Bailouts are rapidly becoming a dangerous Washington substitute for economic solutions. The current contestant, or industry, vying for your hard-earned tax dollars is the ailing Detroit automakers.
Auto executives and labor bosses make Detroit seem an innocent victim of tough economic times. Entertaining that notion, however, requires one to ignore headlines over the past decade describing a shrinking market share and uncompetitive cost structures.
I grew up in Dearborn, Mich., when Motown was Boomtown. Our auto industry was the pride of the state. But hometown pride cannot change the fact that Detroit has been heading down this road for decades, ignoring calls for transformation to meet changing economic and consumer demands. While 21st-century businesses require a degree of dexterity to compete with maturing foreign economies, the American auto industry is very much the brontosaurus of the global marketplace. The mere presence of the automakers and their union allies in Washington today is a blatant admission that they are inefficient and incapable of responding to economic realities affecting all industries—not just the Big Three in Detroit.
Even in better economic times, automakers have shown they cannot be saved from themselves. While the economy experienced steady growth from 2005 to 2007, General Motors lost more than $51 billion. Rather than re-evaluating their operations, Detroit automakers and organized labor are looking for a bridge loan of $34 billion from taxpayers to survive until economic conditions improve. Yet if we simply open up the federal treasury, we shouldn't believe the view from across the bridge will look any different than from here.
A bailout would be an expensive endorsement of Detroit's failed business model. While the federal government should not tell private companies how to operate, neither should it enable—with taxpayer dollars—those with dreadful operations.
Scare tactics. To frighten up the money, management and labor came to Washington with tales of mass devastation. It was either bailout or bust. But there is a middle ground. The option that they are so loath to discuss is Chapter 11 reorganization, granting a company the opportunity to fundamentally restructure its operations, protected from creditors and debt obligations. Representing the Atlanta area in Congress, I know intimately the impact Chapter 11 can have on a company and a community, as locally based carrier Delta Air Lines entered this reorganization in September of 2005. To be sure, every business and industry is unique. But Delta re-emerged a stronger company and announced a $1.6 billion profit for 2007.
Since Chapter 11 reorganization forces a rejection of the status quo, bailout proponents predictably proclaim it is not a workable option. They insist that the size and scope of a Detroit failure would make finding bankruptcy, or "debtor-in-possession," financing difficult. Should that become true, though, and the government is then forced to provide aid, we are at least guaranteed long overdue change for Detroit.
More distressingly, those seeking taxpayer dollars suggest that no consumer would again purchase a Detroit automobile if they were forced to reorganize. This fallacy illustrates a disturbing lack of faith in the American people. Americans will not abandon U.S. automakers as long as they provide a quality product at a competitive price, which re-organization will allow them to do.
A company reorganizing to become profitable again is admittedly not a painless process—Delta lost 6,000 jobs. But the opportunity for a pain-free resolution went out the door years ago.
Bankruptcy exists for a reason and can make a business better. The problem is that so many involved fear what "better" may mean. It may mean new labor contracts that do not put American cars at a significant cost disadvantage to foreign competition. It may mean a business model focused on long-term viability and innovation. It may even mean new senior management that looks inside before extending an open hand to the taxpayers.