Tuesday, November 11, 2008

GM: Forget The Bailout and File for Chapter 11

Much has been made of the serious financial problems facing the big 3 US automakers. With many calling for a quick and expensive government bailout of the industry as the only way to save the jobs of millions and keep the industry alive in the US, why doesn't anyone propose chapter 11 as a solution? The whole point of chapter 11 bankruptcy is to allow a company to reorganize without creditors banging down the door demanding loan repayment. If you read press accounts of this story you would think that bankruptcy would automatically lead to closing of the companies. Nothing could be further from the truth. Companies continue producing and selling products during this process. While there may be some job loss during this period of reorganization, it's going to happen anyway regardless of a bailout or not. The only way these companies will survive is through serious cost cutting and renegotiating union deals ( it's the unions which are one of the major causes of this problem.)

What I think is really funny is that there are many who think that the government can come up with a plan to make the automakers viable again. According to an article in the IHT: "On Friday, Obama said he would instruct his economic team, once he chooses it, to devise a long-range plan for helping the auto industry recover in a way that is part of an energy and environmental policy to reduce reliance on foreign oil and address climate change."

If anyone thinks that the government can run a large business efficiently and profitably, I have a bridge to sell you.

If you want to save the big 3 US automakers, let them file Chapter 11, otherwise it's going to be a black hole of more and more bailout money going to keep them alive.

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