Thursday, November 20, 2008

Detroit Update

Michael Barone lays down the lumber:
The bankruptcy of one or more of [Detroit's big-3 automakers] would deeply impact the personal lives and dash the seemingly reasonable expectations of those who, directly or indirectly, have depended on them. I can't help but think of these people when the issue is raised.

And yet the implications of a bailout are frightening. The Detroit Three were unprofitable well before the current financial crisis hit, and GM is reportedly hemorrhaging $1 billion a month. The huge cost of lavish employee and retiree health care benefits, negotiated with the United Auto Workers (UAW), makes it impossible for the companies to sell for a profit anything but the big cars and SUVs that, after gas prices hit $4 a gallon last spring, almost no one wants to buy.

No one in the private sector is willing to pony up a dime for this business plan. GM stock is below its 1946 price, and one investment house has priced it at zero.

The Detroit Three are taking advantage of the passage of the $700 billion financial bailout to argue that they, too, need government money to go on. But as Megan McArdle of The Atlantic argues, the finance firms are different. If credit coagulates, everyone suffers, while if the Detroit Three go bankrupt, their shareholders lose their stake, employee and retiree pay and benefits are cut, and real estate values go down in areas where the companies and their suppliers operate -- but life for most of us goes on.

[K]eeping the Detroit Three in their present form, with their extravagant health care benefits and the union's 5,000 pages of work rules, is an exercise in preserving in amber the America of the past.
Agreed. And The Corner's Jim Manzi graphs the problem:


source: The Corner

The Wall Street Journal comes out firmly for bankruptcy, as does much of official Washington, including think-tanks. But liberals are lining-up in support of a bailout. I predict Obama makes it happen--right after reversing the "gag rule."

(via Powerline, Michelle Malkin)

3 comments:

Anonymous said...

I don't understand why the 3 automakers are not looking into converting their production into needed, profitable goods, e.g., infrastructure products, alternate energy products, edge technology products.

Assistant Village Idiot said...

It's only money, right? There must be plenty of it lying around somewhere.

Carl said...

Anony:

Because their legacy union and dealer contracts still would put them at a competitive disadvantage versus foreign manufacturers.

AVI:

Sure there is--here.