Big Three: “We are supporting the sky”

Posted by Marc Hodak on December 3, 2008 under Politics | Be the First to Comment

The “Big Three” auto companies can’t make a legitimate business case for getting funds from Congress, so they must appeal to their fear.

GM says:

The way I would explain it to your constituents is it’s going to prevent the United States from entering into an economic depression in my view.

Chrysler says:

If we have a catastrophic failure of one of these car companies, in this tender environment for the economy, it’s a huge blow. It could trigger a depression.

I particularly favor Rick Wagoner’s wording (the GM quote above). He’s not actually saying the failure of the auto companies would cause a depression. He’s just saying that’s what congressmen should tell their constituents in justifying a federal bailout.

In the unlikely case Congress asks my opinion, here is what I would have them tell their constituents:

GM and Chrysler have together about $200 billion in assets. In 2002, a particularly “tender environment” for our economy, the top three bankruptcies sent nearly $200 billion in assets into receivership. The federal government didn’t bail anyone out that year. The following five years were ones of significant economic expansion.

I would also note that it is highly unlikely that all three of the “Big Three” will go bankrupt if events run their course. In fact, if GM and Chrysler go into receivership, it’s likely that Ford’s odds of survival go up, not down, notwithstanding all the scare talk about an interdependent supplier network. The fundamental problem with our car companies is: they are making too many cars, and the markets consider the “Big Three” vehicles to be the most expendable. One or two fewer car makers, even if they simply reorganize around a shrunken asset base, will make it easier for the rest to survive.

If Congress feels it absolutely has to “do something” to help the auto companies, it should announce that it will pick just one of the three based on who is worthiest. It will probably pick the wrong one, but by promising to saving one, they can get some real action in terms of the turnaround plans it has requested. And by letting one or two of the others fail, it can then prolong the agony of the decrepit supply chain just long enough to allow the country to see that the Big Three, in fact, do not support the sky.