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December 12, 2008

Posted by neoavatara in Politics.
Tags: , , , , , , , , , , ,



I have not spent much time on the auto bailout (there has been so much other tantalizing stuff going on!), but now seems a good time to jump in.

The collapse came after bipartisan talks on the auto rescue broke down over GOP demands that the United Auto Workers union agree to steep wage cuts by 2009 to bring their pay into line with Japanese carmakers.

I have mixed feelings on this bailout, like the previous one.  I grew up in Michigan, and my father was intimately involved in the auto industry.  So I hate to see them in the state they are in.  That said, this bailout has virtually no chance of succeeding in saving the Big Three.  It does nothing but delays the inevitable.

The only chance the U.S. auto industry has is to significantly alter its business plan.  The only way I and others see that happening is with Chapter 7 or 11 bankruptcy, which has its own problems (who would buy a car from a bankrupt company?).  But throwing money at this problem is the classic ‘throwing good money after bad’.  Does anyone believe that without huge structural changes that anything will be different with the American auto industry.

With the current debacle, the Republicans will take the bulk of the blame.  Senators Corker and McConnell led the charge, as well as Sen. Shelby.  I agree with their sentiments…but I think that was severely mishandled.  I agree that the UAW must be part of any solution, and they have to be willing to give up wages and benefits to do it.  But to demand that in a Congressional bill may be a bit much.

There has to be a middle ground here.   The best solution as I can see it is for the companies to go into some government secured Chapter 11 process.  That way, customers are assured that the companies will survive, but the structural changes necessary can still occur.  Short of that, it may be better to let them all land in the dust heap of history; even will all the terrible consequences that will arise.

On a side note, this shows the ultimate weakness of Pres. Bush at this moment in time.  He has virtually no capital even within his own party.  The sooner that Mr. Obama comes to power, the better.



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