Tuesday, December 16, 2008

Let GM, Chrysler and Ford Bankrupt.

Yes thats right. In the world where every one is calling to bailout the Big Three, I am calling to let them go bankrupt. There is no need for me to present the benefit of bailing out the Big Three. Three million job will be saved, Those states will save billions in unemployment cost yadda..yadda. Thats is absolutely true that a lot of jobs will be saved, and cities will continue to flourish instead of dwindling to economic oblivion.

For a country that preaches free market, the bailout is contrary to the principles of laizze faire. Free market also means consumer are free to choose what they want. If consumers have chosen not to support the Big Three, there is no point propping them up with a bailout.

My argument is, that bailout money will only prolong the inevitable, and propping up a dying dinosaur. GM, Chrysler and Ford had to change the way they do business long ago. The Age of Great Automotive economy has peaked long ago, soon as the price of oil reached its USD$80 a barrel and people found a better way of socializing on the internet and do business online. As soon as people's love affair with cars is over, the Big Three is done. Furthermore, the trend lately is for environmentally friendly everything.
Gas guzzler cars and SUV has been identified as least environmentally friendly.

Yes millions of jobs will be lost, but those newly unemployed would find new work niches or move to other cities, hence reallocating scarce human resources. Other parts of the economy might be given a lifeline chance to flourish.

Some of the bailout money would have been used to support the pension plan of automotive retirees, what are more than likely already rich from years of working highly paid jobs. Why would the rest of the nation, poor included, support those rich retirees?

On the capital value argument, those automotive plants would be valued at billions of dollars. A bankruptcy would wipe out most of that capital value of those factories as well as brand value and intelectual capital. Say if another entity headed by one Joe Blogg managed to buy those factories etc at say $1billion and restart those car firms, GM, Chrysler and Ford without the cost of pension for retirees etc hanging over the neck. Given that the unemployment rate is high and Joe Blogg Car Corp can hire autoworkers at much lower rate, the new entity would be much more competitive and lean. Now Joe Blogg Car Corp could sell their cars at much lower price, because the capital cost is low, at say, $1billion, as well as lower labour cost. Development cost of the cars that Joe Blogg produce would be low too, because much of it would have been written off in the bankruptcy.

There you go, America and the world would benefit with cheaper cars. Joe Blogg Car Corp might also change strategy to produce more environmentally friendly cars that doesnt guzzle as much gas.

This article from Bloomberg
Bush Says Verdict on GM, Chrysler Aid ‘Won’t Be Long’ (Update3)
Email | Print | A A A

By Jeff Green and Edwin Chen

Dec. 15 (Bloomberg) -- President George W. Bush said deliberations by his administration on whether to tap a bank bailout fund to keep General Motors Corp. and Chrysler LLC out of bankruptcy “won’t be a long process” because of the “fragility” of the U.S. automakers.

The president, traveling on Air Force One from Iraq to Afghanistan last night, said he “signaled” his administration is considering using money from the $700 billion fund. Bush said he’s “not quite ready” to announce any rescue plan.

GM Chief Financial Officer Ray Young met yesterday with administration staff seeking agreement on the size of the short- term loans, a person familiar with the talks said. A decision may not be made today, the person said. Bush is en route back to the White House today; his press office says he will arrive at 4:45 p.m. today.

Without an agreement, the world’s largest automaker and smaller Chrysler may be only weeks away from insolvency, both companies said in congressional hearings Dec. 4-5. GM is reeling from almost $73 billion in losses since 2004 and a 22 percent slump in U.S. sales this year. The automaker said last month it lost $4.2 billion in the third quarter.

Chrysler has been battered by a 28 percent plunge in U.S. sales through November, the most among major automakers.

The Bush administration agreed Dec. 12 to consider options after the Senate failed to reach a compromise on $14 billion in aid. Republicans objected to a House-passed plan that was backed by Bush.

Next Congress

GM and administration officials are still trying to agree on how much the automaker needs to survive until Jan. 6 when a new Congress takes over, the person said. United Auto Workers President Ron Gettelfinger said yesterday on CNN that he hadn’t been contacted by the White House about the negotiations.

The dispute in Congress reflects the tension between Republican senators from Southern states that have plants owned by overseas automakers, and the Detroit-based union, which primarily supports Democrats in political campaigns, in efforts to craft a federal rescue plan. The next Congress will have a bigger Democratic majority.

GM spokesman Steve Harris said last night that there was no new information on the talks. White House spokesman Tony Fratto said “we’re not going to comment on our deliberations or timing.”

GM rose 23 cents, or 5.8 percent, to $4.17 at 9:40 a.m. in New York Stock Exchange trading. Ford advanced 13 cents, or 4.3 percent, to $3.17. GM fell 84 percent this year before today, and Ford slid 55 percent. While Ford also is losing money, the company has said it isn’t seeking short-term government aid.

TARP Funds

On Dec. 12, GM Chief Executive Officer Rick Wagoner spoke by telephone with White House Chief of Staff Joshua Bolten and Treasury Secretary Henry Paulson about the automaker’s needs, a person familiar with those talks said that day.

The talks followed a statement that day by the White House that it would consider using the Troubled Asset Relief Program to help GM and Chrysler. GM Chief Operating Officer Fritz Henderson also participated in the Dec. 12 discussions.

Senator Bob Corker, the Tennessee Republican who tried to broker the failed Senate compromise legislation, said Gettelfinger wouldn’t agree to move up the timing of wage and benefit cuts as part of a bid for government aid because the union was sure the Bush administration would bail out the automakers.

Corker said on CBS’s “Face the Nation” that he is urging the White House to impose similar terms on the auto companies to force bondholders to take losses, push through management changes and get union workers to have wages “competitive” with workers at non-union plants. The House bill supported by Bush left those decisions up to a so-called car czar or oversight board.

Gettelfinger’s Response

Gettelfinger responded later, saying he never told Corker that he was counting on the White House.

“Why would we run the risk of knocking this down in the Senate if the urgency is what it is?” he told CNN’s “Late Edition” program. “I did not tell him that.”

Gettelfinger also said yesterday it was a mistake for his union to conduct a detailed negotiation with Congress on the matter.

The failure of the talks with Corker shows “we should keep the Congress of the United States away from the bargaining table,” Gettelfinger said. “The bargaining issue should be handled between the companies and the union.”

Job losses from an automaker failure in 2009 would total 2.5 million to 3.5 million in 2009, including 1.4 million people in industries not directly tied to manufacturing, according to a Nov. 4 report from the Ann Arbor, Michigan-based Center for Automotive Research, which conducts studies for government agencies and companies.

The job losses may be less than the center predicts, said Mark Zandi, chief economist at Moody’s Corp.’s Economy.com. “But over a million in the first quarter of ‘09, I think, would be reasonable to expect.”

To contact the reporters on this story: Jeff Green in Washington at jgreen16@bloomberg.net; Edwin Chen with the president in Afghanistan at echen32@bloomberg.net

1 comment:

nike shoes said...

I like your blog