Richard Spencer

December 09, 2008

Now that the bailout of the Big Three has evolved, inevitably in my mind, into an outright nationalization, are there any economic nationalists out there who’d like to rethink things? Or better, is there any one who thinks that Washington bureaucrats and lawyers are going to do a good job “restructuring” the companies? (I guess since the government has entered the insurance business—and it’s running AIG, the 18th-largest public company in the world, no less—it was only a matter of time before it took up automotives.)

The best solution was always bankruptcy, that is, allowing the bad aspects of the companies (and there are a lot of them) to be liquidated and competent management to come in and salvage what worked at the Big Three (and, without question, many of the brands would be worth saving). What’s going to happen now is that whatever prestige the Big Three still have will soon be ruined as the American automotive industry is turned into a dreary public enterprise with the reliability of Amtrak and the operating efficiency of the DMV.   

(The debate at Takimag is as follows: Piatak I, Spencer I, Richert, Spencer II, Pitak III, Piatak IV.)

Here are some quotes to chew on: 

From the WSJ:

The auto industry would undergo a restructuring process akin to bankruptcy reorganization, only with fewer rigors and with the government, not a judge, in control, and with many associated political complications.

One danger for auto makers is exposing the industry to congressional meddling as it attempts to build a new business model. The legislation, among other things, would bar the companies from participating in legal challenges to state laws designed to impose limits on greenhouse-gas emissions. The White House opposes that provision, congressional aides said.

The big three would have to analyze whether excess production capacity could be used to make trains and buses for public transit authorities. Also, in a slap, the legislation would require companies to sell or cancel lease agreements for private jets. The Detroit chief executives raised the ire of lawmakers in November by arriving in Washington on their own planes.

If the car companies don’t make satisfactory progress toward fixing their long-term problems by the end of March, the auto czar could submit to Congress a plan “and request legislative implementation,” according to the draft bill.

Ford, which has said it is in better health than its peers, said it wouldn’t seek a short-term loan. It threw its support behind the effort to aid the other two, saying “a failure of one of our competitors could affect us all.”

If Ford is in OK shape, why would it say this? Wouldn’t it actually like to reduce its competition? Since when would the failure of one firm affect its competitors for the worse?

Some congressional officials are floating the idea that Kenneth Feinberg, the lawyer who oversaw the 9/11 victims’ compensation fund, should be considered for “car czar.” The decision is ultimately up to the president.

I’m sure Herr Feinberg will make executive decisions based on his vast knowledge of automotive engineering and consumer marketing. 

In a sign of how messy the reorganization could become, the United Auto Workers union is seeking to attach strings to any concessions it makes for the Big Three. Marc McQuillen, president of UAW Local 2404 in Charlotte, N.C., said the union is looking for an equity stake in GM and likely a seat on the company’s board. UAW officials in Detroit couldn’t be reached for comment.

And from FT:

Barney Frank, chairman of the House financial services committee, said: ?There are a couple of specific issues to be negotiated. I think they can be worked out.?

It’s great to see that Barney will be involved. These companies will be profitable again in no time!