We shouldn’t bail out businesses that already have failed
"Nothing," said a General Motors spokesman last week, "has changed relative to the GM board’s support for the GM management team during this historically difficult economic period for the U.S. auto industry."
Nothing? Not even the evaporation of almost all shareholder value?
GM’s statement comes as the company is threatening to collapse and make a mess unless Washington, which has already voted $25 billion for GM, Ford and Chrysler, provides up to $50 billion more. The statement uses the 11 words after "team" to suggest that the company’s parlous condition has been caused by events since mid-September. That is as ludicrous as the mantra that GM is "too big to fail." It has failed; the question is what to do about that.
The answer? Do nothing that will delay bankrupt companies from filing for bankruptcy protection, so that labor contracts can be unraveled, allowing the companies to try to devise plausible business models. Instead, advocates of a "rescue" propose extending to Detroit the government’s business model for the nation — redistributing wealth from the successful to the failed.
Opponents of bankruptcy say GM must not be allowed to fail before it perfects batteries for its electric-powered Volt, which supposedly is a key to the company’s resurrection. This vehicle was concocted to serve GM’s attempt to ingratiate itself with the few hundred environmentally obsessed automotive engineers in Congress. They have already voted tax credits of up to $7,500 for purchasers of such cars — bribes that reveal doubts about consumer enthusiasm for them at a price that would reflect cost.
Congress could help the Detroit Three by allowing them, when meeting CAFE (corporate average fuel economy) standards imposed by Congress, to count fuel-efficient cars they import from overseas factories. Democrats oppose that because those imports are not made by members of the United Auto Workers. Those Democrats, their rhetoric notwithstanding, care most about the union. "Saving the planet" comes second and the health of the auto companies last.
Some opponents of bankruptcy stress that it might terminate health care coverage enjoyed by UAW retirees who are too young for Medicare. Think about that. If people want to retire before 65, or 35 for that matter, that is their business. But there is no public interest in protecting the luxury of retirement in the prime of life just because in palmy days a private contract between a union and a corporation established it as an entitlement for all seasons.
The Economist reports that as recently as 2005, Americans bought more cars than did China, India, Russia and Brazil, combined. This year those four will buy more than Americans buy, but that is, potentially, good news for Detroit. In America’s saturated market, there is almost one car for every person of driving age; in China there are three for every 100, and fewer than that in India. The Economist reports that in the next 40 years, the world’s automobile fleet will surge from 700 million to 3 billion.
After being restructured through bankruptcy, the Detroit Two, or One, might flourish. Let’s find out. The ruinous alternative is to squander, in a doomed attempt to "save jobs," more scores of billions of scarce capital that will then be unavailable for job-creating investments in rising industries.
George Will is a Pulitzer Prize winning columnist for the Washington Post.