Champions of Failure

I tried to have a pleasant, relaxing Saturday. I really, really tried. All was going well, up until about two minutes ago, when I read this op-ed in today's New York Times by Bob Herbert. And that's when my heretofore enjoyable day went completely off the rails. Just knowing that perhaps the most influential newspaper in the country employs someone as intellectually threadbare and vapid as Bob Herbert to write a twice-weekly opinion column fills me with despair.

To get right to it: In case you live under a rock, America's automakers, which have been on the decline for years due to high costs and a reputation for making bad cars, are now seriously flirting with actual bankruptcy. Particularly GM, which announced just recently that it is losing money at the rate of about $2 billion a month. At this pace, the company projects that it could be out of cash and in bankruptcy court by early in 2009. So naturally, GM is doing what every troubled business enterprise does these days: Demand a federal bailout. In GM's case, such a bailout would come in the form of a $25 billion (for starters) loan from the government.

It now appears that Democrats lack the support to pass such a loan, until the new Congress convenes in January, so at least for the time being, this latest transfer of losses from the private sector to the taxpayers is on hold. And much to the chagrin of Bob Herbert, who, as usual, knows just how our economy ought to be structured. Sniffs Herbert:

"If G.M., which is on life support, or Ford or Chrysler were to go bankrupt, the reverberations would kill the jobs of entire armies of American workers. It would undermine the standard of living of hundreds of thousands of families and shutter the entrances of untold numbers of small and intermediate businesses."

To stave off this potential economic nightmare, Herbert would have the federal government step in to instruct GM, which has been in the business of selling automobiles for exactly 100 years, on how to build cars people actually want. The Treasury would open its bottomless pockets yet again to lend GM however many billions it needs, but with conditions. In Herbert's own words: "That means dragging the industry (kicking and screaming, no doubt) into the 21st century by insisting on ironclad commitments to design and develop vehicles that make sense economically and that serve the nation’s long-term energy security requirements." (Italics mine.)

Is the man serious? In a single sentence, he proposes that the government force a for-profit company to operate profitably, AND serve the "nation's long-term energy security requirements." Does he really believe that GM's management hasn't been trying to make money all this time, and that a government-appointed technocrat will succeed where a once-mighty industrial giant has failed? Earth to Bob Herbert: If a group of people who've spent their entire careers trying to make money building and selling cars can no longer do it, the federal government is not going to lead them back to profitability.

And how about that "serve the nation" business? Is Mr. Herbert aware that the political system in which government coerces nominally private companies into "serving the nation" by building what the government decrees is called "fascism"?

So, allow me to offer a competing analysis (a very short one, I promise) of GM's woes: GM is a massive company with too many brands, too many dealerships, too many employees and prohibitively costly labor agreements. GM workers earn, between wages, pension and health care benefits, upwards of $70 an hour, whereas nonunionized workers at Japanese car plants located in the U.S. make considerably less (though by no means poorhouse wages). In recent years, GM, like the other two Detroit car makers, has depended heavily on SUV and truck sales to stay afloat, and demand for those highly profitable vehicles is evaporating.

In other words, GM's problems are structural, long-term problems that cannot be fixed by anything short of a major overhaul. And this is exactly what bankruptcy is designed to promote. Bankruptcy would allow GM to renegotiate the impossibly high wages it pays employees, sell off production facilities and entire brands to eliminate dead weight, and begin the painful process of scaling itself back down to a manageable-sized company that can compete with foreign rivals. Bankruptcy does NOT mean that all of a sudden, poof, no more GM, as Bob Herbert implies with all his doomsday scenarios. In recent years, US Airways, United Airlines and Delta all declared bankruptcy; surely he's noticed that those companies still exist today, right?

And really, what alternative to bankruptcy can Herbert offer? Well, here it is, in his own words: "The government should craft a rescue plan that is both tough and very, very smart." So let me see if I have this straight, Bob: Your plan is for someone else to come up with a good plan?

Good plan.