Bankruptcy

The Politics of GM and Chrysler

By Stephen Lubben

There is no doubt that both GM and Chrysler are highly political bankruptcy cases, and the Politico blog has a new story that examines the Republican party's efforts to use GM to attack the President.  In part this ability to use these cases for political ends reflects GM's long history of saying the right things while doing the same old things, a point I have made before.  It also reflects the degree to which GM, unlike most other debtors, has managed to alienate a few generations of consumers with the products it put out in the late 1970s and throughout much of the 1980s.  For people who don't rely on GM or Chrysler for their jobs, these companies should have long ago been brushed aside by the invisible hand.  Saving them is therefore bound to be controversial, since support for the automakers has been concentrated into a narrow region of the country.  The automakers can blame themselves for creating this situation.

But most importantly, the political nature of these chapter 11 cases also flows from the reality that no politician would have allowed companies of this economic magnitude to fail during a severe economic crisis.  And I do believe that these cases, in this economic context, were inevitably bound to have significant political involvement, and if the Republicans had won the White House last year, it would be the Democratic party who would now be complaining about "corporate welfare" while President McCain bailed out GM (perhaps favoring dealers instead of the unions).

Yet another reason why it would have been preferable for the automakers to have addressed their problems a few years ago.  Of course, there was no stakeholder interested in compelling such a result at that time.  In short, there was a kind of market failure, perhaps caused by the shear size of these debtors.

 . . . there goes my invite to next year's ALEA conference.

Full post as published by Credit Slips on June 08, 2009 (boomark / email).