Why we should allow GM to go belly up

This is the best rationale I've seen for allowing nature to take its course and allow General Motors to go bankrupt.

Michael Levine, writing in the Wall Street Journal, gives us an object lesson in why GM should start over:

GM has about 7,000 dealers. Toyota has fewer than 1,500. Honda has about 1,000. These fewer and larger dealers are better able to advertise, stock and service the cars they sell. GM knows it needs fewer brands and dealers, but the dealers are protected from termination by state laws. This makes eliminating them and the brands they sell very expensive. It would cost GM billions of dollars and many years to reduce the number of dealers it has to a number near Toyota's.

Foreign-owned manufacturers who build cars with American workers pay wages similar to GM's. But their expenses for benefits are a fraction of GM's. GM is contractually required to support thousands of workers in the UAW's "Jobs Bank" program, which guarantees nearly full wages and benefits for workers who lose their jobs due to automation or plant closure. It supports more retirees than current workers. It owns or leases enormous amounts of property for facilities it's not using and probably will never use again, and is obliged to support revenue bonds for municipalities that issued them to build these facilities. It has other contractual obligations such as health coverage for union retirees. All of these commitments drain its cash every month. Moreover, GM supports myriad suppliers and supports a huge infrastructure of firms and localities that depend on it. Many of them have contractual claims; they all have moral claims. They all want GM to be more or less what it is.

And therein lies the problem: The cost of terminating dealers is only a fraction of what it would cost to rebuild GM to become a company sized and marketed appropriately for its market share. Contracts would have to be bought out. The company would have to shed many of its fixed obligations. Some obligations will be impossible to cut by voluntary agreement. GM will run out of cash and out of time.

Too many brands, too many dealers, too many costs - what's the point of bailing out this sick giant? It will become a huge black hole where money is constantly poured down only to disappear because GM's problems are not related to the financial crisis as much as they are due to market forces that GM - for one reason or another - has failed to address.

GM has been going bankrupt for at least two years. The financial crisis is simply the last straw, adding to the burden of a company that is not making enough cars that people want to buy. Will that change with the bailout? Why should it? Same company, same cars, same result.

We absolutely must stop this bailout. Enough is enough. Giving in to powerful labor and business interests by subsidizing their failure is not an option.

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