Bailout or Bust: How to Save the Big Three From Themselves

By Titus Levi, Truthdig. Posted November 21, 2008.

So what to do? No shortage of ideas have floated through the media, the blogosphere (the Huffington Post has been especially active on the subject, including articles by Neil Young, GM family man Ricky van Veen and Raymond J. Learsy), broadcasters' letters' sections, and probably over many a kitchen table conversation, including my own, where friends engaged in a spirited examination of Detroit's tendency to confuse novelty -- releasing "new models" each year -- with genuine innovation.

First, let's put together a careful cost-benefit analysis. To begin with, Detroit must open its books to thorough scrutiny, and that includes the tight-lipped Cerberus. As a taxpayer, I'm sick and tired of the leap-before-you-look approach to taking action. I'm equally exasperated with Detroit's tired claim of "trust us, we're professionals" in demonstrating genuine recalcitrance to changing its organizational culture.

Second, we need to produce a no-holds-barred assessment of the managerial dysfunction at these firms and come to terms with what needs to be done to improve performance and change organizational cultures for the better. Given the track record of these firms, and their reaction to the bad news that immediately had them pulling back on innovation and new product development, I'm not sanguine about the quality or nimbleness of the current leadership. They have to go as part of this process.

Third, jettison utterly hopeless brands and initiatives like Hummer while focusing on integrating innovative ideas into GM's R&D, design and production systems.

Fourth, engage in a thoughtful analysis of what individuals, families and communities lose in an environment of sweeping job losses and what can be done to ease the pain. This is especially important in places like Michigan, which will suffer near-Great Depression levels of unemployment and disruption, at least in the short run.

Fifth, Detroit could become a public-private partnership built around encouraging innovative and viable ideas in transportation technology. This would allow the automakers to readily leverage the research going on in the United States on various fronts and to create systems for developing ideas into commercially viable packages and processes. Even if the Little Two lose some money, they will provide jobs and harness economic benefits that will accrue across the country and even the world.

Finally, if GM and Ford do go into bankruptcy, they probably need to be given some federal support in the form of debtor-in-financing, since financial markets will not back Detroit given the conditions of banks and the auto industry.

My instincts as an economist tell me to cut the Big Three loose, letting them go into bankruptcy so that "the market" can decide their fate, but my heart tells me that we must do something to assure that communities most dependent on the automotive industry and its jobs do not suffer as post-Katrina New Orleans -- or pre-Katrina New Orleans -- has. After all, that city suffered through a century of decline before its final humiliation and abandonment. Parts of Michigan have endured long-term decline as well, and this experiment in market adjustment has produced far too many losers to regard as anything like a successful treatment.

As a nation and as an economy, we probably can survive the loss of cities like Detroit and Flint, but letting that happen will likely bring on human losses that do not show up in economic statistics. As we decide the automobile industry's fate, we need to consider something else in this process: What kind of lives will we consign the people of Michigan to living? What kind of people have we become when we plan for, and perhaps execute, the demise of whole cities and even states? How can we prevent genuine harm from coming about and begin the healing process for those who have been and will continue to be displaced by the shrinking of the U.S. automobile industry? How can we, to borrow a sentiment from Albert Camus, strive our utmost to be healers?

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Titus Levi, Ph.D., is an economist and media consultant. He is also an adjunct professor at the University of Southern California’s Annenberg School for Communications. He blogs at That's Capital.

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