Big 3 Beg Congress for $25 Billion

The bosses of America's remaining car companies are on Capitol Hill pleading for a bailout. With $700 billion pledged to fix the financial sector, they figure there must be $25 billion for them. Congress, though, seems reluctant to give them the dough. The Big 3 are threatening bankruptcy if they don't get it, and many on the Hill are fine with that.

According to the top dogs in Detroit, none of the current problems are their fault. Their legacy costs aren't the issue, nor is their business model. Their cost structure is just fine, and their products are wonderful. The problem, they say, is that no one can get credit to buy a new car. They just want the money to hold them over until the economy turns around.

Ford's CEO Alan Mullaly said, “While the domestic auto industry has made mistakes in the past, the current problems have been exacerbated by one of the worst economies in nearly three decades. We are hopeful that we have enough liquidity based on current economic planning assumptions and planned cash improvement actions, but we know that we live in tumultuous economic times."

Peter Morici, economist at the University of Maryland, testified “The Detroit Three are rapidly running out of cash and face filing for Chapter 11 reorganization. It would be better to let them go through that process and re-emerge with new labor agreements, reduced debt and strengthened management." He added that, "I would suggest if you give them $25 billion this month, they will be back."

The question is what's wrong with bankruptcy? It will allow the companies to jettison some bad labor contracts, get their financial houses in order, and provide an opportunity to emerge as stronger global competitors. For reasons of national security, they cannot be allowed to go into liquidation, but that is a far different thing than a reorganization. It would, of course, be profoundly embarrassing, but then, so is asking Congress for $25 billion.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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