Play of Words: "Orderly" Auto Bankruptcy

Byron A. Ellis – December 19,2008

Apparently, the Administration will not provide a bridge loan to the U.S. auto industry. Rather, the Administration has conjured the term “orderly bankruptcy,” as if there is disorderly bankruptcy. The Administration, however, spends approximately $10 billion dollars per month in Iraq, but find it troublesome to provide a bridge loan to the U.S. auto industry.

Ironically, the state of the economy is a result of poor decision-making of the Administration. The invasion of Iraq destabilized the region and caused speculators to bid up crude oil prices. Higher energy prices affected the real income of consumers. Consumers reallocated outlays to cover higher transportation cost.

The Administration has a unique opportunity to stipulate strict management guidelines on a poorly managed industry. The American auto industry under different management has the capacity to become productive.

However, it appears the ideological reasons, may again lead the Administration to make poor choices. Choosing to let the American auto industry go into bankruptcy, in a poor economy, is not the right choice; it will put a risk thousands of American jobs.

With falling energy prices, income gobbled up by the energy companies will remain in the hands of consumers. And, as consumers’ real income increases, they will demand more goods and services, including the purchase of American automobiles.

Therefore, although helping poorly managed companies is not palatable with most Americans, it is essential to help the American auto industry remain viable.

Government support should be contingent on the immediate infusion of new management and a mandate to produce vehicles that are fuel efficient, mechanically reliable, aesthetically pleasing, and cost effective.

Additionally, compensation, including that of executives, throughout the industry should be comparable with the transplants. Restrictive executive compensation should also apply to Chryslers’ parent company, Cerberus Capital Management.

Moreover, Chrysler’s bridge loan should be tied to Cerberus Capital Management assets. That is, the assets of Cerberus Capital Management should guarantee Chrysler’s the bridge loan.

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