Bailout Nation

Ford and General Motors are looking for $50 billion in loans from the Federal government to keep their operations going. I should say another $50 billion, because they already got $25 billion earmarked for them when the $700 billion financial bailout package passed.

Speaker of the House Nancy Pelosi and Senate Majority leader Harry Reid issued a joint statement last week in favor of handing more taxpayer cash to the domestic carmakers. Rahm Emmanuel, chief of staff designee for President-elect Barack Obama, weighed in on the side of the increased bailout this weekend. I guess that this means the fix is in.

Still, I’m not convinced that a good case has been made for bailing out the domestic car companies. Not that I do not believe that bankruptcy is a real possibility for the car companies. GM alone burned through $6 billion in cash during the last three months. If they continue at that rate, they will run out of cash sometime next year.

But bankruptcy isn’t the end of the road. They can use Chapter 11 of the bankruptcy code to continue to operate while they reorganize. This is what all of the major airlines except Southwest and American have done, and they all managed to stay in the air while going through the process. If the airlines can do it, why can’t the auto makers?

A Chapter 11 filing would give them a chance to get out from under their UAW contracts. These are the contracts that require the car companies to pay laid off workers 95% of their base wage (and 100% of their benefits), even though those workers and actually doing any work.

My concern is that, even with the government loans they are seeking, GM and Ford are only staving off the inevitable. Without structural changes to how they do business, like dropping the UAW contracts, what’s to keep them from coming back to the taxpayers in another year or two, asking for good money to be thrown after bad?