Should the ‘Auto Empire’ be saved?

Opponents to the bailout argue that throwing taxpayer money to Detroit is the wrong prescription for the illness. “It will just delay the inevitable,” and Detroit will come back again asking for more.

Sen. Richard Shelby (R-Ala) said this week during a Congressional hearing, at which all the Big 3’s CEOs were pleading for money with apocalyptic language and a common message: it’s not our fault, and we are the victims of the global financial crisis.

These corporate paupers are super-rich, ironically.

GM’s CEO Rich Wagoner earned US$14.4 million in 2007. Ford’s Alan Mulally made US$21.7 million last year. Chrysler’s Robert Nardelli earned only US$1 in salary, but he got a US$210 million golden parachute when he quit Home Depot in 2007. Those fat cats, who flew to Washington in corporate jets, were begging money from taxpayers. No wonder that their pleas fell on unsympathetic ears. Their chances of getting a Congressional nod appeared slim, given the unfavorable national mood and public opinion.

Detroit is terminally ill. GM has lost US$70 billion since the end of 2004, and its third-quarter loss this year was US$2.5 billion. Its “Jobs Bank,” part of a contract with the United Automobile Workers, pays laid-off workers for not working. Its “legacy payments” to retirees’ health and welfare benefits are a crushing financial burden. These extra burdens is estimated at US$2,000 per car, putting Detroit at a disadvantage relative to its competitors. Besides, GM can no longer make cars Americans like to drive. It lost out to Toyota this year as the No. 1 in domestic market share. In short, it has lost competitiveness to foreign competitors, due to decades of mismanagement.

Infusion of money does not mean the infusion of managerial wisdom. Nor it is a panacea. You simply cannot use Chinese herbs to treat cancer.

Bankruptcy, though painful in the short term, may be the only cure for Detroit. No business is too big to fail, even such iconic names like GM and Ford. Only from bankruptcy can come a new lease on life to keep the corporate torch burning, like the phoenix rising from the ashes.

On this matter, nobody has said it better than Mitt Romney, the former governor of Massachusetts and a candidate for this year’s Republican presidential nomination, who wrote in the New York Times: “If GM, Ford and Chrysler get the bailout, you can kiss the American automotive industry goodbye,” and its demise is “virtually guaranteed.”

Why? Because with the bailout, Detroit “will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and job losses. Detroit needs a turnaround, not a check.”

Then, how to get the turnaround? His answer: “A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. The government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk. In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.”

1|2

SharePrintEmail

Write a Comment

Enter your comments - 3000 characters max

Type in image code

Submit

 Receive China Post promos Respond to this email