Put General Motors Down

By any reasonable measure, GM, or at least its North American operation, is mortally wounded. The auto industry in the US is a mature one with very little room left to grow. The industry in general, and GM in particular, is saddled with excess and inefficient manufacturing capacity, extortionate union contracts which, for reasons known only to them, management agreed to, and enormous pension and health care liabilities to a pool of retirees which now outnumbers current employees.

At this juncture we’ve “loaned” GM $13.4 billion and GM’s CEO Rick Wagoner is asking for $16.6 billion more if it is to survive. Let’s not kid ourselves. Unlike the Chrysler bailout (for a much better analysis of what the 1979 bailout did and didn’t do, you should read James Hickel’s The Chrysler Bailout Bust), we’re not getting this money back and if $13.4 billion didn’t stop the hemorrhaging, then another $16.6 billion is just a larger band aid.

It is encouraging to see that many Republicans are coming to this conclusion, no matter how belatedly. Over the weekend, John McCain, Richard Shelby, and John Boehner all advocated letting GM go into bankruptcy.

While this is useful as a sign that reality is setting in, it is also akin to telling a fatally ill patient that he’s going to be fine. Chapter 11 is not going to help GM, or Chrysler for that matter, because their problem is not debt. Their problems, which predate the current economic downturn, are anemic sales and sky high overhead that can no longer be foisted off on consumers.

The only solution for GM is liquidation.

This really isn’t as drastic as it appears at first blush. Several product lines of GM are profitable. They can be sold to other manufacturers. Let’s not forget that the Jeep brand started out with Willys, then was owned by Kaiser, then by AMC, and finally by Chrysler. The more modern manufacturing facilities can probably find a buyer but the older ones will be shut down. GM owns lots of patents. These can be sold. It’s overseas operations can be spun off or sold. And, of course, the Pension Benefit Guaranty Corporation will end up assuming the wreckage of GM’s profligate benefits plan.

We can’t allow inefficient behemoths to become wards of the state. If we have any faith, whatsoever, in free enterprise and free markets we need to take GM to the vet.