GM (GM) Rolls Snake Eyes

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So much for the plan that GM (GM) would get loot from the Federal Reserve to buy Chrysler. Sources say that the administration will no not put cash into an auto rescue deal. That is a slap at Michigan congressmen and the governor of that state, all of whom wrote form letters to Bernanke and Paulson asking for help. Perhaps, if they had not all used the same signature, it would have looked better.

No one knows what the government has been thinking, but it may be that it reasons a bailout of auto companies will begin an avalanche of requests from every corner of the world of enterprise from airlines to the National Hockey League. By keeping the assistance primarily to banks and brokerages, those handing out the $700 billion approved by Congress have something to hide behind. Or the current people in The White House may want to wash their hands of the matter. According to Reuters, "This puts any merger of the struggling automakers on hold until after the U.S. presidential election."

There is another and perhaps more basic reason for not giving car companies cash. While the banking problems are a systemic and reach into every corner of the world’s financial infrastructure, problems in the auto sector are parochial and belong to Detroit. While car companies in Europe and Japan may be having their own troubles, none is on the brink of insolvency.

The message to GM is fairly plain. You got yourself into the mess, now get yourself out. Toyota (TM) or VW would be more than happy to buy your assets, fire your management, and close many of your operations. In the business schools they call it "creative destruction".

Douglas A. McIntyre