Posted by
Always To The Right on Sunday, February 15, 2009 9:09:04 PM
When the Bush administration and Congress started discussing a
bailout for American automakers, critics pointed out that massive loans
would do nothing to fix the problems of GM, Chrysler, and Ford. In
fact, we argued that bailouts would prove counterproductive, as it
removed the incentive for the real stakeholders in the company —
stockholders, management, and labor — to substantially change their
economic model to make themselves more competitive in the marketplace.
Two stories bear that out this weekend. First, GM, Chrysler, and the
UAW remain stubbornly unable to reach a realistic contract:
Talks between the United Auto Workers and General Motors
Corp central to a turnaround plan for the struggling automaker have
broken down over the issue of retiree healthcare costs, a person
briefed on the talks said on Saturday.
A parallel set of talks between Chrysler LLC and the UAW over
similar concessions were continuing over the weekend but little
progress had been made, a person briefed on those negotiations said.
The breakdown of talks at GM and the stalled negotiations at
Chrysler come with just three days remaining until both automakers must
submit new restructuring plans to the U.S. government as a condition of
the $17.4 billion in federal aid that has kept them both operating
since the start of the year.
“It doesn’t seem like the stakeholders are really prepared to give a
whole lot,” said independent auto industry analyst Erich Merkle. “It’s
a high-stakes game of poker right now.”
Well, gee, why might that be? Why would neither management nor
labor work towards a compromise? They have little incentive to do so
as long as third parties keep refilling the bank accounts with cash.
The bailout allowed both sides to hold out longer and maintain
unrealistic demands, just as I predicted it would. Only when faced
with imminent collapse and the loss of millions of jobs will these two
sides start acting in the best interests of their business, rather than
in the best interests of themselves. The government bailout only
delayed the inevitable.
As if to prove that again, GM has now demanded another bailout as the price of continuing talks:
General Motors Corp., nearing a federally imposed
deadline to present a restructuring plan, will offer the government two
costly alternatives: commit billions more in bailout money to fund the
company’s operations, or provide financial backing as part of a
bankruptcy filing, said people familiar with GM’s thinking.
The competing choices, which highlight GM’s rapidly deteriorating
operations, present a dilemma for Congress and the Obama
administration. If they refuse to provide additional aid to GM on top
of the $13.4 billion already committed they risk seeing an industrial
icon fall into bankruptcy.
Some experts and members of Congress say bankruptcy reorganization
is the surest way for GM to cut costs and become viable. But it could
be a politically unpalatable development during a recession that
already has thrown millions of workers out of jobs.
In fact, bankruptcy processes exist for just this kind of
situation. Instead of bailing out GM and Chrysler, the government
should have stayed out of the situation altogether. If labor didn;t
want the companies to declare bankruptcy, they could have negotiated a
contract that would have avoided it. Now we have wasted billions of
taxpayer dollars to get us right back to the same point we were in the
fall.
Obama can’t afford to alienate the unions by cutting the automakers
loose. He’ll wind up pushing through another expensive bailout, which
will kick the can down the road to about June or July. And once again,
we will find ourselves at the same exact point, because the upcoming
bailout will do what it did the last time, which is to allow management
and labor to avoid making some hard choices about their business model.
The definition of insanity is doing the same thing over and over
again and expecting a different result — or perhaps that’s the true
definition of Hope and Change.