The Detroit auto companies - GM, Ford and Chrysler - are running out of cash because they are losing money. They are losing money because they are selling fewer cars and their union contracts do not allow them to reduce their payroll. The companies therefore have their hand out for taxpayer money to cover their losses, in effect to fund their costly contractual obligations to their union employees. There is no prospect that the handouts from the taxpayer would ever end, since the main hope of the companies is that the union-supported Democratic party will want to curry favor with the UAW.

The main theme of the bailout proponents is to blame the respective management teams, ignoring the role of the UAW leadership. In fact, considering their cost structure, the management teams should be given great credit for surviving this long. Their major competitors have much lower costs, and therefore have been able to invest more in R&D and productivity technology, improving the product and driving costs even lower. However, this advantage is so powerful that even with the best leadership, there is no hope of these companies being competitive. Their costs must be reduced. They cannot pay 50% more than their competitors - in, for example, Alabama - and survive. Thse management teams are not without blame, but they are the victims of a powerful union and the Sherman Act, which allows unions, but not companies, to price-fix across whole industries. Even union-friendly Germany, for example, allows companies to negotiate collectively on an industry-wide basis so that selective targeting can’t be employed, as it has been by the UAW. Better would be to allow neither, but the system we have is the worst of all possible and encourages the systematic destruction of industries. That’s why union participation continues to fall, because the unionized industries fade away, and only remains strong in the public sector where the unions have monopoly rents to support them.

This means these companies must be permitted to go bankrupt and restructure their labor agreements. The government can allow these companies to continue to operate by providing financing in bankruptcy, so-called debtor-in-possession (DIP) financing, which would probably not be available to these companies otherwise.

Without lower costs, failure is certain. The prospect of nationalized car companies subsidized for years by taxpayers to provide highly paid union jobs to a select few, producing cars that no-one wants, will not fly. The Soviets tried this.

Edit: Best question asked by a Congressman at the auto hearings,  “Please hold up your hands if you flew to this hearing on a commercial flight, rather than your personal jets?”  No hands were raised.