Monday, November 17, 2008

Bail out the Big Three?

Ford Modell T - 1914, in HerzogenrathImage via WikipediaEveryone's talking about it, so surely this is just one more voice in a sea of noise...

Bailing out the Big Three (Chrysler, General Motors, Ford) automakers is a bad idea. They should be allowed to restructure. Even if that means bankruptcy. Why? Because without restructuring, we are just postponing the day of reckoning and making it worse when it does come.

Look, I'm from Michigan. It will be painful. Hugely. People will lose their jobs. But the alternative is worse. The Big Three made some bad decisions. Bankruptcy is a way to take the useful assets and try something different.

Some will say that bankruptcy means everything shuts down. Nope. The automakers will still be making autos, still be making spare parts. Just not under current management and with current contracts. Airlines keep flying. Railways keep running. Stuff just gets cut.

Some will say that no one will buy cars from a bankrupt maker. If the maker is bankrupt it doesn't mean the car that was OK to buy yesterday all of a sudden falls apart. Nor does it mean that parts will never be available or that cars can't get repaired. Parts come from a network of suppliers. Ford hasn't made Model T parts in over 70 years, but they're out there, in the aftermarket. Repairs are carried out by dealers. And dealers make most of their money from service, not sales... dealers will continue to repair things, they'd be foolish not to.

So... let them fail, if they're going to. And let them KNOW they will fail if they can't sort things out themselves... that will give them incentive.

Schumpeter speaks of creative destruction. Let it create. This is a case where the village has to be destroyed in order to save it.

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