Some ideas on how to bail out GM
Posted
Nov 17 2008, 10:09 AM
by
Kim Peterson
Rating:
Congress is still debating if, not when, the government should bail out General Motors. Newsweek's Robert Samuelson offers a reasonable look at how to bail out Detroit with a tough love approach.
One study estimates that 2.5 million jobs would be lost in the first year if GM declared bankruptcy. In a booming economy, a bankruptcy might be tolerable, even useful, Samuelson writes. But in this economy, a bankrupt GM wouldn't be able to get the loans it needs to move forward. And a bankruptcy will only make the nation's 6.5%-and-growing unemployment rate worse.
GM has dug itself into a very difficult hole, and now it wants a bailout. Here's what needs to happen for a bailout to succeed, according to Samuelson:
1. Cut labor costs. GM paid employees $71 an hour in wages plus fringe benefits last year, Samuelson writes. That compares with $47 for Toyota. At this rate, the bailout is going to become union welfare.
2. Carmakers need to write down the debts on their books. GM has $48 billion of debt, and it will be overburdened and remain on a path to bankruptcy if it doesn't do something about it. GM will have to shut down some of its assembly plants as well.
3. Congress needs to raise gas taxes. That will encourage people to buy fuel-efficient vehicles. Wild swings in fuel prices have crippled the industry, Samuelson writes. Some people want to buy an SUV, but then gas spikes and they can't dump them soon enough. Raising gas taxes will spur automakers to adopt a consistent energy policy.
Related reading:
White House rebuffs criticism of its auto-aid plan
Automakers ask for bailout to keep wheels turning
A government bailout won't help GM
Should GM just file for bankruptcy?
