Back in December, the Detroit Three argued for a bailout because American consumers won’t buy General Motors and Chrysler cars if they are forced into bankruptcy. They would be tainted by a stigma and by worries that warranties and parts wouldn’t be available years down the road if the firms ran the risk of liquidation. They cited consumer surveys that support the view. One survey of 6000 consumers by CNW Research this summer found that 80% said they would abandon an auto maker if it were to file for bankruptcy.
At the time, I called out the automaker’s bankruptcy argument as completely specious.
As I said then, “the survey results are misleading. Would somebody be more likely to buy a car from a financially healthy car maker? Of course. Would somebody prefer to by from one that is on the brink of financial collapse or one that is in bankruptcy proceedings? I bet that would be a statistical tie.”
Well, January sales results for the automakers are in.
According to the Wall Street Journal: “Sales by the Big Three U.S. auto makers plunged in January to the lowest levels in decades, raising fresh questions about the future of the companies and the viability of the government’s bailout program.
Chrysler LLC’s U.S. sales fell 55% compared with January 2008 to 62,157 vehicles. General Motors Corp.’s sales slid 49% to 128,198. Ford Motor Co.’s dropped 40% to 93,041.”
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Ken’s Mega-Take: As predicted, cash strapped consumers decided not to buy cars from “non-bankrupt” automakers that are on government life support
Is there anyone who doesn’t recognize that the Detroit automakers are hanging by financial threads? The companies are bankrupt, they’re just not in legal bankruptcy proceedings. If they were, they’d at least stand some chance of restructuring themselves into healthy positions. The current government thinking stands no chance of doing that.
So why not simply have them file for bankruptcy proceedings? Simple, bankruptcy proceedings would dismantle the high cost, work rules heavy UAW contract. Politics trumps market forces and economic sense.
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