Late last year I wrote to you about the 'Big Three' coming to Washington seeking $25 billion in federal bailouts and loan guarantees. Many of us were concerned about the government being too willing to offer its 'helping hand' and, as it turns out, that was for good reason.Since that time, the Obama Administration has not only bailed out GM and Chrysler, it has essentially taken them over. The Administration awarded the United Auto Workers Union a significant ownership stake in both companies, a stake much more generous than that of the bondholders. To say that these actions should give every American pause is, well, quite an understatement.
If this weren't bad enough, the Administration is making management decisions by ordering the closing of dealerships and telling Chrysler that it must cut its advertising budget in half. Tough decisions will no doubt have to be made, but for the government to make these decisions simply guarantees that political objectives will be pursued before economic objectives. For an administration that continually says it wants no part of owning an auto company, it’s sure giving it a go.
Last year I told you that, in my own view, if there ever was an industry in need of bankruptcy, it's the auto industry. But a “structured bankruptcy” that leaves Chrysler and GM as wards of the labor unions and the federal government is a particularly bad idea. I’m afraid that sound you hear is an Edsel coming off the assembly line…
I'd appreciate hearing your thoughts on this issue. Please provide comments by clicking here. As always, I look forward to your comments.
Sincerely,
Jeff Flake
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