Cross-posted from the Breakthrough Institute
The executives of General Motors, Ford and Chrysler made yet another trek to Washington DC this week - this time ditching the corporate jets to drive hybrid cars - and once again pled for a federal bailout to prop up their struggling companies. Up to $34 billion taxpayer dollars are apparently all that stands between at least two of the "Big Three" automakers and bankruptcy.
GM's executives told Congress the company will fail very, very soon unless it receives at least $12 billion in loans in the coming months. Chrysler warned they could go belly up by year's end without $7 billion in government aid. Even Ford, which is doing a bit better than its two Detroit brethren, is asking for an open, taxpayer-funded line of credit of up to $9 billion dollars.
All this means its time for Congress and the American public to face two basic facts.
First, GM and Chrysler are essentially bankrupt already, and Ford may not be far behind. The insular management of the Big Three has already run their companies into the ground, and if a massive government loan is the only thing that will keep them afloat, we might as well consider them failed companies, for all intents and purposes. So let's start treating them that way. With the economy in recession already, we certainly need to ensure a soft landing - rather than a hard collapse - for the auto companies and the millions of Americans who depend on them for their paychecks. But the objective of the bailout should be to preserve American auto industry jobs, not to preserve the Big Three companies themselves. GM, Chrysler, and perhaps even Ford are done. We shouldn't be afraid to turn the page on this chapter of the American auto industry and usher in something entirely new - and better.
Second, if GM, Chrysler and Ford are too big to fail, then it's time to realize that they are simply too big, period. If taxpayers are going to put their money on the line to bailout Detroit, we should be taking advantage of this opportunity to make fundamental changes to the American auto industry. It is time to say, "Never again!" to auto companies that are so large that they can hold taxpayer's hostage because the consequence of their failure is too great - companies that are so large that competition and innovation are stifled by their vast and unwieldy bulk.
Here's what we propose: offer government loans to the Big Three to ensure the companies don't collapse now during the midst of recession. But the conditions of those loans should be similar to the conditions of the Chapter 11 bankruptcy the companies would enter in absence of the loans. No blank checks for the Big Three to continue business as usual.
Instead, Congress will appoint an independent blue ribbon commission. They'll staff that commission with the best bankruptcy judges, restructuring consultants, and industry experts in the world. This commission will be charged with breaking the company up into several smaller companies that will inherit the different divisions, car models and assets of the parent. The commission will then seek new management to run each new company, deploying head hunters to recruit top talent from mid-level management within the Big Three, or even in the ranks of foreign companies like Toyota, Volkswagen or Hyundai.
The new companies - Baby GMs, or Baby Chryslers - will then be turned back over to the private sector and they'll be encouraged to issue new common stock to raise more operating capital. The government will have to vigorously enforce anti-trust laws to ensure these companies remain small, at least for the time being, and to keep foreign automakers or governments from gobbling them up (the Chinese government has already been shopping for one of the Big Three, and would gladly snatch up the new companies if we let them).
In the end, we'll have a new kind of American auto company - leaner and nimbler, and under a new class of managers - and a new kind of America auto industry - one that's more competitive and fosters the continual innovation that's been absent in Detroit for too long.
In the short run, we'll protect as many automaker jobs as possible by injecting capital into these new companies to help them weather the transition period. In the long run, some of these new companies will fail, but when they do, they won't be large enough to send the entire economy into tailspin. And for every company that fails, others will succeed by adopting a corporate culture that embraces innovation and produces high-quality cars that match the American consumer's demands.
The net result will be a vibrant and innovative American auto industry that sustains good manufacturing jobs here in the United States. The new competitive environment will foster the adoption of more efficient vehicle designs, encourage the development of cutting-edge technologies like plug-in hybrid electric vehicles, and create space for up-and-comers like Silicon Valley-based electric car manufacturer Tesla Motors to enter the field.
That's the future of the American auto industry. Anything short of this kind of dramatic restructuring of the industry will merely prolong the inevitable day when GM, Chrysler and Ford fall under their own weight, taking American jobs, taxpayer dollars and our economy with them. Too big to fail? Too big, period.
[Image source: FoxNews.com]
Friday, December 05, 2008
Cross-posted from the Breakthrough Institute