Sunday, November 16, 2008

You've won the election, now roll over and play dead

I have mixed feelings about an auto industry bailout, and I'll even go so far as to say that anybody who looks at that matter as a real problem, rather than occasion for ideological debate about the virtues of the free market, probably does as well. So, the last thing I'd suggest is that liberals should come out in favor of a bailout (I'm leaning that way, if anybody cares).

However, if you want proof that modern conservatives have internalized the crisis/opportunity crap that became trendy a few years ago, look no further than David the Likable. Hollywood Liberal gets it:
A howl is arising among conservatives, and David Brooks throws back his head this morning — the Big three auto makers must be allowed to die.

Not so long ago, corporate giants with names like PanAm, ITT and Montgomery Ward roamed the earth. They faded and were replaced by new companies with names like Microsoft, Southwest Airlines and Target. The U.S. became famous for this pattern of decay and new growth.

PanAm, union airline. Southwest, non-union. We get it.

It’s amazing that even now Brooks cannot name the pig he is tasked with lipsticking, he must speak in conservative code. He never says the UAW needs to be broken, instead we’re treated to “politically powerful crony capitalists who use their influence to create a stagnant corporate welfare state.”
But I haven't been able to find much liberal comment. I'll also note that I can't imagine Brooks shedding any tears if a GM bankruptcy adds to the PBGC's growing problems.

In a recent comment at Library Chronicles, I mentioned a nationally syndicated article that demonstrated the liberal media's conservative economic bias (e.g. note the reliance on industry sources):
When times were good, the automakers did not take on the UAW, which the companies say drove up their labour costs to $30 per hour more than Japanese companies paid their workers.

The figure includes pension and health-care costs for hundreds of thousands of retirees.

Conservatives have long pointed out that GM spends more on health care than on steel. Liberals used to respond that that was the point.

Update: I left out the obvious fact that Michigan elects Democrats, but, after reading Jonathan Cohn, I have to wonder if Richard Shelby (R-Al.) has thought his opposition all the way through. From Cohn's article:
One reason for the casual support for letting GM fail is the assumption that bankruptcy would be no big deal: As USA Today editorialized recently, "Bankruptcy need not mean that the company disappears." But, while it's worked out that way for the airlines, among others, it's unlikely a GM business failure would play out in the same fashion. In order to seek so-called Chapter 11 status, a distressed company must find some way to operate while the bankruptcy court keeps creditors at bay. But GM can't build cars without parts, and it can't get parts without credit. Chapter 11 companies typically get that sort of credit from something called Debtor-in-Possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate.

That's why many analysts and scholars believe GM would likely end up in Chapter 7 bankruptcy, which would entail total liquidation. The company would close its doors, immediately throwing more than 100,000 people out of work. And, according to experts, the damage would spread quickly. Automobile parts suppliers in the United States rely disproportionately on GM's business to stay afloat. If GM shut down, many if not all of the suppliers would soon follow. Without parts, Chrysler, Ford, and eventually foreign-owned factories in the United States would have to cease operations. From Toledo to Tuscaloosa, the nation's?assembly lines could go silent, sending a chill through their local economies as the idled workers stopped spending money.

One other matter to consider:
A GM collapse alone would cost the government as much as $200 billion for costs associated with unemployment insurance and other programs after millions of auto-related job losses, according to a forecast from IHS Global Insight Inc. in Lexington, Massachusetts.

Of course, if a collapse is inevitable, that money would ultimately have to be spent on top of whatever's spent on a bailout.

While the DIP financing will be difficult, it's not impossible - cf Circuit City just entereed BK and they got DIP financing - and they aren't even a manufacturer.
Interesting that he ignores the role of terrorism in PanAm's downfall. It had many serious problems before, but a string of terrorism incidents that the company wasn't bailed out for--a la the airlines post-9/11--was the final, violently hammered nail in the company's coffin.

Southwest, meanwhile, doesn't fly everywhere. Try living between Atlanta and Raleigh-Durham and wanting to fly Southwest, for example, if you're not within two hours or so of those two places. You can't, unless you want to spend prohibitive amounts of money and time on driving.
Excuse me, make that between Birmingham and Raleigh-Durham. Consider all the cities and tourist spots left out there--Charleston and Savannah, Myrtle Beach SC (top 5 tourism market in US), Asheville NC, big cities including Charlotte and Atlanta, smaller markets served by the big airlines such as Columbia SC. Doesn't look like Knoxville or Chattanooga are served by SW either, in that big stretch between Birmingham and the Triangle region of NC.
To my knowledge, by the way, the only auto-related factory in "Tuscaloosa" is owned by Mercedes-Benz (the city boundaries take in sewer and water lines that go to the plant--thus giving it the median in between Tide-land and halfway to Birmingham). Maybe they're thinking of suppliers?
For what it worth Southwest is a union airline.
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