Bailouts vs. Bankruptcy – how to help the auto industry

By Michael Ruhl, University of New Mexico – Talk Radio News Service

Today the Heritage Foundation held a forum concerning the best methods for dealing with the auto industry, specifically focusing on the benefits of bankruptcy. Paul Ingrassia, former Detroit Bureau Chief of the Wall Street Journal and Pulitzer Prize winner, said that Chapter 11 Bankruptcy may be of long term benefit to companies like GM and Chrysler. According to Ingrassia and fellow panelist Douglas Foley, of McGuireWoods LLP, bankruptcy could free the companies from contractual obligations which are otherwise overly burdensome to their operations. It would allow these companies to reduce the number of brands and dealers they have without lengthy legal gridlock, which in turn could provide the ability for the auto companies getting back on their feet through a very thoughtful reorganization.

Andrew Grossman, Senior Legal Policy Analyst at the Heritage Foundation, said that there are many risks with further government involvement in assisting the flailing auto industry. The first risk he highlighted was economic, more specifically the risk that with a government safety net, companies will be less responsible and self-regulating. Grossman also addressed the financial risk assumed by the taxpayers in the course of government intervention, because it is money which will possibly not be paid back to the government. Additionally, Grossman addressed the risk of politicizing the operations of these companies if the government were to gain an ownership stake. Grossman felt that if routine operations within these companies were politicized, they would be subject to political chess games and lobbying, hurting the way that business could operate within the free market. Grossman insisted that the proper solution to the problems faced is to stop all government bailouts and to insist on bankruptcy.