At a meeting I attended a top Ford Executive made an interesting point: Automakers, he said, wanted to avoid bankruptcy because the mere fact of a bankruptcy filing would reduce new car sales to near-nothing. Thus, he said, they “didn’t want to call it bankruptcy” but would “pay the price” nonetheless. I am against auto bailouts, but he may have a valid point here. I would not buy a car, no matter how well made, from a company in Chapter 11. After all, cars need regular service and any car from a given manufacturer has at least some parts that no other manufacturer uses. If the manufacturer no longer exists, then the car parts might not.
Although plenty of car companies have merged or partially merged to get out of trouble–recent-memory examples include Chrysler and AMC and Renault and Nissan–I can’t think of any auto company anywhere in the world that has entered chapter 11 or its local equivalent and emerged anything other than a hollow shell. Can anyone think of a counter example?
Categorized | Odds & Ends
A Valid Point In Support of Auto Bailouts?
by Eli Lehrer
December 07, 2008 @ 8:37 am
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[...] in answer to the blog post you phrased as a question, the argument from the individual you heard, echoed by other Big 3 execs, [...]
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I don't buy this argument. First, people who lease cars ought not be swayed by it. Neither should people who trade in their car every few years.
Most importantly, both GM and Ford have spun out their parts manufacturers (Delphi and Visteon). While each might face their own problems, they are simply not tied at the hip to their original parent company the way the doomsayers predict.
I'm sorry, but I don't think I would buy a Ford whether or not the company was in Chapter 11.
And I'd still be paying for their bailout.
Parts would be available via 3rd world manufacturers and independent distributors and repair facilities.
To the extent this point is valid, Congress could solve it by pledging funds to support any successor company and funding existing warranties/recalls in the event of a bankruptcy. Right now, I wouldn't buy a car from any of the Big Three because bankruptcy is still likely. Any contract they enter post bankruptcy filing will have to be honored. Any contract they enter now, like a warranty, as far as I know, would be voided by the bankruptcy. Bankruptcy would, for a rational consumer, improve the situation over the current one.
This is not a valid point but merely an attempt at a rationalization for what he wants. Listen to what he is really saying, “If we tell the consumers the truth they won't buy our product.” This is the exact opposite of free exchange and should probably be construed as fraud.
If there were some way I could block this bailout I would. If it is going to go through anyway I think they should give an equal amount to all auto makers, not just the big three. Why should Honda and Toyota (and the others) be punished for making a superior product?