Congress cannot restore this jalopy
There are some folks who believe if the federal government will give General Motors a few billion dollars, the auto maker will be ready to roll once more — sort of like doing a tune-up and putting new tires on an old Camaro.
But the GM jalopy needs a complete overhaul, and putting taxpayer funds into the company as it now operates would do little but bump the problems down the road while keeping destructive United Auto Workers union contracts in place.
The reality is that GM was hemorrhaging money even in good times. The current economic crisis has certainly made things worse — driving GM stock prices to their lowest levels since the 1940s and creating the possibility the company will run out of cash by early next year.
But even in sound economic times, GM was being bled to death by huge union-related costs including above-market wages, overindulgent health care, princely retirement packages and, as The Wall Street
Journal noted this week, “the notorious UAW job bank that continues to pay workers not to work.” There’s been some restructuring of union contracts in recent years, but not nearly enough.
GM, along with Ford and Chrysler, is barely sputtering along, having failed to match other car companies — especially the Japanese — in innovation and fuel efficiency. Americans may love our trucks and SUVs, but we’re also eager for hybrids and other new technology. U.S. firms were far behind on such changes.
Some people, led by GM executives and Democratic leaders in Congress, seem to think Congress should give the auto company tens of billions of dollars with no strings attached.
That would be a colossal mistake.
Other people, such as Thomas Friedman in the column below, argue that if the government is going to aid GM, the company should be entirely restructured: new board, new executives, new union contracts and new corporate culture.
That’s more responsible than funding a famously failed business model. But there is another option: Allow GM to go bankrupt.
There are dire predictions about what that would do to unemployment and the struggling U.S. economy. No doubt some of that will be true. But other car companies that are continuing to operate profitably will expand to take up some of the slack.
Also, unlike the insurance giant AIG or large banking firms — businesses that got caught up in the mortgage and credit crises but still have sound business models — GM will never be profitable with all of its current union obligations.
It’s one thing for taxpayers to help sound businesses get back on their feet during difficult economic times.
It’s quite another to use taxpayer money to support a patient that’s been on life support since long before the crisis.
Congress should just say “No” to the GM bailout.