With regard to the proposed Detroit bailout, I find it curious that most people have accepted that it needs to be all or nothing - that either General Motors, Ford and Chrysler should all get government money, or none of them should.

Since my column last week noting the reasons why a Detroit bailout would be a bad idea, the mood has become more hostile to the idea (I am not, by the way, claiming any causality: lots of other people argued against it).

But the argument has generally turned into a three-way bailout versus none at all. So I want to reiterate my suggestion that the US government provides some finance to GM and Ford while letting Chrysler go bust.

Felix Salmon notes this morning that the government could provide the necessary finance for a restructuring in bankruptcy of the industry, rather than preserving all of them as is. That sounds like a plausible way forward.

Alternatively, it could simply provide debtor-in-possession financing to Chrysler, and thus provoke a downsizing of the industry and a move from the big three to the big two. This would at least eliminate some of the over-capacity in the industry.

True, this would involve picking winners (or, more exactly, picking a loser) but there should not be a requirement for the government to treat all private sector companies that obtain finance equally. That is expensive, and in this case counter-productive.

November 17, 2008 6:25pm in Autos | Comment