Halftime in Detroit

Having just made it through the Michigan GOP primary a few weeks ago there was allot of talk regarding the auto bailouts of three years ago.  As has been documented, Romney was not a supporter of the negotiated government bailout and had made the comment that Detroit should go bankrupt.

I've noted here below in previous posts that I am not a big fan of government involvement in was are supposed to be free capital markets.  The concept of free capital markets is virtually non-existent these days with the Fed pumping so much liquidity into the financial system keeping interest rates at artificially low levels.

From this WSJ article the point that I see being made is that although the government bailout may have been less painful that a normal Chapter 11 bankruptcy the Detroit auto makers are not out of the woods yet.

Via WSJ here

• The bailouts worked, the story goes, because General Motors and Chrysler still exist and their stocks are trading above $0. Yet existence is a lousy measure of success, given that the car makers were able to shed billions of dollars of debt and labor obligations in their government-managed and -financed bankruptcies. 
• Ordinary bankruptcy would have been a trauma, no question. It would have meant pain for laid-off workers and exacerbated the recession, even if the auto makers posed no systemic risk. The taxpayer tab for guaranteed pensions would have been expensive.  
• But the key point is that Chapter 11 would have provided an orderly workout, giving the auto makers the legal protection to clean up balance sheets, modify contracts and restructure under due process. The steel industry reorganized itself through bankruptcy a little over a decade ago, rationalizing its capacity and labor agreements. American Airlines is the latest legacy carrier to enter bankruptcy, and the planes are still in the air. 

                                                                  Rueters

• At any rate, even if GM and Chrysler had been liquidated in Chapter 11, Americans could still buy Toyotas, Nissans and other cars that the transplants usually make in the South and Midwest. Those companies might have bought the assets that would have been sold in an economically rational way. All this would have been done under the supervision of a neutral bankruptcy judge or receiver.
• That was the real issue for the White House because of its potential damage to union labor. So it proceeded to orchestrate an out-of-court prepackaged bankruptcy. Bond holders would have taken a severe haircut no matter what, but Mr. Obama's force majeure subordinated their rights to the UAW's. Even Steve Rattner, who led the auto task force and is its most ardent defender, conceded to the Detroit News in December that "We didn't ask any active worker to cut his or her pay, we didn't ask them to sacrifice any of their pension and we maybe could have asked them to do a little bit more."
• These companies are not run by morons. They make small cars profitably overseas and are among the biggest-selling brands in China and Latin America. In the U.S. by contrast, cars are a minority of the top 20 models, while Ford and Chevy pickups are among the top three sellers year after year. But if American consumers don't want to sacrifice horsepower and size for fuel efficiency, Washington won't take no for an answer. The new Obama budget includes a $10,000 tax credit for consumers to buy the green cars that they otherwise wouldn't. Will mandated purchases be next? 
• The point is that the auto bailout isn't an example of enlightened government revitalizing an industry after a market failure. It is a bailout in the wake of failed government policies and bad management that may keep going and going as Washington does whatever it takes to make sure Detroit keeps doing its political bidding.