A lot of things have been said in diaries concerning how we should think about the plight of the auto industry, and hardly anything about how the auto industry should think about their own failures toward us.
Over the fold I want to offer an idea that provides the minimum that I think our government should expect in return for a bailout.
Here's what I think must happen before bailout money is proffered, and I see no way to make this happen without the auto companies first deciding to enter chapter 11 voluntarily. That is the only mechanism I can see which would allow the reorganization I shall describe here to happen legally.
The US should first proffer that as each company enters chapter 11 the government will act as the venture capitalist of last resort for ONLY those product lines which provide fuel efficiencies at or better than the current (and future) CAFE standards. It shall invite other venture capital firms to partner in the reorganized company which can come out of this process, on equal terms with the government. That allows the government to obtain a better idea of the worth of the stock in the resulting entities.
In chapter 11, under the guidance of the court, each company which chooses to take part in the bailout shall dissolve into two new child companies. One portion will retain all the gas guzzling lines, receive no help beyond the transfer of funds for assets to be described below, and will absorb most of the present management. The other child company shall contain only product lines which meet or exceed CAFE standards. The total assets of the two new corporations will be split no worse than 60-40 in either direction as approved by the court, and each will have most of the kinds of assets it needs to fully function as a car manufacturer.
Every share of stock in the parent company shall be converted into two new shares, one each for the two child companies. From the point of exiting chapter 11 on the shareholders can keep or sell any portion s/he wants in the open market. This is to insure that the two child companies will actually become competitors and not find a way to share in the bailout money.
The child company with the fuel efficient product lines will receive initial government financing upon exiting chapter 11 and follow-up increments later if needed. Part of that initial bailout money will be paid from the fuel efficient sibling to the gas guzzling sibling company under a formula deemed fair with respect to the existing market conditions, as determined by the court. This money is to pay for those assets that the fuel efficient child will keep, as its portion of the total assets, expressed according to those values that existed before entering chapter 11.
The fuel efficient child shall be required by law to sell only cars that meet ever increasing CAFE standards (or better) for at least twenty-five years. The gas guzzler child can do whatever it wants. It will not be obliged to meet the CAFE standards for the average car it sells for twenty-five more years, because it starts at a disadvantage and the fleet has already been divided up to assure US standards are still in effect. But it will never receive government aid again.
This is a formula which I believe is in the interest of the US automobile companies, its workers and the public at large.