Thursday, November 20, 2008

About cars and airplanes

I am guessing you've heard the whole business about the auto executives using private jets to fly to Washington, D.C. for hearings on the bailout of the auto industry. Yesterday, Jason Kilborn blogged about the problems of encouraging bankruptcy when we normally avoid it at all costs in his post Little Guys v. Big Three in Bankruptcy. Things got beyond the issue of bankruptcy v. loan yesterday for the auto execs on Capital Hill making their plea for a $25 billion bailout. At the House of Representatives, Gary Ackerman (D) and Brad Sherman (D) blasted the executives for flying on private jets, rather than taking commercial flights.

Although the private jet expenditure might be unwarranted, this has become a distraction from the real issue. As Jason mentioned, there are questions about whether the auto makers can be competitive in the long term such that the $25 billion bridge loan requested is not just wasted. Loan terms are really a matter of contract. If the big three are really in dire straits, the government can (should be able) to dictate loan terms at will, from management changes and limits on compensation to forcing renegotiation of union contracts to more fuel efficient cars. Yes, this is really about cars, not planes.

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