Sunday, December 14, 2008

Media genuflect to auto industry

With the auto industry the largest national advertisers, it is perhaps understandable, albeit yet regrettable, that media coverage so often allow auto spokespersons to talk nonsense without contradiction.

The prime example is the bugaboo that bankruptcy will lead to the closing down of GM, Ford and Chrysler and the loss of hundreds of thousands of jobs over night. This is patent nonsense.

Chapter 11 of the Bankruptcy Code has long been successfully used to enable companies to share the pain of needed restructuring with stake holders - creditors, workers, stockholders - so that they can move ahead successfully. The moment one of the big three files under Chapter 11, its good credit is restored since subsequent debt has priority over past debt.

In his Sunday News Dec. 14 column headed "$73 per hour may be a bargain" - a notion so silly in itself that we won't bother to comment upon it - Gil Smart asks "But what happens if we don't bail out Detroit and the automakers go the Chapter 7 route - liquidation - rather than Chapter 11" Well what happens if sun doesn't come up tomorrow morning? (Physics aside.) The question is an inanity because stockholders, suppliers, lenders, and the union have no economic interest in liquidation. Their every muscle and sinew are bent towards keeping the auto makers in business.

Rather, it is those who are calling for a government "bail out" who are throwing an anchor rather than a life preserver to to the drowning industry. More debt just continues the feathering of nests from the CEO's on down to the workers and continues inept leadership. Restructuring will bring about reforms, and then the American brands will be able to survive and, if they are properly lead, ultimately flourish.

We refer to "American brands" above because GM, Ford and Chrysler are little else. The amount of American made content in the cars under their names is no greater than those in cars manufactured in the USA under foreign brands such as Volkswagen, Toyota and Mercedes. For example, Chevy's most popular and money making car, the Impala, is made from Asian parts and assembled in Canada. "As American as apple pie" used to their slogan. Sure...North American, as in Canada.