Just Say No to Detroit

I am so pleased to see I am not completely on the same side as GOP Senator David Vitter on this auto bailout thingy. The DC Madam’s favorite Senator has taken the position that it is premature to approve an auto bailout because we have not seen a plan. My view is Congress is in no way qualified to tell whether a plan will be effective, and cannot possibly devise a better plan for GM and Chrysler than can a bankruptcy trustee.

Washington is spending a lot of time arguing about the powers that will be vested in the Car Czar, which is precisely why the Washington plan is nonsense. The Car Czar needs to have all the powers of a bankruptcy trustee, and all the responsibility. That means he/she should have a fiduciary obligation to the creditors to take a long, hard look at the problem, and craft a conclusion that gets the maximum return on the assets of the corporation. Creditors include all players who have a claim on the company, in order of preference. That may mean that lenders stand in front of the employees, depending on their agreements, but it does not mean that employees are left out in the dark. Employees with valid claims… for benefits, for example, … stand in front of the investors and shareholders.

Bankruptcy is a time honored, orderly and objective process for resurrecting badly managed companies. Contrast it to the legislative process, where your ability to be heard is a function of your ability to buy K Street Talent. Fairness ain’t in it. Nor, in all cases, is common sense.

As I said earlier, Chrysler is not likely to survive bankruptcy, and for good reason. The Germans starved her of investment capital and left her with a line of automobiles that look good in Goth comic books but not in American garages. Michael Robinet, the vice president for global forecasting for CSM Worldwide, told The NY Times that Chrysler sales overall are too low, and despite having some solid “platforms” mostly Jeep and its vans, it is ultimately a loser. Says the Times: “He predicted a “controlled wind-down” in Chrysler’s operations over the next several years.” Bailout or not.

In the hands of a competent bankruptcy trustee, Chrysler’s best assets will be capitalized on and the rest of it will be allowed to die quietly. Perhaps Jeep will survive, and take a few good van designs with it.

GM needs to shed its GMAC truck line, reform its Chevrolet truck operation, spin off Saturn (its best asset), dump Buick and Pontiac, maybe even Oldsmobile. It needs elbow room to do that, the kind of elbow room you get with a bankruptcy trustee, whose job is to make sure every player gets heard and ensure that the final decision is the most efficacious. Give them a couple of years in Chapter 11 and they may emerge as a new and competitive entity.

Congress should also be asking the question Thomas Fireman raised in a recent Times OP Ed. Is Detroit the right business model for the 21st Century? Are we backing an old horse? Friedman points to a proposal to establish a network of electric car charging stations in Hawaii, and in some European markets, that may replace internal combustion vehicles. Korean and Japanese manufacturers will provide the cars (GM was made an offer but declined). Investors from Silicon Valley and Europe will provide the charging system (Here is the link ). I also think a bailout of Detroit should also lead some alternative car makers to demand their share. I count 28 makers of electric cars listed on the web site of the Electric Car Association. Shouldn’t each of them belly up to the bar?

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