Why We Shouldn't Bail Out GM

Now it is the auto parts suppliers who want government money. They employ 600,000 people, more than work for the automobile companies themselves.

There ought to be another way -- and there is. Unemployment compensation should be expanded to ensure those losing their jobs will not lose their houses or their health insurance. Helping people on that scale will not be cheap, but helping them by propping up corporate losers is infinitely more costly: sooner or later people will find other employment, but the automobile companies will never turn a profit.

They have been steadily losing money for a generation. Their predicament has nothing to do with today's credit crunch or the stock market crash. It has to do with their being incorrigible foul-ups.

Their record for money-losing is beyond comprehension. David Yermack, professor of finance at New York University's Stern School of Business, has calculated how much capital the car companies have destroyed over the last few decades.

He writes, "General Motors and Ford...between them...destroyed $110 billion in capital between 1980 and 1990.... GM has invested $310 billion in its business between 1998 and 2007. The total depreciation of GM's physical plant during this period was $128 billion, meaning that a net $182 billion of society's capital has been pumped into GM over the past decade -- a waste of about $1.5 billion per month of national savings. The story at Ford has not been as adverse but is still disheartening, as Ford has invested $155 billion and consumed $8 billion net of depreciation since 1998. As a society, we have very little to show for this $465 billion."

Having eaten its way through almost a half-trillion dollars, the American car industry will gulp down the $25 billion now proposed to save it faster than most of us can swallow. The Democratic leaders in Congress think they can prevent that and force a turnaround by attaching some kind of government oversight board to the financial aid. Such a board might make sure that executives do not draw down indefensibly high salaries, but any such arrangement will make it doubly certain the companies will not find their way back to prosperity.

Not that revivals are impossible. General Motors teetered on the edge of bankruptcy once before, in 1920. Then, as now, the cause was incompetent management. At that time one of GM's biggest stockholders was the du Pont family, who realized that its investment was in danger of evaporating. To save its holdings the family put its most talented member, Pierre S. du Pont, on a train to Detroit.

Once settled in at GM, du Pont installed Alfred P. Sloan as its new president. Together these two business geniuses created the single greatest industrial organization of the last century. At its apogee under Sloan, General Motors became the model for creative and effective corporate management. Quite literally, the world had seen nothing like it.

This is the inheritance that the epigones running Detroit's today have ruined. What they have done is a crime against their stockholders, employees of the Big Three, their customers and the nation.

Now we are amid these splendid corporate ruins. The best hope -- and it is only a hope -- is bankruptcy. With bankruptcy comes the chance of reorganization, the breaking of the anachronistic union contracts and the possibility of new and effective management. A modern version of du Pont and Sloan is asking too much, but surely somewhere in the three major car companies there are more effective and courageous executives than those now them.