Friday, December 12, 2008

Big 3 Compete for the Bailout of 2

Another brilliant Elliot Spitzer column in Slate. This one on his idea of how to solve the problems of the auto bailout. His idea: Have the 3 of them compete for 2 bailout spots.

The only issue, of course, is the difficulty in holding the two bailout recipients to their plan. But can a car czar really do that anyways? If so, let them do it this way.

We all know that a significant downsizing of auto-industry capacity is necessary. Maintaining all three companies is probably not economically feasible. We also know that the incipiency of bankruptcy tends to focus the mind and produce real offers. Why don't we tell the current Big Three that $25 billion in capital is available—but only to two of them? The surviving two will be those that submit the best, and final, binding bids, supported by all the necessary constituencies: boards, managers, suppliers, vendors, creditors, and the UAW. The plans that are the best, as judged by a panel of private- and public-sector figures—Jack Welch, Warren Buffet, or Felix Rohatyn, plus Office of Management and Budget and Congressional Budget Office officials—are the plans that will get funded. The measures they will be judged by will be announced ahead of time and will be a combination of retained/gained market share, return on capital, jobs retained, and mileage and environmental efficiency gains. The company with the least impressive plan will be denied funding. To avoid letting the third parties—creditors, the UAW, or vendors—pick the winner by refusing to sign on with their least favorite of the Big Three, third parties will be required to offer the same deal to each of the three. This process will force the companies to bid against one another for aid, giving us the benefit of genuine competition. This is better than an "oversight board" of Cabinet members who have no real understanding of the industry.

1 comment:

Mberenis said...

Grrrrrrrrrreat blog!!!
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