Friday, May 22, 2009

One Automaker Moves Toward Bankruptcy While Another Moves Out

The Washington Post is reporting today that the Obama administration is moving General Motors into bankruptcy as soon as early next week. Almost simultaneously, Chrysler Corporation is being moved out of bankruptcy.

It's the government's tool to force restructuring and solvency on two of the former Big Three automakers. But, as in the case of cancer treatment, the question remains: will they survive the efforts to save them or will the cure kill them?

Add to the mix the president's laudable goal of making the U.S. auto fleet fuel efficient and environmentally friendly - adding a cost of up to several thousand dollars per car - and you stop to wonder if these efforts are really designed to save or kill the auto industry.

One of the aspects of bankruptcy is the closing of dealerships and that erodes public confidence in the manufacturer. People are used to the convenience of going to a dealer in their immediate vicinity. They become attached to a sales person or a dealer. They don't want to be inconvenienced when their car needs service by having to drive an extra 10, 20 or 30 miles or more.

And the current economic climate makes the prospect of having to pay more for cars that are fuel efficient and better on the environment makes many drivers cringe. This is something the government should have pushed back in the 70s during the OPEC oil shortage. Not now when people are combining trips to the grocery store with driving their kids to soccer practice to save on gasoline.

Of course, one could argue - as some do - that to not intervene and let the market resolve this itself would have meant the end of both GM and Chrysler. So that the bitter pill that Obama is telling his car company patients to take is far more palatable than the prospect of shutting down.

Only time will tell if the patients, and the U.S. auto industry, survive.


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