Prepackaged Failure
INVESTOR'S BUSINESS DAILY
Posted 12/5/2008
Bailout: GM, Ford, Chrysler and Congress seem to be inching toward some sort of bailout that would give Washington unprecedented control over these major American companies. This is no way to help Detroit.
Congressional Democrats are desperate to bail out the Big Three — but even more desperate to bail out the automakers' unions. After all,the UAW spent more than $11 million in the last election cycle to elect Democrats. They're owed.
In recent days, talk of a "prepackaged" bankruptcy has come to the fore. In such a case, the parties involved — shareholders, management, unions, creditors — would negotiate a kind of working settlement. The idea is to avoid a liquidation, while also getting access to the $34 billion in bailout funds the industry says it needs.
It's not the worst idea. But it doesn't stand a chance because the unions reject it out of hand. As UAW President Ron Gettelfinger put it, prepackaged bankruptcy is "not a viable option." Translation: Unions would have to make big, and permanent, concessions.
That leaves the latest bright idea from Congress: a broad, federally mandated restructuring of the Big Three in exchange for financial help. Congress would in essence become the Big Three's uber-manager, telling them how to become profitable again.
Excuse us, but are we supposed to believe that the same Congress responsible for next year's estimated $1 trillion deficit can profitably run a market-sensitive company like a car manufacturer?
Or that the same Congress that sat on its hands as the financial meltdown unfolded and helped create the mess will know how to financially restructure America's highly complex auto business?
Or that the people who just last year imposed $85 billion in new "efficiency" standards on a teetering industry will be savvy enough to run them anywhere but further into the ground?
These are not rhetorical questions. Preliminary results from our latest IBD/TIPP Poll show sentiment running 62% against a bailout for the automakers. With its own favorability at a subterranean 9%, lowest in history, Congress might want to think twice about it.
Does Congress have the know-how to do this? We looked up the background of the majority Democrat members on the Senate Banking Committee who grilled Big Three CEOs last Thursday, and who will decide the outlines of any bailout plan. Out of 11 members, just one — Montana's Jon Tester, a farmer and former manager of a butcher shop — had any real business experience.
None of the rest, from committee chairman Chris Dodd on down, has any private-sector experience to speak of, apart from brief stints at law firms. Fact is, Congress isn't equipped to run anything.
The Big Three are burning through $6 billion a month, so $34 billion won't last long. Chapter 11 bankruptcy, or something like it, would at least let them get out from under costly union contracts.
Given union opposition, this is highly unlikely. But as Lynn Lopucki, a bankruptcy law expert who teaches at Harvard and UCLA, told Bloomberg, about 77% of all billion-dollar companies survive bankruptcy. Others just sell their businesses.
Those are better odds than congressional mismanagement would offer. Chapter 11 would also force the automakers to change their business model and maybe even fire their CEOs. Best of all, it would keep Congress from meddling further in the marketplace. |
