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If they fail, let them: As harsh as it sounds, bankruptcy may be the best option for the Detroit Three.

Milwaukee Journal Sentinel

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It looks less likely now that the Detroit Three will get that extra helping of pork that they want to go with their turkey of a bailout plan, but congressional Democrats still want to serve it up. The Senate took up a second $25 billion bailout bill Monday.

Earlier this fall, Congress gave General Motors Corp., Chrysler Corp. and Ford Motor Co. $25 billion in low-interest government loans aimed at helping them retool their plants to build more fuel-efficient cars. But the automakers are bleeding cash so fast, they may not survive long enough to retool. GM may not make it until President-elect Barack Obama is inaugurated on Jan. 20, according to GM Chief Executive Rick Wagoner.

The automakers want a transfusion from the $700 billion fund established to shore up the credit markets or, failing that, a pot of their own money.

Unfortunately, congressional Democrats and Obama seem trapped by their political connections with the United Auto Workers and are voicing support for this misguided idea. A second bailout won’t make up for decades of mismanagement and union intransigence, and we can count on the automakers coming back for more once they burn through their second installment.

When the banks foundered, the life of the entire economy was at stake. That is not the case if the automakers fail. The government should let them go into bankruptcy if it comes to that.

Under federal bankruptcy protection, they could overhaul their operations to compete with Toyota, Honda and other foreign-based automakers, which now employ more than 100,000 people in the United States. The overhaul should include severe cost reductions and the end of onerous union rules that hamper productivity.

Once in bankruptcy, Congress could spend that additional $25 billion _ more, if needed _ to retrain and support displaced workers and communities most at risk. Places such as Detroit, Janesville, Wis., and Lordstown, Ohio.

Wagoner claims “the consequences of bankruptcy would be dire and extend far beyond” the company. There are specious claims that job losses could total 3 million or more. There are claims that consumers would shy away from bankrupt companies.

Second claim first: Consumers might be hesitant, but they could be persuaded to buy cars if the prices were right and if automakers guaranteed warranty work by escrowing money to ensure that dealers could make repairs.

As for that job-loss prediction? The Center for Automotive Research in Ann Arbor, Mich., says “nearly 3 million jobs would be lost in the first year if there is a 100 percent reduction in Detroit 3 U.S. operations.”

But bankruptcy is a system for reorganization _ companies continue to operate in Chapter 11. Jobs would be lost, lots of jobs, and a bankruptcy for any of the three companies would be painful. But all 3 million jobs tied to the industry would not vanish. Other companies have emerged from bankruptcy stronger. The airlines repeatedly have foundered only to re-emerge.

A major reorganization is needed, unless the government wants to nationalize the auto industry. And if that’s what the Democrats want, then the obvious question is who is next? Linens-N-Things?

The truth is, the government has delayed this day of reckoning for years. It bailed out Chrysler in the late 1970s, imposed quotas on Japanese imports in the 1980s, and for decades let the Detroit automakers build gas guzzlers under sham federal fuel-efficiency standards. For its part, the UAW kept fighting for expensive benefits and embracing a 1950s worldview even as the automakers were crashing.

Congress should not subsidize Detroit’s restructuring. It should not open the bailout window for other industries. It should, instead, allow any bankruptcy process to proceed and be ready to assist workers and communities generously. Because, painful as it is, sometimes companies simply have to fail.

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The Independent Student Newspaper of Northern Kentucky University.
If they fail, let them: As harsh as it sounds, bankruptcy may be the best option for the Detroit Three.