Everyone saw this coming

Does anyone think it is ironic that oil comes from decayed dinosaurs? GM and Chrysler have come back to Congress asking for an additional $21.6 billion. they promise that this will be all they need to bring new cars to the market, bring people back into their showrooms, and pay back the other loans. The companies have said that bankrupcy is not an option, because it would keep customers out of their showrooms. As others have pointed out, though, bankrupcy would allow the companies to renegotiate labor contracts and force the necessary concessions from bond holders and others to begin the road to recovery.

Last week a headline in the WSJ read that GM was giving the Federal Government a choice. Bail them out or they go bankrupt. At least we are given a choice. While there was some speculation whether the Big Three would get bailout money a few months ago, there is little suspense now. President Obama repeatedly said that he favored helping the U.S. automakers, during his campaign. he may be rethinking that commitment. Back then, the price tag was only (only?) $50 billion. They settled for $25 billion. (Actually $16 billion becasue $9 billion went to Ford) Now, the Feb 18 WSJ reports that GM and Chrysler need $21.6 billion. That brings it closer to the $50 billion originally asked for. They went through $16 billion in three months. At that rate, they will go through this next request in four months, yet they are not going to be able to complete their restructuing until 2011. this amount also does not include pension fund contributions over the next few years. Given that their plan includes eliminating five factories and 47,000 jobs by the end of the year, but how much will that cost in severence and other expenses? And, let's not forget the most recent reports of declining auto sales. (55% and 49% declines in year over year sales for Chysler and GM respectively, in January)

The alternative, according to GM is to spend $100 billion in fees if they go into bankrupcy. "GM said it might need as much as $100 billion in financing from the government if it were to go through the traditional bankrupcy process," reads the WSJ on Feb. 18, 2009. I think I missed the part where the taxpayers are supposed to pay for bankrupcy fees. This should not be one of those "in for a dime, in for a dollar" situations. What is the harm in just saying "no?" None that I can see. It wold force GM and Chrysler into bankrupcy, and lawyers and creditors would have to work everything out on their own. The workers would be hurt, but my guess is not for long. I still cannot believe that another car company would not find a way to purchase GM and it's factories, then rehire the workers. Foreign car makers already make cars in the U.S. But I wonder if it would even get that far. My guess is everyone would be forced to the bargaining table and something sustainable would be worked out. this will never happen, though, as long as there is the possibility of a government bailout.

Bankrupcy would force a reworking of all the poorly conceived contracts that are currently burdening GM. Even with bankrupcy hanging over their heads, the UAW is still hesitant to new terms for how the car makers will fund the cost of future health care for retirees. There are billions of dollars at stake in this alone. The UAW is right to look out for it's workers, but this should be a sign to President Obama and Congress that this bailout is just not going to work.

In case you have any doubts, you can look at the plans on the WSJ website. They gave a nice synopsis of the plans on their editorial page, though. The entire car industry sold 9.8 million units in January. The plans call for profitability with rates of 12.5 to 13 million units. With the recession possibly lasting past 2010, if you take the Federal Reserve study published last week as a barometer, that is a tough row to hoe. Bankrupcy allows all of these contracts to be renegotiated. We need to look at this through clear financial glasses, rather than politically-colored rosey ones. Everything has to change to save these jobs, and the taxpayers more ineffective bailout tax dollars.