Why We Must Save the Big Three

There was a segment on national television recently about the demise of the GM assembly plant in Moraine Ohio. All I could think of was, “What are those people going to do?” It must be an empty, sickening feeling to know that the job you have performed for many years is disappearing and that you live in an area where there are very few jobs to replace it. Unemployment insurance lasts just so long. After that, what? Will you be able to travel to another city to get work?

The anguish and pain now being felt by the people of Dayton and Moraine could be spread around America and we could face a period similar to the 1930s when a large portion of the country was out of work. The reason Franklin Delano Roosevelt said: “The only thing we have to fear is fear itself,” was because he knew that along with the severe economic depression there was a powerful psychological depression in the minds of American workers. People out of work feel helpless.

There is much talk today about how, instead of being bailed out by the government, the auto makers should go into Chapter 11 bankruptcy. Chapter 11 provides for continuation of the company under a plan of reorganization. The idea is that under reorganization, the big three would be able to cut waste, improve management, renegotiate labor contracts, obtain financing, and do other things to make the companies leaner, sleeker, and more competitive. If that were all that was involved, it might be a good idea. There are, however, many problems with a Chapter 11 bankruptcy.

In the first place, a Chapter 11 bankruptcy would most likely lead to liquidation under Chapter 7 of the bankruptcy code. The creditors of a bankrupt company have the power to force the company into liquidation when the reorganization of the company does not attract sufficient capital to make the company an ongoing proposition. Liquidation means that the companies would go completely out of business and their assets would be sold or taken-over by their creditors. All employees would lose their jobs and get no termination pay. All benefits would be lost.

If General Motors, Ford, or Chrysler were to file for Chapter 11 protection it would scare off thousands of potential car buyers, worsening the company’s finances. One recent survey showed that eighty percent of consumers would not even consider buying a car or truck and taking out an auto loan with a company that might not be around down the road.

With the tremendous loss of revenue that would result from lack of sales, the company would be unable to cover its high fixed costs. This would lead to a lack of confidence in the capital markets and the company would be unable to obtain the loans necessary to prop it up during the rebuilding. Moreover, Chapter 11 bankruptcy would prompt many of the best and brightest to leave the company.

A bankruptcy by even one of the Big Three would probably set in motion a cascade of smaller bankruptcies by suppliers and other dependent businesses which would create a giant ripple effect greatly impacting the entire economy of the United States. Cities in the Midwest would become desolate areas of rampant unemployment dwarfing what we are experiencing today. This is why it is necessary to give special treatment to these companies that affect such a major portion of the economy.

Now the government has an opportunity to save the Big Three automakers and in the process, increase jobs and improve the quality of American automobile making. We should look upon the money given to the car companies as a stimulus package like the one being proposed to rebuild our infrastructure. In addition to obvious improvements in management and concessions by labor, it should be a strict condition of any loans that a large part of the money be used to retool the manufacturing plants of the industry so that the Big Three can start building the kind of smaller, alternate energy, hybrid, high efficiency, high quality vehicles like the Chevy Volt. Retooling the plants would require the addition of thousands of new jobs. On this basis the Big Three could start over.