Punching Stupid and Evil in the Face Since 1986!

"We are on strike, we the men of the mind. We are on strike against self-immolation. We are on strike against the creed of unearned rewards and unrewarded duties."-John Galt

Thursday, December 11, 2008

Bankruptcy is NOT the end of business

It is a mistake to assume that because folks disagree on the position to take concerning the auto bailout means one "doesn't get it". I do get it. I just completely and fully disagree with a bailout.

I understand things are very complicated. I understand a whole host of poor decisions on the part of the government and business got us to this point. I understand that we have to deal with what is NOW, not what has been. I understand many things need to be changed moving forward and I understand this does not change the fact that a taxpayer funded bailout is not the answer. I am not "punishing" the Big 3 because of the TARP fund fiasco. I completely disagree with the auto bailout for many reasons, none of which have to do with the bank bailout.

I believe the automakers must go through a Chapter 11 bankruptcy to dump the fat. They are not going to be able to cure what ails them by simply throwing money around.

A few reasons: (My arguments are right in line with these.)

  1. The UAW made concessions-The UAW is only conceding their fat, over-bloated agreements until the automakers reach profitability again. They are not permanently conceding most of the ridiculous and unsustainable levels of commitment. This will just put automakers right back where they are. Bankruptcy is the best way to get rid of these leech agreements.
  2. It is a loan, they will repay.-The existing repayment plan is based on car makers selling a certain amount of cars, if they don't they will need more money-as highlighted here. This is a huge gamble in my opinion. I think it is an unrealistic goal based on economic conditions today and into the near future.
  3. There will be government oversight.-I'm not even going to entertain this argument-do we not see what happens ALL the time with "government oversight"?
  4. The "car czar" will call back the loans if the restructuring plans are not met.-The plan does not require the government to "call back the loans" if automakers don't meet restructuring standards-it gives the option to call them. I have serious reservations they would be called under any circumstance-they will simply ask for and receive more money.
  5. Automakers' will close dealerships on their own to save money.-Doubtful, because of dealership strong holds in all 50 states, which encouraged tough franchise laws. It would make it slow and costly to do outside of bankruptcy.
  6. Millions will lose their jobs. If the Big 3 fails all of their vendors, suppliers and outside contractors will go under. –This is simply untrue. There will be jobs lost, but under a proper bankruptcy and restructuring plan it is estimated far fewer jobs will be lost, not the millions being touted by studies based on figures from the 1990's. This stance also completely disregards that every day firms are protected by bankruptcy proceedings and continue to do business and provide jobs.
  7. Over-regulation is what got the automakers in this mess.-I don't disagree on that point but, do we really think there will be less regulation once the government has partial ownership in the Big 3? I do not.
  8. People will not buy cars from a bankrupt company.-I will not dismiss this concern out-of-hand, but it is a remote possibility at best. I am not going into all the options available, but keep in mind-even with all the uncertainty people are buying cars now*third parties or trust funds could be established to maintain warranty coverage regardless of what happens*if bankruptcy brings back solvency it is a moot point.
  9. They admit
    they will be back for more money when they don't meet their projected sales figures.
  10. It is flat out nationalization of a private industry-a hop, skip, and a jump from socialism. I am against socialism.
  11. I cannot improve upon this post so, I will simply quote in part as I agree completely:

    • Argument: Restructuring in bankruptcy would be impossible because sufficient debtor-in-possession (DIP) financing is not available in the current economic climate.
    • Fact: DIP financing is available to firms undergoing restructuring that have strong business plans and profitable cores, and if it proves necessary, the government could provide a "lender of last resort' facility without sacrificing the benefits of a restructuring under bankruptcy.

It is not in the least that I "don't get it".

I disagree with almost every argument made for shelling out taxpayer money for a failing industry. I agree some jobs will be lost, but jobs are going to be lost no matter what happens. If the Big 3 actually and fully fails, all the jobs will be lost anyway and we will be billions of dollars more in debt. As I have stated before, I am in Mitt Romney's camp on this thing.

I will continue to exercise my right to protest what I feel is Washington's failed plan for the Big 3.

I'm sure I will not always agree with you; it's a big tent. I don't think that means you or I "don't get it."