To Bail Or Not To Bail ...

... that is the question.

This report at ABC gives a good overview.  Sen. Carl Levin (D-MI) states the interventionist case.

General Motors, Ford and Chrysler, who, earlier this month, made an urgent plea to lawmakers for cash, say they need a government lifeline to survive. House Speaker Nancy Pelosi said Saturday that House leaders would secure aid for the auto industry, "to ensure their long-term economic viability."

"You've got to have this interim support, as every other country with an automobile industry is going to do. No other country with an automobile industry will allow it to go down," said Sen. Carl Levin, D-Mich., on NBC's "Meet the Press" Sunday

"Got to have" it?  And I suppose if Johnny Finnegan jumped off the Empire State Building you'd have to jump off the Empire State Building,"  You don't spend $25 billion just because the "cool" kids are doing it.

Besides, is bankruptcy - and reorganization - really unthinkable?  GM, Ford and Chrysler have been operating under a handicap for quite some time, a handicap that hinders their competitiveness in a global market.  Or even in just the American market, for that matter.

Chapter 11 of the U.S. Bankruptcy Code allows for a company "makeover" under court supervision. But it's not your grandfather's liquidation bankruptcy.

"It doesn't mean close the doors, lock it up, sell it off," said [Michael E. Levine, professor at New York University School of Law]. "It means reorganize, financially. Americans at this point are fairly used to dealing with companies that are in reorganization."

Bankruptcy, Levine argues, gives companies greater leeway to restructure and emerge stronger. Bankruptcy protections could, for example, let GM out of its expensive union contracts that pay $71 an hour in wages and benefits, compared to the $47 that Toyota pays.

And under bankruptcy law, the company could rewrite contracts with dealers and drop less profitable brands to concentrate on newer, more fuel efficient models, like the Chevrolet Volt.

"It's really better to focus on your most successful brands and products," said Paul Ingrassia, former Dow Jones executive and Detroit bureau chief for the Wall Street Journal. "So instead of having eight brands with 20 percent of the market, why not have two or three?

Would there be enormous turmoil for the next 12-24 months?  Yes.  Would the "big three" be smaller when the dust settles?  Yes.  Would they be more competitive?  Yes again. 

The auto makers need to have a) quality products, b) a sensible distribution system and c) controllable costs.  The unions have, over time, gotten such enormous ongoing benefits for even their retired employees that the companies carry those handicaps on the assembly line toward every car sale.

Eric Torbensen covered all the bases in the NY Post yesterday.

"We're funding a day care system for people with extinct skills," says Michael Covel, an entrepreneur, trader and author who is among many to back the simple argument: "let them die."

"We'll be a heck of a lot stronger in the long run if we just take the pain on this right now. They'll burn through it and be back for more. We're turning auto jobs into government-supported jobs and it's a shame." In just under two years, GM has lost $57 billion. The current quarter will provide more huge losses, and even in its regulatory documents the company admits that demand for its products isn't coming back soon.

The choice comes down to this.  Without bankruptcy there can be no reorganization, retooling, and revising of a failing business model with crushing long term costs.  With a bailout there can be no bankruptcy, at least not immediately.  But, rest assured, we'll be right back here asking the same questions six months from now $25 billion of taxpayer money poorer.

This isn't tough love, it's brutal love.  But it's still love.  I've owned cars by both GM and Ford, and also owned or leased a Toyota, a Nissan, a Saab, and Audi, and a BMW.  I enjoyed my GM vehicles (Ford not so much).  They can come back, and it's not just hybrid and electric vehicles that will do it.  It's quality vehicles that people want to drive.  Cars that make you want to say, "Yeah, that's mine.  Want to go for a drive?"  But that takes imagination.  And flexibility.

See also the essay in the weekend WSJ, "Just say no to Detroit."

The implications of this story for Washington policy makers are obvious. Investing in the major auto companies today would be throwing good money after bad. Many are suggesting that $25 billion of public money be immediately injected into the auto business in order to buy time for an even larger bailout to be organized. We would do better to set this money on fire rather than using it to keep these dying firms on life support, setting them up for even more money-losing investments in the future.

Ouch.

11/19/08 1400: I knew I liked that guy Romney. 

IF General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.