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Friday, November 21, 2008

Detroit Broke City

Paul Ingrassia in today's Wall Street Journal writes that bailout or not, Detroit is broke.

Yesterday, congressional leaders gave the car companies until Dec. 2 to come up with viable business plans and renew their request for aid. Meanwhile, it's worth examining the myths that are shaping this debate. One is GM's assertion that "bankruptcy is not an option." In truth, GM already has conceded that it's bankrupt -- by publicly stating it's nearly out of cash and needs emergency assistance. The company hasn't made a formal bankruptcy filing, which is no small matter. But it has declared bankruptcy everywhere else. Chrysler, at this week's Senate committee hearing, did the same.

A second myth is that management changes in Detroit would be pointless. GM CEO Rick Wagoner said he wouldn't resign to secure federal aid for his company. This was like Louis XIV saying, "L'√Čtat c'est moi." Mr. Wagoner explained that he didn't see "what purpose would be served." Well, the same one served by the presidential election in this country three weeks ago: to bring in somebody new to try some fresh ideas to fix things.

Mr. Wagoner has been GM's chief executive officer for eight years. Even before this year's calamity struck (the company lost $181,000 per minute in the second quarter), the company's U.S. market share, financial results and stock price had plunged precipitously.

$181, 000 per minute! I don't know about what Paul thinks, but it takes real talent to blow that kind of money. Hell, I don't know if Hank Paulson could come up with that kind of money loser.

Let Detroit go bankrupt. Under bankruptcy protection, they can start to open up the union contracts and other legacy costs which guarantee they lose money on every car they sell (yes, you actually read that right). The restructuring should come with the resignations of Wagoner from GM and Nardelli from Chrysler.

Congress passed the first important step-a step which I was very skeptical they would make. They turned down the Detroit 3 once. They stripped Hot Rod John Dingell of his chairmanship. All very impressive. But the automakers shall return in January for round two. We must make sure we don't throw more of our money toward a broken industry.

- Mitt Romney, scion of Detroit's ruling class, wrote in Tuesday's New York Times that we should let Detroit go bankrupt.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check
When I agree with Mitt Romney, you better believe we're reaching some kind of consensus on this issue.

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