"Building A Better Detroit".
Building a better Detroit
From the Los Angeles Times editorial
The Bush administration is expected to throw a multibillion-dollar lifeline to General Motors and Chrysler this week, saving them from defaulting on their debts (for now). The move raises important questions about the trade-offs made when government tries to save companies deemed too big to fail.
We accept Detroit's argument that letting one or more of the automakers collapse abruptly could be calamitous for millions of workers at the manufacturers, distributors and retailers whose fortunes are intertwined with those of the Big Three. But we wonder why the federal government is in a better position to guide GM, Chrysler or Ford to sustainability than a Bankruptcy Court would be.
U.S. automakers have to restructure, and they've clearly waited far too long to begin that process. In the last five years alone, their share of the domestic market has dropped from 63 percent to 48 percent, according to industry analyst CSM Worldwide.
Yet they have been remodeling themselves in earnest for more than a year, and they have been building better cars. GM and Chrysler simply weren't far enough along to withstand the precipitous drop in demand in recent months. That's why they're on the brink of failure.
Investors and lenders are so cautious today, there's virtually no chance of GM or Chrysler surviving without some form of government help to sustain them during their restructuring. Still, it would be a mistake for the administration to offer anything but short-term help for the two companies. (Ford has said it's in no imminent danger.) That's because neither the automakers nor government officials have found the right terms for providing aid.
Instead, much of Washington's focus has been on restricting executive pay and boosting fuel-economy standards, neither of which has anything to do with the challenge of retooling Detroit to make continually better cars that are popular and profitable.
The solution is to help the ailing automakers either through bankruptcy, as the government did with the airlines after the 9/11 attacks, or through a process that's similar in everything but name, as the government did in 1979 with Chrysler. The main drawbacks to bankruptcy are the chilling effect on potential investors and car buyers, although there may be creative ways to deal with both issues (for example, government-guaranteed warranties). On the other hand, the Chrysler bailout showed that an automaker's fortunes can turn around surprisingly quickly with the right combination of aid, leadership and products. Such a combination could be found again, although we haven't seen it yet. Otherwise, the best way to help automakers without imposing capricious political demands is to support them in Chapter 11.
From the Los Angeles Times editorial
The Bush administration is expected to throw a multibillion-dollar lifeline to General Motors and Chrysler this week, saving them from defaulting on their debts (for now). The move raises important questions about the trade-offs made when government tries to save companies deemed too big to fail.
We accept Detroit's argument that letting one or more of the automakers collapse abruptly could be calamitous for millions of workers at the manufacturers, distributors and retailers whose fortunes are intertwined with those of the Big Three. But we wonder why the federal government is in a better position to guide GM, Chrysler or Ford to sustainability than a Bankruptcy Court would be.
U.S. automakers have to restructure, and they've clearly waited far too long to begin that process. In the last five years alone, their share of the domestic market has dropped from 63 percent to 48 percent, according to industry analyst CSM Worldwide.
Yet they have been remodeling themselves in earnest for more than a year, and they have been building better cars. GM and Chrysler simply weren't far enough along to withstand the precipitous drop in demand in recent months. That's why they're on the brink of failure.
Investors and lenders are so cautious today, there's virtually no chance of GM or Chrysler surviving without some form of government help to sustain them during their restructuring. Still, it would be a mistake for the administration to offer anything but short-term help for the two companies. (Ford has said it's in no imminent danger.) That's because neither the automakers nor government officials have found the right terms for providing aid.
Instead, much of Washington's focus has been on restricting executive pay and boosting fuel-economy standards, neither of which has anything to do with the challenge of retooling Detroit to make continually better cars that are popular and profitable.
The solution is to help the ailing automakers either through bankruptcy, as the government did with the airlines after the 9/11 attacks, or through a process that's similar in everything but name, as the government did in 1979 with Chrysler. The main drawbacks to bankruptcy are the chilling effect on potential investors and car buyers, although there may be creative ways to deal with both issues (for example, government-guaranteed warranties). On the other hand, the Chrysler bailout showed that an automaker's fortunes can turn around surprisingly quickly with the right combination of aid, leadership and products. Such a combination could be found again, although we haven't seen it yet. Otherwise, the best way to help automakers without imposing capricious political demands is to support them in Chapter 11.
Labels: Economic news, Political economics
posted by KYJurisDoctor at 4:09 PM
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