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Datetime:2008-11-16 00:38:54 Author:admin Browse: 
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            Columnist Ed Wallace argues that letting Detroit fail would cripple not only Americas economy but also its psyche
America thinks its debating the logic of bailing out Detroit, but what we are actually talking about is the future of American manufacturing.
In the current financial mess, General Motors (GM), Ford Motor (F), and Chrysler find themselves unable to sell enough cars to survive into a potentially brighter future. Judging by whats being said in the press, in Congress, and by some of the most respected names in American business, the nations response so far is a big "who cares?" I hate to point out distressing realities, but we ought to care. And yet, as is true of most of these national crises that seem to be cropping up far more often than they should be, the reporting and explaining of Detroits jam seem to demonstrate both a profound disregard for facts and little understanding of the interconnected macroeconomics that empower or destroy our civilized world.
Let me ask you two questions:
1. Do you believe we should lend Detroit $50 billion to save itself from this economic turmoil?
2. Do you believe that we should lend the American economy $50 billion to save it for you and your children?
Not incidentally, those two questions might actually be the same.

Comparing Apples to Squid

Some heavy hitters in business and politics have weighed in recently on whether or not Detroit should be helped through this critical period. Jack and Suzy Welch were given column space in BusinessWeek, and the argument they laid out was both intelligent and thoughtful. Still, the Welches judge that Detroits companies would be best served by reorganizing in federal bankruptcy courts, one day to emerge as lean, mean fighting machines. They say this would be the only way to "galvanize real change."
The Welches point out that many Americans fly on bankrupt airlines without giving it a second thought. To their point of logic, a Detroit bankruptcy would not harm consumer demand for their products and wouldnt lead to sales falling faster than the companies could be downsized.
But there is a huge difference between buying a $300 ticket on a bankrupt airline and signing a five- or six-year note on a new car for $25,000. If the bankrupt airline is flying that day, you can be fairly sure youll reach your destination—as has in fact been the case with carriers such as Delta Air Lines (DAL), United Airlines (UAUA), and others while they were in bankruptcy. But not knowing whether a major repair would be possible, or covered, on an automobile years in the future would certainly send most potential buyers looking elsewhere for their next ride.
Detroit has it right: If its automakers declare bankruptcy, the likelihood of their emerging as viable businesses is near zero. Their sales will fall faster than they can reorganize.

Look for the Hand

A more vocal critic of Detroit has turned out to be failed Presidential candidate Mitt Romney. The former businessman has strong ties to Detroit, being the son of former Michigan Governor and American Motors Chairman George W. Romney, but his opinion piece in The New York Times on Nov. 19 was so factually challenged that you almost couldnt read it without feeling sorry for him. Romney talks of "insurmountable labor and retiree burdens, technology atrophy and product inferiority." Of course, setting aside money for the retirees benefit packages should have been taken care of years ago, but apparently he missed the fact that a new contract was drawn up with the United Auto Workers last year that allows new hires in many positions to be paid as little as $14 an hour.
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