A bailout might avoid any near-term bankruptcy filing, but it won't address Detroit's fundamental problems of making cars that Americans won't buy and labor contracts that are too rich and inflexible to make them competitive. As Paul Ingrassia notes nearby, Detroit's costs are far too high for their market share. While GM has spent billions of dollars on labor buyouts in recent years, they are still forced by federal mileage standards to churn out small cars that make little or no profit at plants organized by the United Auto Workers.
Some clear thinking from this morning’s Wall Street Journal on why the Bush and Obama administrations should do all they can to keep Detroit from getting in line for a federal bailout. Too much government intervention, high union costs and mismanagement are the real culprits. A federal bailout merely innoculates Detroit from the consequences of such policies. Any bailout – even with management and cost incentives — sends the wrong signals. It's an option no one can afford.