The Answer For The Auto Industry Is Bankruptcy.
Bailing out GM, Ford, and Chrysler how absurd and contrary to the practice of business sensibility! What would normally constitute factionists contesters: The ‘Big Three’ (auto manufactures and world-wide distributors) have found a symbiotic simpatico with its union’s management-their rank and file, the creditor vendors, auto-industry bond/shareholders, and the governing liberal democrats. Such an interesting confederation of transactional counter-parties; what could possibly be the reasoning that binds them?
In the olden days of American Capitalism; if enterprises found themselves in dire financial condition the remedy would be to borrow funds from within or institutional, sell bonds, preferred or common stock, or utilize those certain bankruptcy procedures to reorganize infrastructure and renegotiate with its contractual parties so to lower its operating obligations. The company’s new creditors could fire its chief executive/board members, and in light of the company’s ability to pay, render considerable contemplation in reevaluating debt present/future. The company would eliminate all but the most essential to operating cost and sell off assets that was or is not in keeping with present market conditions.
Well, not in the universe of the forthcoming administration; oh no, these elected-by-the-people representatives are determined to save the ‘Big Three’ from extinction because these enterprises represent (according to leaders of the Democratic Party) a national security interest, would put millions of people out of work, and cause a negative emphasis on the nation’s financial crises. I wonder, would these Democrats have felt the same toward Xerox, IBM, Bank of America and the literally hundreds of companies that over the last 75-years that have overcome their near-impairment by means other than taxpayer monies and found their way back to solvency?
It is the precedence that concerns me. Do we taxpaying citizens want to pay the price of precedence? Will the government (taxpayers) be the final insurance surety for major enterprises? And what about the tens of thousands of the small businesses; do they get a government bailout when their business reaches near impairment?
Imagine the actualities of the situation: A government representative elected or not is now formalizing the investment of tax derived funding into an enterprise; literally, so that the enterprise may continue its operating practice; the very practice, with the very same players, that got the enterprise in the position of needing the funds in the first place. Does any of that make any sense?
The situation is actually worst. Government officials, and I say the following with a great deal of confidence, cannot read the ‘Big Three’ balance sheet or financial statements much less evaluate their forthcoming “plan.” I know they cannot read their financials because NO One Can read their financials including the management of the ‘Big Three.’ Besides, all of the information within the GAAP prepared financial is a record of what happened last quarter. As to projections, we are asked to trust the very management that could NOT project the situation they find themselves in the present. Now this type of thinking by those governing has the potential to go way pass stupid.
The auto industry has been on the edge of impairment for fifty-years or more. The reasons are simple. The industry invested in stupid non industry assets, paid too much for management, for overall benefits, for union workers, dividends, bonuses, and general operating cost. Now how smart does one need to be to figure that out?
The union wants a bailout of its heretofore unrealistic promises made to its rank and file. Promises that in fact were nothing less than boldface lies; not exaggerations or miscalculations of market or economic conditions, but, boldface lies. These lies were extended in collusion with senior management. Obviously, any conflicts on negotiations were a ruse both parties finding fraternity-of-purpose in perpetuating years of novelistic-like nonsense. The motivation was appreciating stock prices; hence, everyone was in on the deal. The government because they get paid on dividends and interest earned, the market because that is what they do, and the shareholder who thought the SEC was looking out for unfair practices.
Now the Democrats, those realists of economic principals, the very ones that gave us Fannie and Freddie, an impaired Social Security System, the care takers of Medicare, the creators of numerous ill managed government departments/programs, they are going to save the auto industry and therefore save the economy from further deterioration.
Is this bailout of the ‘Big Three’ a prudent belief? Do we taxpayers actually trust this confederation of players to manage their way to profitability?
It will be revealing to see how the Republicans counter or acquiesce; this is a grand test of the Grand Parties backbone. I have no faith in their courage; they have, at least in recent years, reminded me of the Lion in the Wizard of Oz, of course I have been wrong before.
The answer for the auto industry is bankruptcy. After this process of bankruptcy separates, by its natural time-tested methodology, the good, the bad from, the ugly, a prudent solution will emerge. OK! See how simple I have made the entire issue.