The Government to the Rescue

President Bush announced a $17.3 billion bridge loan to GM and Chrysler. The is a bridge to an organized restructuring which is the true medicine these companies need. All stakeholders will participate in this reorganization of the most important manufacturing industry left in the United States. The unions will need to redo their contracts, including pension and health care benefits, so these companies can compete effectively with their foreign rivals. The banks and bondholders will need to fix the capital structure which should wipe out the stockholders. The suppliers will likely need to consolidate more to remain viable and the auto dealerships will shrink dramatically along with the manufacturers.

This process is going to be painful for all stakeholders but it is necessary if the United States wants to keep this industry a vital part of our economy. The inefficiency of the auto manufacturers has cost them market share over time and this process will invigorate the industry to compete against foreign auto manufacturers as we struggle through these weak economic times.