Nobody could have predicted

Kevin Drum:

What to do? I mean, does anyone believe this is the end of the bailout requests? I certainly don't, and I doubt anyone else does either. On the other hand, the alternative is allowing GM and Chrysler to fail in the middle of a recession. Nobody wants that. But on the third hand, even if we bail them out, what are the odds that they can survive in the long term anyway?

In the end, I suppose we'll continue bailing. But this whole process shows up one of the big pitfalls of government action like this. My own guess — and this is obviously just a personal hunch — is that while GM is at least arguably salvagable, Chrysler is a hopeless basket case. So if we're going to do anything, we should probably bail out GM but let Chrysler go under. That would save the taxpayers some money and reduce overcapacity in the auto industry at the same time. Unfortunately, politics being what it is, the Obama administration probably feels like they can't pick winners and losers and needs to treat them both equally.

This is almost certainly dumb, but it's what's most likely going to happen. So the American public will end up pumping $10 or $20 billion into Chrysler in order to help it become, basically, the North American subsidiary of Fiat — a partnership that does the U.S. auto industry little good and will itself almost certainly crumble and fail before long in any case. What a mess.

Thoughts?

InstaUpdate:

In return, the two companies also promised to make further drastic cuts to all parts of their operations, in the hope that they can eventually strike a balance between their bloated cost structures and a dismal market for new car sales.

G.M., for example, said it would cut 47,000 more of its 244,000 workers worldwide; close five more plants in North America, leaving it with 33; and cut its lineup of brands in half, to just four: Chevrolet, Cadillac, GMC and Buick.

There’s a business case for big layoffs. GM is hardly the only firm undertaking them. But if spending tens of billions of dollars on a jobs program makes some sense, spending that kind of money to help keep the management and marketing infrastructure of the firms in place as they layoff and furlough their workforce doesn’t. But you sort of need to choose what you’re doing here—are taxpayers creating makework jobs to prevent the rust belt from becoming the new dust bowl, or are we trying to provide assistance to our “national champion” firms and help them compete? If it’s the jobs we care about, we’d probably be better off spending the money giving different jobs to auto workers—spend $14 billion+ on Detroit to Chicago high-speed rail or something (ditches, anything)—which would have the same beneficial employment effect, avoid bailing out shareholders and managers, and help reduce auto industry overcapacity thereby lending a helping hand to Ford and to U.S. production of “Japanese” cars. Otherwise, if every country around the world insists on sinking more and more money not into its nation’s car companies instead of into its people who work for car companies then we’ll have a situation where the whole industry just keeps shrinking and sinking slowly. | yglesias |