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By Anonymous Mike, pseudonymously.



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Monday, November 10, 2008
 
Auto Industry Bailout

I'm trying to follow the details here and I'm a bit mystified... now let's leave aside the fact that we're bailing out yet another industry and just move to the details.

First we are going to throw another $50 billion at Detroit to help the Big 3 transition to making more energy-efficient cars because if we don't do that they'll go bankrupt.

The thing about bankruptcy is that it is a vital part of "creative destruction." Companies that undergo reorganization as opposed to liquidation are put on sounder footing. If the company does liquidate then the remaining productive assets liberated from the corpse of bad management and are then able to be picked up by more talented companies and put to better use. Yes in either case the stockholders are wiped out, but if poorly run companies are left to go under then perhaps stockholders and management would be put on notice.

Second, the companies at which we'll throw money at will keep the same management, outrageous labor contracts, and clunky distribution system that helped get it into trouble the first place. The failure to produce desirable products is a symptom of poor management, after all it's not like those products aren't being produced by other companies.

Third, the money will be primarily directed at the Big 3; the domestic plants of foreign auto makers don't seem to be having quite the same problems with either poor management or in creating a desirable product that consumers want to buy.

To sum it up, we're going to throw alot of taxpayer money at companies that are in trouble because they have been run into the ground by poor management and outrageous labor contracts, but then not insist that those contracts and management be changed. So what exactly will the taxpayer money accomplish?

If we are going down this route then at the very least, for the sake of honest advertising, GM should have to change its name to Leyland.