It would be better to just let U.S. auto companies go bankrupt if they refuse to meet stringent bailout conditions, a University of Maryland economics professor told Congress Tuesday.
Peter Morici of the Robert H. School of Business, and former Chief Economist at the U.S. International Trade Commission, testified before the House Select Committee on Energy Independence and Global Warming.
Morici said, “Congress can delay one or all of them going through Chapter 11 reorganization, but sooner or later one or all will face reorganization. The communities and suppliers dependent on these companies would be better off going through that process now than by delaying it with assistance from the federal government.
“If Chapter 11 reorganization is endured now, rather than several years into the future, more jobs can be saved among GM, Ford and Chrysler — and their suppliers — and better prospects for U.S. leadership in new technologies can be cultivated.”
He testified that any government bailout which does not force the domestic industry to reform “would be a poor policy choice.”
“If the Detroit Three, with the cooperation of the UAW, cannot present plans … that would fully and completely align their labor costs and work rule flexibility with Japanese transplants, and demonstrate how their vehicle development and distribution costs can be similarly aligned, it would be better to let them go through Chapter 11 and reemerge with new labor agreements, dramatically reduced debt and strengthened management.”
Morici cited “wages, benefits and work rules … poor management decisions, and less-than-fully-supportive government policies,” not the recession, as fundamental causes of the crisis.
Click here for a direct link to a video of Morici’s testimony.
