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Paul Cox

If GM was subject to Chapter 7 liquidation, and Ford and Chrysler entered Chapter 11 reorganization. Ford and Chrysler may have a shot at survival with the larger market shares available to them. And by removing the unproductive GM from the market place, give Ford and Chrysler a fighting chance.




Dead on! Thank you.


GM seems to be afraid of the UAW, even if they file a chapter 11. I think GM must think the UAW will use wildcat strikes, political muscle, and the courts to block any meaningful reorganization. The UAW has the political muscle to make life hell for GM if GM management tried to make meaningful labor changes. The UAW has already said that they will make no concessions to GM.

The UAW would pick the bones of GM in bankruptcy. Don't forget that a majority of UAW GM are seniors who have less interest in the long term stability of GM. They want to make sure that their health and welfare payments stay high.

The UAW may play a game of chicken with GM because they think if they can make the situation dire enough, their political allies will come to the rescue.

Plus I think Judge Posner has a point that the government, in the current market, may still have to provide DIP funding in order for GM to have a reorganization.


I agree with Prof. Becker analysis. However I would like to add one more point.

The American car industry is also a good example of what could happen for having a close-mindset ruling your destinies. They were always looking at the domestic market and few times (Ford mainly) they were able to think about the rest of the World's needs.

So now in a global economy, if you want to keep costs low you have to target a global reach for your models, however very few Europeans or Asians would buy an ugly, high maintenance-cost, American car.

Japanese and German automakers have been doing the opposite for decades. They tried to understand other's needs, they invested hundreds of millions in Formula 1 and other ultracompetitive engeneering competitions (versus that TV soup opera called NASCAR), etc. etc.

I think the car industry is another example to remind american people that the times were the USA was a superpower that could do and undo without caring about others are gone. Now the USA is "just" the largest economical and political power, but it needs to take others into account to keep being so.


I think we best be getting on with the promise of making America energy independent.Iran just asked OPEC to reduce production by yet another 1.5 million barrels per day.This past year and the record gas prices played a huge part in our economic meltdown and seriously damaged our society.We keep planning to spend BILLIONS on bailouts and stimulus plans.Bail us out of our dependence on foreign oil. Make electric plug in car technology more affordable. It cost the equivalent of 60 cents a gallon to drive an electric plug in car. The electric could be generated from wind or solar. Get with it! Utilize free sources such as wind and solar. Jeff Wilson's new book The Manhattan Project of 2009 Energy Independence NOW outlines a plan for America to wean itself off oil. We need a plan and we need it now! www.themanhattanprojectof2009.com


The criticism of the unions is spot on, but you will be accused of partisanship.

I think that the executives are just as culpable. Every case I have ever read compares and contrasts the management style, the management organization, the way management deals with its suppliers, the way the supply chains are organized, ad infinitum!

Bankruptcy is the only way to bring discipline to the US automakers. We need regulatory change, like ending CAFE standards, but a reorganization of the automakers will allow them to reallocate human and machine capital in the manner that will make them most productive.

The Big Three do make some good cars. There is demand for some of those cars. They will survive bankruptcy, but they will look far different. It's not just the unions, which are indeed overbearing and increase legacy costs per car by around $2000 per car. But it's the entire structure of the industry.


The only reason the Pelosicrats want to do this "bailout" is to pander to the unions. Talk about anachronism!

Becker is right on. Let the auto guys reorganize (Hey, I hit on our political cry). They will keep operating and hopefully become smaller, more efficient oligopolies, get rid of the present management with no severance and try market responsiveness.

Brian Davis

I'm against this proposed bailout as well as the others in process. But if the pressure on Congress is strong enough for a Detroit bailout to move Senate conservatives in that direction, I agree with Judge Posner's concluding paragraph - put Detroit in Ch 11 with the U.S. govt as super-priority-secured DIP lender. I.e., cut the banks out, or else they'd be coming back for another $ Multi-Billion bailout just to do DIP financing. Besides, they're supposed to be using the TARP money to make and restructure other loans, like viable businesses and home mortgages.

Under no arrangement will a rearrangement of the Detroit autos' financial affairs be quick or simple. United's latest Ch 11 was a piece of cake in comparison, and Judge Posner's court there in Chicago must have seen it at least a dozen times, meaning there were multiple dozens of contested proceedings in the lower courts. In the case of the Detroit autos, restructuring isn't feasible unless, besides the unions, the parts suppliers and Delphi (already in bankruptcy) and the financial subs (chiefly GMAC and its subs) are all pulled in. In the aggregate their balance sheets may add up red to the tune of a $ Half-Trillion, counting healthcare and pension promises. Understand, much of this they owe one another. Whose claims get washed out will turn on who holds strong liens and how big a haircut the unions and retirees have to take. But we'd see the same Jarndyce v. Jarndyce of tedious litigation with a bailout as with bankruptcy, and end up in bankruptcy anyway. There's no happy answer other than, for the good of the country, get on with it and get it done.


UAL may be the worst BK airline example you could have used. They are still a mess and will probably file again since they didn't get their wages to a market rate. Hopefully the big 3 can learn from their mistakes.


In addition to all of the other arguments, a bailout would amount to a bankrupt government bailing out a bankrupt industry. The only reason the world is willing to lend money to the government so it can lend money to the auto guys instead of lending money to the auto guys directly is the belief that the government can take money from the GDP in the form of taxes. Obviously there is a limit to that as well. So let me get this straight: the taxpayer has less and so cannot purchase the bailed-out cars and trucks So the auto guys need more from the government which in turn takes more form the taxpayer. That isn't even circular reasoning, it's a whirlpool


I have concerns about management quality - poor judgement (hummer acquisition), inadequate preparation for job (nepotism), etc.


My view is that the bailout of the Big three US automakers will happen and the proposed $25 billion package will be approved by year end. Despite critics on both sides, the US automakers bailout proposal has strong bipartisan support and the President-Elect has publicly stated his backing of a constructive bailout plan. It is just too important (perceived and actual) to the nation’s economic recovery. The key will be how the bailout package is structured for short term and long term reform. For it to be successful the US automakers will have to undergo a radical make-over in terms of labor rates and union structures, past and current worker benefits and accelerating the move to cleaner energy vehicles. Further their executives, need to be replaced by new talent whose focus will be on making the companies as efficient as possible to compete in the 21st century and to eventually repay (with interest) the taxpayer funded bailout.


I have no disagreement whatsoever with this analysis. It may also be noted that a subsidization of the auto industry would delay the development of more marketable, competitive, and innovative products. A WSJ piece about a month ago pointed out that many of the great cars of automotive history were the fruit of tight times for the companies that created them.


Would some of you who support the bailout kindly send me some money. I have probably mismanaged my own assets and could really use a little help,say $1,000,000.00. That is only 0.004% of what the auto guys want. I don't think that my request is unreasonable and I promise to do better in the future.


If I were in charge of the bailout I have to think I'd just nationalize them. Neither the bondholders nor the stockholders nor management nor to a lesser extent the UAW deserve any great consideration insofar as i can see. Whatever management structure they came up with between them was clearly very bad. You guys seem to be very happy blaming the UAW, but while the problem with skyrocketing health care costs and underfunded pension plans is clearly an issue for U.S. car makers, I'm not at all sure the auto workers are the ones who deserve the blame for such gross mismanagement. I mean really, the elderly GM workers consumption of HEALTH CARE is the problem with the U.S. economy? We could grind them up for Soylent green I suppose.
Realistically the government is going to take over those payments, and the health care system needs such massive reform that the government might as well just nationalize that, too. I mean after the insurance company bailouts and between medicare and medicaid they must be writing the checks for 60+ percent of the system anyhow.
The pension system seems much the same, so many people are going to be in that boat that a serious look has to be taken at the pension insurance/social security system. Fixes have to be made, I see no compelling reason not to deal with the whole issue at once, the system itself being bankrupt would seem to me to justify very broad powers in breaking agreements like bonds, stock options, control, health care, pensions and such things.
When the UAW was negotiating they should have taken into account the chance of the car makers going bankrupt and asked for sufficient private market guarantees. I expect they negotiated the Federal Government to insure it somehow to force a bailout if the system broke, but I'd be strongly tempted to treat them the same as any bankrupt old people looking to the government to pay all their bills and spending money. I predict ALOT of them, and some sort of system is going to have to step up.
There are HUGE moral hazards here, but I think they are realistically unavoidable, my only hope is that between wikki's and range voting and the internet the state will be able to set up systems that are sufficiently transparent and responsive to minimize this mess and get power back in DIFFERENT private hands governed by market forces before it's too late and we end up with a monarchy or some nonsense.


The auto bailout proposals are yet another example of big government creating a problem, and the political class then calling for more big government as a solution.

Big government contributed to the carmakers’ problems in two ways:

1. Labor law. Government supports the ability of the unions to use force to negotiate compensation that is higher than their members would attain in a free labor market. A free labor market would compensate workers in line with their productivity. To the extent that unions succeed, via collective bargaining, in increasing their members’ compensation, those increases are above the level of those workers’ productivity. That situation obviously cannot continue indefinitely. The Rust Belt was created by unions pricing themselves out of the labor market. That effect is increasingly being felt in the auto industry. I don't think that economic forces will allow unionized carmakers to continue as private enterprises. American auto manufacturing will either need increasing levels of government investment over time, or be turned over to the non-unionized foreign manufacturers. Not being a socialist, I opt for the latter.

2. Employee benefits. The notion that one’s employer should pay for one’s health care was an effect of federal policy during World War II. There were price (including wages) controls, and there was a labor shortage. In a free labor market, a labor shortage would result in wages being bid up to a level that will bring enough people into the labor force to meet demand. The price controls prevented that from happening directly. Therefore, employers added the so-called “fringe” benefits, as a backdoor way of increasing compensation. Since then, those benefits have been perpetuated by federal tax law, which taxes wage income that an employee spends on health care, but does not tax compensation that is in the form of health care bought for the employee by the employer. Regardless of union negotiations, that, over time, creates a heavy weight of expense that a new entrant into an industry, such as a foreign manufacturer, doesn’t face.

I agree with Becker that, rather than perpetuating these effects via a bailout, we should allow market forces (with a little help from bankruptcy law) to sort things out.


And after you nationalize them you might as well make the workers plant trees or build spaceships or bridges or something as keep building SUV's at a loss to supply the domestic market. Maybe make them biofuel friendly and ship them to Africa in liu of foreign aid? Government should not compete with private enterprise insomuch as possible, that's the garbage that got us in this mess.


1. Language-a loan is not a bailout--this is language of naysayers.
2. Assumptions--Do you want to buy car from bankrupt company?
3. Consequences--Ok let them go bankrupt. In current conditions--why come out. So now all the pension and health liability is shifted to the PBGC-who cant handle it--and end up on our backs. Loans are a cheap alternative--even if it is buying time.
4. Management--These CEOs are not overcompensated--in top 200 they are not even on the list. I have seen little to suggest they are making the wrong decisions. Could they do it different--maybe.
5. Objective Review--who has actually provided an objective review of this industry? Currency issues, government oversight, foreign subsidized competition, and all the rest. Most have an agenda--the right, the left, the foreign, union, management. How about a common sense approach--and what is best for all of us?!! 2 Million on the unemployment line and pension and health liabilities on the rest of us--or a loan???


Why isn't anyone pointing out that these car makers drove themselves into the ground by not making a competitive car? It didn't take a brain surgeon to see that higher gas prices were coming down the road.
GM I believe has already made an electric car which they took off the roads years ago and could sell quite a few very quickly if they put it back into production.


OK. Let's face it. The "loan" has nothing to do with unions, unemployment, health benefits, Michigan, suppliers or any of that other "stuff". It has to do with keeping a production capacity for building tanks, trucks and other military vehicles so that we can start a war to get us out of this depression. It worked the last time. Why not try it again.


If everybody agrees that the US and probably many other nations can only fix the current problems by de-leveraging their balance sheets, I think it would give a bad example to bail out the car industry (at least the big 3). Would it be not much smarter to finance innovative car projects? Every crises produces also opportunities to create future winners, why then holding-on on past loosers? Why putting billions USD of tax-payers money into an industry which has failed to be competitive for such a long period?

sheila bird



I'm unclear whether the person who suggests that the concept of a loan is to protect the ability to produce tanks. If so, they are pretty ignorant about our current production capabilities.

Regardless, a low interest loan IS a bailout. Let's face it.

Although professor Becker is right in as far as his post goes, it misses one point. In order to do a successful chapter 11, you need to be able to get reasonable debtor in possession financing. This is not possible because of the government caused credit crunch. If the bailout were to take the form of a subsidized debtor in possession financing to replicate what a ch11 bankruptcy would have looked like, say, one year ago, that would make sense to me.

Mike Hunter

"How about a common sense approach--and what is best for all of us?!! 2 Million on the unemployment line and pension and health liabilities on the rest of us--or a loan???"

What happens in 2 years when the auto companies have burned though all of the cash that they had borrowed from the government, and are in exactly the same position?

Let the American auto industry die! It's long overdue!

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