Saturday, December 6, 2008

No bailout for Automakers

This is the text of a letter to the editor of the Augusta Chronicle. They did not publish my letter.

Dear Editor:

I am writing in response to your editorial supporting a federal bailout for the "Big Three" automakers.  Your suggestion of government involvement is likely to make matters even worse.

A federal bailout will only prop up the inefficient bureaucracy of a company like General Motors.  They make uncompetitive cars with unsustainable labor agreements.  Any federal involvement is likely to preserve the current union contracts and avoid the difficult decisions necessary to produce profitable cars.

Bankruptcy is the appropriate way to handle this situation.  A bankruptcy judge has the power to void labor contracts while attempting to save the company and preserve jobs.   For every job you expect the government to somehow "save" through a bailout, you may be costing a new job that could have been created under new ownership.

Yes, there will be pain if the automakers go bankrupt.  The federal Pension Benefit Guaranty Corp. (PBGC) may have to foot the bill for the pensions of retired workers if the automakers don't reorganize successfully.  Current shareholders will lose money (but they've already lost most of their investment, anyway.)  Putting the taxpayers' money at risk does not  offer the same incentive to reorganize as Chapter 11 does.  It is better to let the "creative destruction" of the market handle this crisis rather than having politicians take control of the "Big Three" automakers.

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