No Auto Bailout

Chapter 11 of the U.S. Bankruptcy Code allows businesses to reorganize their operations while remaining open for business. On the other hand, Chapter 7 is essentially a fire sale bankruptcy, one where the assets are liquidated and the business is shut down.

Now I must tell you that the automakers are suggesting that if they file for bankruptcy, millions of jobs will be lost. Really? Are they planning to file bankruptcy under Chapter 7, not Chapter 11? If so, why?

My thinking is that the automakers are taking a page from the fear playbook, painting a worst case scenario where none exists. If the automakers file for Chapter 11 bankruptcy, that’ll open up a world of possibilities for them: union contracts can be negotiated, dealership relationships terminated, contracts with suppliers reviewed, and much more. True, GM and others would escape some of their financial responsibilities but it is these same poorly negotiated contracts which have all three automakers in their current bind.

Why wouldn’t the automakers choose Chapter 11? Political pressure. Politicians whose voting base is heavily unionized want the bailout. They know that some employees will be laid off, plants closed, and tax revenue lost. Meanwhile, a bailout doesn’t cut to the heart of the issue: all three automakers desperately need to be restructured. Inject some taxpayer money into all three companies today and I guarantee it that they’ll hold their hands out again in the near future.

To my fellow Americans: fear can be a great motivator, but it can also be used to act irrationally and protect your self interests even at the expense of other people. Government solutions to any problem – whether real or trumped up – mean centralized control and the gradual erosion of our freedoms and the death of free enterprise.

I don’t like how any of this is playing out and I think that most Americans, if they had all of the right information before them, would agree and let their elected officials know that propping up the free enterprise system is bad for taxpayers and businesses alike.