My view at the time — and I set it out plainly in an op-ed in the New York Times — was that “the American auto industry is vital to our national interest as an employer and as a hub for manufacturing.” Instead of a bailout, I favored “managed bankruptcy” as the way forward.
Managed bankruptcy may sound like a death knell. But in fact, it is a way for a troubled company to restructure itself rapidly, entering and leaving the courtroom sometimes in weeks or months instead of years, and then returning to profitable operation. In the case of Chrysler and GM, that was precisely what the companies needed. Both were saddled with an accumulation of labor, pension, and real estate costs that made them unsustainable. Health and retirement benefits alone amounted to an extra $2,000 baked into the price of every car they produced.
Shorn of those excess costs, and shorn of the bungling management that had driven them into a deep rut, they could re-emerge as vibrant and competitive companies. Ultimately, that is what happened. The course I recommended was eventually followed. GM entered managed bankruptcy in June 2009 and exited it a month later in July.
The Chrysler timeline was similarly swift. But something else happened along the way that was truly egregious. Before the companies were allowed to enter and exit bankruptcy, the U.S. government swept in with an $85 billion sweetheart deal disguised as a rescue plan.
By the spring of 2009, instead of the free market doing what it does best, we got a major taste of crony capitalism, Obama-style.