Commentary Magazine


Contentions

There Is Already A Way To Do This

Robert J. Samuelson writes on the bailout vs. bankruptcy choice:

In bankruptcy, a judge can modify a firm’s labor contracts and debts. GM needs the benefits of bankruptcy without the uncertainties, but the political process — so far — disdains that desirable bargain. The conditions that Democrats mention are mostly rhetorical gestures against high executive compensation and in favor of more fuel efficiency. The Bush administration resists additional assistance without saying why.

We are seeing the fallout of the open-ended $700 billion rescue of financial institutions. Boundaries need to be established. Who deserves support and why? Imposing tough conditions on automakers not only improves the odds of success but also — by the sacrifices required — makes the process sufficiently unpleasant to deter a stampede of other industries seeking handouts. In 1979, when the Carter administration rescued Chrysler from bankruptcy, the price was concessions from management, investors and labor. We should do as much.

But there seems to be virtually no will, let alone a competent mechanism, to restructure GM within the context of a Congressional bailout. What givebacks by labor are needed, what pay cuts by management are in order, what suppliers must take a hit, and what pension and retirement health obligations must be modified? No one in Congress has the expertise to makes these determinations, and the Democrats are not about to insist on tough medicine. So we are back to the fundamental choice: shovel more taxpayer money into a failing business, or allow the existing mechanism  (the bankruptcy court) to do its job.

Yes, “bankruputcy” has a bad rap — for good reason. It denotes failure. But that is what GM is. And bankruptcy courts, with court-appointed personnel, are very good at doing the dirty work of examining the damage, spreading the pain, and reconstituting a functioning firm, if possible.

And it is not as if car production in the U.S. would halt if bankruptcy were pursued. GM, like other firms in Chapter 11, would continue to operate. Second, as even the New York Times recognizes:

The failure of one or more of Detroit’s Big Three automakers would put a huge initial dent in American manufacturing, but in time foreign car companies would pick up the slack by stepping up production in their plants here, many industry experts and economists say.

So unless and until Congress can construct a bailout that is at least as effective as a bankruptcy court, it is hard to imagine why tens of billions of more taxpayers dollars should be put at risk. Once it becomes apparent that Congress has neither the will nor the know-how to play the part of bankruptcy judge, perhaps we can all agree that it is time to drop the idea of an auto bailout.