While the conventional wisdom among most Democrats and many pundits is that the Big Three auto manufacturers are too big to fail, we wonder if they are too big not to fail.
It’s time to say hello to Chapter 11 and goodbye to those suffocating contracts with labor, dealers and suppliers.
We need to stress here that the U.S. auto industry is not in trouble, just the unionized auto industry.
- The Big Three have huge legacy costs (including retiree pension and health care benefits).
- While foreign manufacturers on U.S. soil pay about the same in wages, the U.S. manufacturers have much higher benefits packages.
- And the companies have been slow to adopt quality and design enhancements.
The result has been declining U.S. sales for years—not just in the past few months, which might be forgivable. Every six months or so we read that one of the companies is restructuring to do a better job of making cars Americans want. But except for trucks and SUVs—which took a hit under high gas prices—the companies never seem to achieve that goal.
Bailout advocates pose doomsday scenarios of 3 million lost jobs and a huge hit to the economy. But Chapter 11 doesn’t put a company out of business; it allows it to stay in business.
Yes, bankruptcy would impose some costs on the federal government, especially as the federal Pension Benefit Guaranty Corp. took over many of the pension obligations. But it’s going to cost taxpayers either way, and Chapter 11 is the cleanest and likely the least expensive solution.
Another reason for choosing bankruptcy is that bailout funds will come with significant strings attached—strings that will likely ensure future failure.
Democrats keep promising that bailout funds will address the companies’ long-term problem by transitioning them to make more eco-friendly cars. No word yet whether the public actually wants Congress-designed, eco-friendly cars that are smaller and less safe and only get 40 miles to a battery charge—especially in a world where gasoline is back under $2 a gallon once again.
No, better to let the companies choose bankruptcy. They will likely be leaner and meaner in the future, and they will have one more opportunity to create good cars at a lower price—just like their international competitors have been doing here in the U.S. for years.
And best of all, taxpayers may be able to keep some of that money that would have gone to the bailout—and maybe even use it to . . . buy a new car.