Automakers Need Bankruptcy, Not Bailout

(By Andrew M. Grossman, The Heritage Foundation) - The U.S. auto industry is in dire need of a shakeup. All of the Big Three are beset by plummeting sales and market share, high labor costs, aging fleets, and a surfeit of innovative automobiles in the pipeline. With General Motors, and perhaps Ford after it, fac­ing looming liquidity crises, staying the course is no longer an option.

But rather than face facts, the auto industry is seek­ing yet another government lifeline: a $25 billion bailout on top of the billions in subsidized loans already approved by lawmakers. While a bailout promises continued stagnation and decline, reorgani­zation is the only chance that automakers have to rebound and survive in the global marketplace.

Rather than throw even more money at the prob­lem to little effect, Congress and the Administration should let the automakers take advantage of the same legal process to reorganize that thousands of other businesses use each year. The bankruptcy process is designed to address exactly the kind of challenge that the automakers now face: realizing the full value of assets and organizations that have been mismanaged and kept from reaching their potential. Conversely, outside of the bankruptcy process, the automakers will lack the legal ability, as well as the proper incen­tives, to confront their problems, restructure their operations, and return their assets and employees to productive service.