these two automakers declare bankruptcy and become smaller, leaner companies, it will create opportunities for other companies. These other companies will employ these laid off workers. Manufacturing in America is not going to die because we right size a couple of companies! In fact it is the only way to keep manufacturing alive in the United States.
Why are we insisting on sticking with a model that has proven it doesn’t work? It is time for drastic change. Maybe these two companies can look at Ford and see what they are doing right. If GM and Chrysler go won’t that increase demand for Ford? Won’t that open doors for smaller companies? Does capitalism not apply in the auto industry?
I am not going to blame the UAW for all that ails the
US auto industry (at least not in this piece). The simple fact is that there are a myriad of issues that prevent these two companies from thriving. Both GM and Chrysler have struggled for years to remain relevant, and the time has come to break these two giants into smaller more efficient companies. If that means busting union contracts and benefits then so be it.
I understand that the auto workers worked hard all their lives. I understand that they planned their retirement based on their negotiated pensions. But what they need to understand is that the rest of us have worked hard all our lives too. We have planned our retirement on our investments too. We all have to make adjustments as a collective right now. We all have to make sacrifices. We can’t show favor to special interests anymore and that is what we are doing. The Unions have politicians in their pockets. They always have. And now more than ever this has got to come to an end. These workers will be okay just as the rest of us will be okay, but ONLY if we allow capitalism to work!
There are those that will say well this is a simplified analysis of a very complex problem. And maybe it is. But as the old saying goes “keep it simple stupid”. I think it is high time we apply this to the auto industry. All of the gloom and doom arguments we hear daily about what will happen if we let these companies fell is just rhetoric. The government does provide a solution to companies in distress and it is called bankruptcy. To claim that forcing two companies into bankruptcy who are bleeding money daily would be suicide for this nation is a bunch of hog wash. It is fear mongering at its best.
Our nation is built on capitalist principals and it is this that has made us the leader of the free world. Are we really willing to abandon our beliefs to save a couple of companies? Does anyone really believe that letting GM and Chrysler declare bankruptcy would mark the end of the US auto industry? Or do most of us believe this would mark the beginning of a new era where competition and innovation would once again restablish the US as the world leader in the auto industry?
I like your article but not the title. By not bailing out ailing industries we aren’t forcing them to go under - their decisions did that to themselves.
Whoaa nelly, Thats a lot to digest Jane,I mean I agree we should not reward bankrupting policy’s by providing cash to continue them form our taxes. But why excuse the busting of contracts with workers in response. Really, remember the story of how Frank Lorenzo had 2 airlines and bankrupted one and feted the other then claimed he couldn’t honor his contracts and sold one previously healthy company that he crippled into oblivion. If you don’t know this story its worth reading up on. OK, these guys screwed up. But why not rebuild from the bottom up no need screw over the workers get them in on the deal, they honored their contract and they didn’t raid the company coffers. And I bet they know more about improving their product than the guys getting the bailout.
Dsent I am aware of the Lorenzo story, but I don’t see a whole lot of similarities here. GM has massive financial obligations to their employees that they were covering through their investments. When the market started to crash so did their returns. This started the cash shortage. Then the credit markets froze and they had another problem on their hands-decreasing sales.
GM sells more units than anyone with the exception of Toyota. To say they didnt innovate or don’t have a product people want is hogwash. Is the company inefficient? More than likely but honestly what large corporation isn’t?
Their employee retirement, healthcare and other benefits obligations are just killing them right now. They are burning through millions, laying people off, doing everything they can to meet their financial obligations. But it isn’t going to be enough unless the market turns around and credit unfreezes. We can prop them up but for how long? Is the market going to turn in 6 months or a year or will it take longer?
Lots of people are getting laid off and losing their butts in their investments and retirements. I am sorry for all of us. But I just don’t think we should place the value of one over another….
Jane
Again, more companies who need to look within themselves to reduce expenditures. Why can’t they seem to get that they need to reduce salaries for their CEOs and executive workers and reduce waste in the form of failed car lines? It’s time for them to figure a way to produce with less waste instead of the American public taking on their debt! I can see allowing them to eliminate some of their debt, but not at the price of the tax payers and workers.
Layoffs are the easy way out. Sure, it reduces expenditures, but it puts an even bigger strain on the government, tax payers and economy. We have to find a more permanent solution like reducing overhead–pay cuts and consolidate product lines. If I see one more company go overseas, I will scream! That’s not the solution either.