Bankruptcy in Detroit

NY Times Editorial:

Congress has given Detroit’s flailing automakers less than two weeks to come up with a restructuring plan that would justify giving them tens of billions of taxpayer dollars and ensure that they have a reasonable path back to profitability. We hope it is a good plan, because the lame-duck Congress does not have a choice.

Michigan’s three car manufacturers have said that they would go bankrupt this year without an infusion of taxpayers’ money. Failing to provide it would be a truly irresponsible act that could obliterate one or more companies, potentially causing other bankruptcies and costing many hundreds of thousands of jobs.

Unpalatable as it seems to underwrite the proven record of failure of Detroit’s automakers, Congress must provide sufficient money to shore them up until the Obama administration takes office. Then, the new president and new Congress can decide how to manage either a rescue package with tight strings attached or a bankruptcy process that ensures the fallen companies have a reasonable shot at picking up the pieces.

Bankruptcy proceedings are designed to allow ailing companies to be restructured into profitable businesses, but that is by no means guaranteed — and it requires infusions of credit.

In the current financial environment, where even the soundest companies are having trouble getting loans, the government would have to guarantee that financing is available so that any car company under bankruptcy protection could keep operating and paying its workers and suppliers while it is restructured.

A bankrupt carmaker would face another tricky problem: how to keep consumers from shunning its cars out of fear that it might not be around to honor its warranty. Any bankruptcy financing given to a car company should be enough to buy warranty insurance to cover its fleet.

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When I bought my politically incorrect F-150 crew cab yesterday Ford Motor Credit financed it at the most attractive car loan rate I have ever received. They clearly are not out of money yet and if more people would buy new autos and get something in return for giving them money rather than having the government do it they might be able to avoid bankruptcy.

As for the pensions and medical benefits of retirees there needs to be some major adjustments in the benefits received. I receive medical benefits from the government because of my disability retirement from the Marine Corps and I have no complaint about them. They do require a modest quarterly payment and a small copay. However things like Viagra are clearly not covered, but the largest consumers of Viagra in the country are retired auto workers who get that as one of their benefits. The union contracts are the car companies biggest problem outside of Washington.

Another problem for the automakers has been the Democrats anti energy policies that have driven up the cost of energy and transportation. Congress is only likely to make this worse under the new administration and they will try to put a bandaid on it by adding subsidies rahter than freeing the energy producers. The carbon phobes are in assendency at this point but the cost of their phobia is likely to be one of the screwups by Democrats that will put Republicans back in power.