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  • Morning Bell: Bankruptcy Is Best Way to Save Auto Industry

    Last night while marshaling votes for the House’s eventual 237-to-170 vote in favor of nationalizing Detroit, House Majority Leader Steny Hoyer (D-MD) told the Wall Street Journal: “If we do nothing we face the risk that sometime soon there will be no American auto industry.” Hoyer has it exactly backward. A government takeover of the Big Three represents the biggest threat to their long-term existence, while a Chapter 11 restructuring is the best way to ensure the long-term viability of the industry.

    • Bankruptcy Does Not Mean Death: The auto nationalization cheerleaders keep claiming bankruptcy proceedings for the Big Three automakers would cause a loss of 3.3 million jobs. This is a completely fictional number that assumes all three automakers would go bankrupt simultaneously and that all three companies would then immediately cease all operations entirely. Both assumptions are completely false. Ford has said repeatedly that it is in better financial shape and does not need taxpayer money. Furthermore, under Chapter 11 any firm that did declare bankruptcy would still be able to operate under the protection of a bankruptcy court. Even if GM filed for Chapter 7 liquidation, their assets would not simply cease to exist. More likely, entire plants and brands would be sold to other competitors who would then continue to operate them. Either way, the industry’s fear-mongering scenario of a 100% contraction of the auto industry would never happen.
    • Bankruptcy Is Designed to Resolve Complex Problems: GM and Chrysler are not suffering from a short-term liquidity problem. They are suffering from a long-term structural problem that includes uncompetitive labor costs, a bloated dealership network and a short-term credit crisis. All three of these issues are best addressed through bankruptcy. The Bankruptcy Code has a well-developed and tested body of law to help bankruptcy judges modify existing labor contracts. A bankruptcy judge has significant discretion and power to push the parties toward an agreement that is mutually acceptable, conforms to economic realities and ensures the business is able to return to profitability. Bankruptcy laws also allow firms to reconsider contractual obligations free of state franchise laws, solving the dealership problem. And bankruptcy allows for an automatic stay on all creditor claims, giving GM and Chrysler the time they need to become competitive again.
    • Bankruptcy Pulls Politics Out of the Process: In exchange for a $15 billion down payment and the promise of more bailout money in a few months, the auto companies must agree to report to a “car czar” and have their long-term business plans approved by Congress. Do we really trust people like Sen. Chris Dodd (D-CT) and Reps. Jesse Jackson Jr. (D-IL) and Charlie Rangel (D-NY) to put the economic viability of the auto companies ahead of their own short-term political interests? Is there any evidence at all that politicians would even know what would be in the best economic interest of the auto companies?

    Making the case for bankruptcy instead of bailout last night, Rep. Dan Lungren (R-CA) told the Washington Post: “Chapter 11 doesn’t mean death and destruction. It means restructuring and rebirth.”

    Quick Hits:

    • The government’s spending surge will push the federal share of the nation’s economic activity close to $1 out of every $4, the highest level since World War II, reports USA Today.
    • The federal investigation into Gov. Rod Blagojevich (D-IL) has cast a shadow over the Service Employees International Union.
    • While delegates from around the world meet in Poland to discuss the next global warming treaty, the European Union “is locked in its own contentious debate” over whether to abandon its emissions targets.
    • Americans have flipped from being in favor of the $700 billion to being against it, according to Gallup.
    • According to Rasmussen, 58% of voters oppose any kind of government-controlled health plan if it means they have to change their own insurance coverage.
    Posted in Ongoing Priorities [slideshow_deploy]

    31 Responses to Morning Bell: Bankruptcy Is Best Way to Save Auto Industry

    1. Linda Montrose Fran says:

      I have said from the start that the auto industry should have to file for bankruptcy. The tax payers should not have to foot the bill for their failure to manage their business better and them telling the union where to go. We, the tax payer, should have no part in saving the union and actually this is what is is all about anyway. Sometimes you have to fail in order to succeed!

    2. Virgil Bierschwale, says:

      I totally disagree that bankruptcy is the best way to fix this problem.

      Please read the article titled "Your wages do matter" and then the article titled "Wake up and smell the roses" and finally the article titled "Treason"

      These will give you a better understanding of why our retailers, manufacturers and raw material producers are struggling and you will then see that the solution is very simple.

      Stop offshoring our jobs.

      For those that continue to do so, try them for Treason.

      America will once again be strong.

      But putting bandaid's on the symptoms will not fix the problem.


    3. Jon, NJ says:

      Chap. 11 is the only chance for eventual success, but trillion dollar losers know alot about business so there you go……….You dont give millions and millions to political conventions and get nothing in return in modern day USA. Its pay to play just like Blabgodeovitchitch (ha)in IL.

    4. Don Miller, Houston says:

      I have owned nothing but American made cars since I have been old enough to drive, but if the domestic automakers allow federal control of any kind I will take my buisness somewhere else. I refuse to buy some rinky-dinky piece of junk dictated by the self serving poloticians in Washington, especially while they fly around in personal jets and ride in limos.

    5. Barbara Douglas, For says:

      No, I do not support the government bailout of the American auto industry. Ford is able to move forward and restructure based on their foresight of obtaining a line of credit and I think they are concerned enough to take some drastic steps. I do not want Dodd, Barney Frank, Pelosi, or any of the other Democrat having control over reorganization proceedings or influence over a "car czar" as they are too in bed with the unions and it's the legacy costs established because the companies game into unions in the past which is the greatest cause of their current problems (including the problems leading to this crisis situation). I have always regretted that such issues as health insurance ever became a part of any benefit package. This should have remained an issue left up to an individual or family so they really understood the total expense of medical care. It would have made the health insurance industry much more competitive as costs would be more transparent to the buyers/users.

    6. Byron Simmons, Alpin says:

      Does our congress or senate pay any attention to their constiuancy? The polls say they do not, still, the major problem is our apathy. We are not speaking out loudly enough against the liberal agenda and it's press.

    7. RF, Wichita KS says:

      Can't agree more with the statements in the morning bell. The bailout is politically motivated and that is all it is. I certainly hope the senate sees fit to turndown the bailout proposal. If they approve it, I hate to say it, it just strengthens my position of buying foreign.

      The marketplace should be the determining vehicle, not congress…

    8. Tony Hollick Bristo says:

      RF says:

      "The marketplace should be the determining vehicle, not congress…"

      This seems to be reasonable, but at this rate, there will be no American auto industry.

      A better way is to hand over ownership of the car companies' capacity to those Americans who actually make the cars; they can elect suitable executive officers; and America stays in the auto business.

      That's the path to a free market in cars and trucks; an indigenous auto industry; and the national security that comes from design, development, manufacturing and ancillary capacity.

      Britain tried the Crony-Capitalist route, and now has no British-owned carmakers at all.

      Is that what Americans want for America?

      Tony Hollick

    9. TSA - Omaha says:

      Great article and consistent with my beliefs. Nice read.

    10. Michael J O'Bri says:

      Can the democrats really be that stupid, they voted 201 in favor of the auto bail out [36 Republicans vote in favor as well]. Most business experts disagree with the democrats. Heritage is correct: a full restructuring is required otherwise the cash flow burn will only ensure that the big three comes back to the taxpayer coffers in 2009, 2010, 2011 and so on. This vote was nothing more than the democrats led by Pelosi, Frank [another genius] Reid and Dodd giving back to their core constitutions: the UAW. Never mind about the long term survival of the big three, and the American manufacturing base, this the same type of stuff that we are seeing in Illinois, pay for play. The lobbyist are alive and well with the democratic congress, and the unions will ensure that the UAW keep their legacy cost, $75 / hr rate [$150,000 per year], and the job banks in place. The management of the big three must go. Cerberus Private Equity that owns a majority stake in Chrysler refuses to fund Chrysler due to confidence problems.

      The big three problems are micro economic, meaning that the problems are internal structuring: cost, product selection, R&D, unsustainable collective bargaining agreements, high debt structure, dealerships, vendors, and poor management. The credit markets have nothing to do with the above, although it has affected cash flow. As the business paradigm goes: when cash flow dries up the real problems surface. Our law makers must get on board with some basic economic knowledge since they are largely responsible for most of the mess we find ourselves in today. They continue to politicize the economy, and wait there is more to come in the next four years. We should be thankful there are some Senate Republicans willing to stop this insanity in Washington. We should have no thanks for this White House, and this democratic congress, that will be leaving office with the country fighting two wars, and an economic mess at home. Vote the democrats out as soon as possible. Write your representative.

      Chapter 11 is the only option that will save the big three. The big three management does not have enough spine to stand up to the unions. Consider the following: the big three get the bailout, and are told to negotiate new collective bargaining agreements, or the monies are recalled. Two problems: [1.] there would be no money to recall [would the government will sue?] [2.] the unions balk and threaten to strike, or do strike. That leaves the big three with the same problem, cash flow drain. Finally, today the big three bonds are worth $0.21 per dollar. With taxpayer bail out the value will rise and bonds holders paid mainly in full. Thus the tax payers would be repaying big three investors. Now is the time when big three product demand is weak that a restructuring can most effectively occur.

    11. Steve, League City says:

      I have owned businesses in the past and one of (if not The Best) teaching tools needed to used to run a successful franchise, business, firm etc., etc, is to deal with that which you have been dealt. Turning to Mommy or Daddy (a public bail-out) when times get tough, end at a very young age, i.e. kindergarten…


    12. Duke Lynch CA says:

      Must go chapter 11 and change the entire culture of the American industry…look up W. Edwards Deming who was rejected by Detroit, went to Japan and instituted a 14 point program for Japanese auto maker to follow priamrily based on "total quality control" Look it up and then follow the "rule of law" and fire the whole damned Congress…

    13. Mel, California says:

      Bankruptcy is the best option! Too bad the media does not understand how a Chapter 11 could help the auto industry. Wish explanations of how a Chapter 11 works was published in papers and talked about on the radio. I think the more the public understands how it works, it becomes obvious it is truely in the best interest of all the employees and management of the auto industry and America as a whole. Otherwise we are just putting off a worse problem, which is the government deciding how to run a business. Governments are not in "business". Governments are to protect our nation, promote freedom, ensure liberty. They need to let the natural course of faulty decisions have their uncomfortable conclusions. They will survive because we are survivors and we have the technical knowhow and determination and freedom to do so. Let them be.

    14. Pingback: Bankruptcy Is Best Way to Save Auto Industry « America, You Asked For It!

    15. Dr. Paul Anderson says:

      Quite simply, at the rate Congress is spending billions of dollars, I suspect, in the not to distant future, they will bankrupt this nation, as did the Ancient Roman Empire, in it's decline.

      The approach Congress is taking, toward the take-over of the Big-3, for the express purpose of producing and promoting enviromentally friendly transportation, causes me to closely examine their reasoning, when Bankruptcy would be a more cost effective means, of re-structuring the auto industry.

      With the recent re-structuring of the banking industry (by take-over), and the possibility of a Congressional take-over in the auto industry, I suspect that the Washington Progressives, ie( Socialism ) are intent on financially bankrupting this nation. In doing so, it would cause the Global Central Banking System ( 163 Central Banks world-wide ) of The Global Alliance, to step in and fund a take-over, which would result in the U.S. becomming a "member state", of the EU. A centrally controlled Global Alliance ( One World Govt. ), has been in the planning stages, since the 1930's.

    16. Ray Haworth, Fresno, says:

      I agree with the writers who say, let them go bankrupt. It's the only fair way out of this mess. They got them themselves into this mess, now let the bankruptcy court, help them get out!! Don't believe the people who say that this is not the way. This is the ONLY way. I don't want my money to be thrown away, to help out the domineering unions.

    17. John E Rosina, Borde says:

      I am flabbergasted that $700 billion for Wall Street draws little ire while a manufacturing entity raises the hackles of so many. Wall Street produces not one shred of value added product to the economy and has, by their lack of due sound economic dilligence, frozen the ability of industry and individuals to borrow.

      I suggest one of two possible reasons for your disdain; either you are clueless to the basic drivers of an economy or, your addiction to faulty a trickle down economic model (Reagonomics)leaves you salivating for a piece the auto industry – an industry that our politicians and new age Hedge Hogs and venture capitalists have

      helped to undermine.

      I offer a take on the old American Express Card slogan; Wall Street – don't leave home…ever!

    18. Dick Nash Grosse Il says:

      I am sorry folks but those who think Chapter 11 is the only way to save the auto companies do not have experience working in the auto industry. It is easy to say that GM or one of the others should file but the domino fallout from that would be tremendous. First off you have tier one suppliers who provide the parts directly to the OEM (oRIGINAL eQUIPMENT mANUFACTURERS)to build the cars. They are already hurting because the volumes are way down due to the economy which by the way is bad due to very poor decisions in the past and present by our politicions. Not only are the volumes greatly reduced but over the past few years everything that goes into making the parts has increased in price. The suppliers could not in most cases get these increases passed on.

      On top of this you have smaller manufacturing companies who make parts for the Tier one suppliers etc etc.

      At this time there has been a fair number of suppliers already forced out of business. If Chapter 11 cam e into the picture many more would follow suit. Our manufacturing base would diminish greatly.

      Between agriculture and manufacturing this is the backbine of our nation. You think we have unemployment now…. just wait!

      Why are we not questioning these same politicions who think they know how to run an auto business on why our country is deeper in debt than ever before ?? These are the prople who should be held under a microscope and made to be held accountable.

      It is time they start paying into social security, health plans and 401K's so they can feel the pain that we do.

      Are the Auto companies and the unions innocent…. no ! But this is the core of our problem. Let us start at the beginning… in Washington.

    19. nancyoleta, seaford, says:

      We need to let the auto makers to file bankrupt,then they will feel the crunch we Americans feel when we fail to care for our bills…Let the unions destroy themselves..The true Americans will have to revolt and get our counrty back on course just as they did under General Washington and stood tall with the American Flag waving….JESUS LOVES America and HE will never allow it to be destroyed……

    20. STEVE SEVITS - NEW Y says:

      Government mileage standards, environmental standards and OSHA regulations should be taken off the back of the backs of the auto industry.

      A two year corproate tax moritorium should be given to the auto industry and executives should be paid 10 times the minimum wage, line workers should be paid a multiple of the minimum wage PLUS both should be put on a profit sharing plan.

      Reduced constraints, increased incentives and watch out world, the real American work ethic will do the rest.

      In addition all foreign owned auto companies, Germany, Korea, Japan [even those which build cars in this country]should be taxed a flat 50% on all profits taken out of this country. They should be allowed to escape all taxation on profits, if they would take those profits out in American manufactured goods or agricultural products, with the exception of petroleum products.

    21. Spiritof76, New Hamp says:

      Just remember. The same socialists in the US Congress that brought us the credit problem through Fannie Mae and Freddie Mac want to take over the automobile companies. Result will be the same. Will go out of business because there will be no market for the car. However, the next step to consolidate their power is to raise gasoline taxes to get the price per gallon up to $4 and raise taxes on the foreign automobile manufacturers operating in the US through their surrogates, the UAW.

      Where will all this end? The socialists will try to run the country just like Chavez of Venezuela.

      When people find out that they can not buy food that easily, then only they will wake up to throw out the power mongers parading around in Washington, making a mockery of our Constitution. Give it another 8 -10 years. We will be another USSR.

    22. David Barth, CFA, Ju says:

      The Administration, including their trust in a Treasury Secretary from Goldman the invisible government, and Congress have made terrible mistakes and want to compound them with bailing out the auto companies. The suppliers will continue to supply, the workers will continue to build cars and the mess can only be cleaned up with a reorganization. Production will not cease!!

      Had the Administration in 2007, when Bush advised people to call their lenders if they had trouble paying on their mortgages, that the taxpayers were not going to bail out anyone this financial crisis, caused by Wall Street Greed not an inventory recession, would be over. He made the FDR mistake of giving people the idea that they didn't have to do anything as Uncle Sap will bail them out. Can one imagine a twelve year recession in the U.S. with its entitlement culture? There will be crime like we never saw it and the economic policies being proposed are doing more harm than good.

      Now they make stupid statements that they want to hurt home buyers by keeping prices up and further incentivize them to hold off buying as they may get 4.50% loans (govt setting mortgage rates). Do they really want to fix prices for homes and price qualified buyers out of the market? Are these people completely unbalanced? All those who made millions trading pieces of paper on Wall Street only could have such a mind set. Harvard and Yale is stamped all over this nonsense.

      Bernanke has stated plainly and publicly that he wants to devalue the dollar and there is no doubt in my mind he will do it. Obama, who made the horrific statement that "the economy will get worse" shows he has little leadership qualities and with the Clinton Like Cabinet he has we can expect an "Industrial Policy" with politicians and bureaucrats picking winners and losers.

      Let's face it, FDR kept us in depression for close to twelve years before Hitler's invasion of Poland cranked up our industrial might. The twelve years tells you something about his policies and I remember visiting my dispirited, intelligent father shoveling dirt from one side of the street to the other while working for the WPA. What a waste of intellect!

      I see little to be happy with a Chicago Socialistic Pol leading our government. The terrorists must be thanking Alla many times a day.

      I wonder if anyone in Congress or the Administration understands that Daimler owns 19.9 percent of Chrysler. Are we going to bail out a German company, as well as the "smartest in the room" private investors who knew they were buying a pig in a poke?

    23. Gary Q., El Paso, TX says:

      I could not AGREE MORE…

      This is EXACTLY what the Bankruptcy laws were written for, by the same MORONS in Congress that think THEY can run anything…

      I say maybe we need a CIVIL UPRISING, Enmasse, to through the bums (Thieves, scroundrels, and PROFESSIONAL SCREWUPS) OUT on their "Ears" (lol)…

      Besids, I donn't want an "AFRICAN-American" presiden, or any Govmt. position.., I want 100% red blooded AMERICAN (No Hyphenation, no such thing as dual citizenship). Don't care about skin color, I care about PATRIOTISM!!! If you put another COUNTRY before AMERICAN, then GO THERE!!!, and GOOD RIDDENCE!

    24. Pingback: Bankruptcy Is Best Way to Save Auto Industry « Conservative Thoughts and Profundity

    25. Kevin Somerville C says:

      Isn't it ironic that conservatives applaud the japanese automakers for beating us? These companies enjoy huge government healthcare subsidies that would make anyone at the heritage foundation cringe! I agree that bankruptcy is now the only option, but it is intellectually dishonest to say that it was because of a failed business model. It has more to do with a beggar thy neighbor attitude among americans who would not come together to address our common problems. For those of you who believe your region or industry or whatever is safe, think again. This nation is no longer a nation, and we are all on our way to the poorhouse.

    26. mike hutchings texas says:

      let them go down and pull the healthy parts off the old clunkers. the leadership of the big three is a playground of insulated corporate and union elites who will be grafted onto the goverment.You only have to look at europe to see how well it works when goverment(fascism) takes control of industry.I find it ironc that the peace loving lefts power base is built on WORLD WAR TWOs british economic model that introduced the socialist welfare state that spread from there across the smoking embers to the frontier of russian communism as counter balance. they became like thier enemy when they fed on his remains and failed to introduce any thing other than the peasant based tactics of control that socialism is for the good of the state.Two poles balanced aganst each other till one absorbs the other must reach out to another polarity to continue to exist lest it consume its self as old europe is doing. I suppose that leaves us as the main course and honored guest at the next cannabals pick-nic. We are lead by a gaggle of oh so reasonable honking geese, fluffing thier feathers, shakeing thier heads while pea sized brains rattle behind overlarge bills evolved to trumpet thier deeds to the faithful.REAGAN understood why that wall had to go down and what the peril of propping it up posed to a degraded west grown comfortable with state villany.let them go down and at least kick that foot out of the door.THE UNIONS ARE DANGEROUS TO THIS COUNTRY.

    27. William Wynne says:

      The GM piece of the puzzle.

      Years ago John Z. DeLorean–no paragon, to be sure, but one who knew well the GM management culture–observed that the corporation was incapable of changing from within. Chapter 11 is the only option for the company's long-term survival.

      During WWII a relatively lean model of management (the legacy of Alfred Sloan) gave way to an increasingly bureaucratic style. The result of the wartime command economy.

      Under the disastrous leadership of Roger Smith, design, production and marketing gave way to investment strategies. GM's chief product shifted from automobiles to careers. Under Smith's reorganization program, a marginally functional management bureaucracy collapsed and re-formed into another in which lines of authority and responsibility became hopelessly blurred. Predictably, by that time, the remedy was to add more bureaucracy.

    28. W Howard Baker, Bard says:

      WHY IN THE WORLD DID THE PRESIDENT UNDERCUT OUR SENATORS? Our conservative Senators had the bill stopped with heroic action against the socialist left and then he undercut them with the TARP funds.

      We are rapidly heading into an inflationary depression which produces fascist tyrants like Hitler, Mussolini, and good old Hugo Chavez, so hold on for one heck of a ride and the end of America and the birth of Amerika.

    29. Tim, Arcadia, CA says:

      I totally agree that letting the auto companies go bankrupt is the way to go. The shocking statistics quoted from USA Today seem to say that federal spending is becoming too large for the size of our shrinking economy. The solution to the economic pickle that we find ourselves in is not higher spending from the government. Indeed, the (sorry, folks) auto companies need to pull their heads out of their derrieres and face the music along with the rest of the world, because the whole world is going in the tank. They need to face up to the irresponsible way in which they have handled themselves and the situation in which they have found themselves.

      Bankruptcy, as was pointed out, is not the end of the companies. Instead, it is one way that the companies can declare publicly that the way they have been conducting themselves has been nothing but self-destructive, with ripples of economic damage and harm to others. Bankruptcy is the way they can "save face" and redeem themselves. They can pick themselves up, change directions, and work to design better cars and contribute to the economic health and welfare of the country as a whole.

      It would especially be good if they could stay in Michigan too. Michigan has historically been in the bottom economically. What economic maladies the country has Michigan tends to have worse. I used to live there, and I know how things have been there and I know how the economics of that area gets spun.

    30. Wes Thompson says:

      Maybe we shouldn't bailout the auto industry but what happens when the US AUTO INDUSTRY goes under? Do you all want to drive around in a foreign made automobile, I don;t. I am AMERICAN and believe in supporting the American way of life. What happenes to the AMERICAN way of life when we lose all this to China, Japan and the other countries that all of our loved ones fought in the wars to keep independent and free. We (our government) just authorized billions to save the lending institutions, for what< tehy are like the auto industry and caused their own destruction, same as the auto industry. Why did we bail out the len ding institututions? we are becoming a nation of Foreign owned companies now, what's next?

    31. Larry, Fremont, Ohio says:

      The only way and the capitalistic way is to let them file bankruptcy. I will, however, be suprised if the leaders in Washington, who know little if anything about business, economics or plan common sense, will allow this, as they are in bed with the unions, and it is all about them and what they can do to be reelected. When I head of the "Car Czar" I thought what a joke. The only thing the Czar and his cronnie Washington pals know how to do is spend other people's money, our tax dollars. We need term limits, the whole bunch should be thrown out or impeached. But what can we complain the only people we have to blame is the person we see in the mirror every morning, we put these idiots in office.

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