April 2, 2009

An Auto Renaissance? The Sun God Commands It

You bail two auto giants, and what do you get? Three months older and $18 billion deeper in debt.

Tell me again what part of President Obama’s recent decree regarding the futures of General Motors and Chrysler would not have been accomplished had the feds given the companies a gentle nudge toward Chapter 11 – instead of forking over a mountain of taxpayer IOUs?

Let’s see. Chrysler’s private equity owner, Cerberus, is giving up the entire value of its stake. Could that have happened in bankruptcy court? Yes.

Both auto companies’ lenders and bondholders are going to take a haircut, and major concessions will be wrung out of unions. Could that have happened in bankruptcy? For sure.

Much of GM’s management and board were led to the firing squad. Could that have happened as a result of Chapter 11? Of course.

A large stake in Chrysler will be taken by a foreign automaker, Fiat, and less desirable pieces of GM will be sold off to pay obligations while the “good” parts are reconstituted as a going concern. Could that have been an outcome of a Chapter 11 filing? You betcha.

And even as, out of one side of its mouth, the O-ministration’s auto task force admits that GM’s Chevy Volt electric vehicle will be "too expensive to be commercially successful in the short-term," out of the other side of its piehole, it insists it will push the automaker to transform itself into a "company of the future" offering more energy-efficient (and equally unprofitable) vehicles.

Could that have taken place in a bankruptcy court? Oops.

Not to mention the increasing likelihood that even after all the government’s troubles, the automakers will still be subject to a “quick and surgical” bankruptcy process.

“Quick and surgical.” You know. Like a lobotomy.

In other words, all the nasty outcomes of bankruptcy filings will happen anyway. Including bankruptcy filings. Except future taxpayers will be out tens of billions of dollars . . . and be stuck with two brain-dead colossi subject to heavy-handed political control by Obama’s Nurse Ratcheds.

You see, as the Sun King exclaimed, "We cannot, we must not and we will not let our auto industry simply vanish.”

Will not, indeed. In other words, Le Roi Soleil is commanding that automakers endure even as he twists their arms to produce vehicles that won’t sell or make money – and a column of planned environmental mandates is about to slam into the industry like a tsunami on steroids.

Then, for his next trick, he will order that fiery celestial sphere to stand still in the sky.

It appears the Sun King (“le etat, c’est moi”) has morphed into the Sun God. Mon dieu.

Meanwhile, back in the real, non-lobotomized world, the bankruptcy system exists because free, dynamic markets and active entrepreneurship drive failure as well as unparalleled success – when they are allowed to function. (See Schumpeter, Joseph.)

It’s why the power for Congress to regulate bankruptcy was enshrined in the Constitution (in contrast to royal edicts on the direction of the economy). And why America’s well-developed bankruptcy framework is unique in the world and eagerly copied by countries emerging from socialism (where companies, by definition, never fail).

U.S. bankruptcy courts – run by expert judges with the assistance of expert trustees, and ensuring fair representation for all interested parties – re-order, re-energize and re-launch failing companies all the time. And they do it largely free of political interference and slavish devotion to economic and environmental fads.

But that would be too conventional for the Sun God, who insists on pretending that he can wave his hand and produce the miracle of growth and prosperity – even as he pleases as many leftist political constituencies as can dance on the head of an AIG executive.

Time for the auto industry to reawaken to a brave new day of eco-driven prosperity? No problem. Cue the sun. And pass the scalpel.