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Last updated: December 3, 2008 6:42 pm
Getting a taste of how the other half lives, three middle-aged multimillionaires parked their Gulfstream jets and opted for an eight-hour drive from Detroit to Washington DC on Wednesday. They can be forgiven for not carpooling as the bosses of America’s sagging Big Three are, if anything, very brand loyal and accustomed to being in the driver’s seat. But this is no joyride for the chiefs of General Motors, Ford and Chrysler, whose newest aid request to Congress has swelled by a third to a total of $34bn in two weeks.
As instructed, they have come back with plans for how workers, lenders and dealers will share the pain of restructuring their companies while avoiding bankruptcy. In nearly identical language, the Big Three and their allies have repeated the misleading mantras that Chapter 11 “is not an option”, that customers will never buy cars from a bankrupt manufacturer and that the domestic car industry would “collapse” without urgent action.
The situation is indeed dire – one only need examine November sales data or Detroit’s truck-heavy line-ups, not to mention their tattered balance sheets and bloated compensation structures to concur. But that does not warrant subsidised loans that would, in the end, amount to a wealth transfer from taxpayers to the executives and unions of a shrinking industry.
Detroit’s plans to shed brands, factories, debts and fixed costs are sensible and are exactly the sort of steps that would be taken under Chapter 11 protection, only far more quickly and cheaply. Congress should guarantee copious post-bankruptcy financing to them and their suppliers and end the debate soon in order to conserve rapidly dwindling cash piles. Social concerns about softening the blow to workers and pensioners or encouraging greener cars are fine but can be achieved through grants without the pretence of being repaid. The canard that such tough love would cause the entire US car industry to vanish is patently false. If the situation was really that bad, extending loans would be even more wasteful than it seems.
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