Posner and Becker: Let the Big Three go bankrupt

Both Posner (who has changed his mind) and Becker agree that the Detroit Big Three automakers should be allowed to go bankrupt rather than continue to suck up subsidies and produce cars the world market do not want. It is hard not to agree on principle, and in this case, also in practice.

The thing is, if the big three go bankrupt, this does not necessarily mean that Detroit is finished when it comes to producing cars. The designers, workers and machinery will be put to use – if nothing else, other automakers as well as entrepreneurs will come in, buy up the assets (free of dept), and start to compete by producing the most popular models, licensed models from other auto makers, or new ones.

The failure of the Big Three is complicated: A disastrous decision back in the fifties or sixties to make pensions the responsibility of individual companies rather than the government, short-sighted management, ossified unions, overfocus on automation (GM in the 80s), bad product quality, old-fashioned or just bad designs, short-term product development, financial rather than real innovation, slow product development (7 years per new model vs. the Japanese 3-4 in early 90s), too much focus on the domestic market, focus on what you can measure (such as parts commonality) rather than new customer needs and segments, political lobbying as marketing, and on and on and on….

Why not just let it die, and have something more sustainable (both in business and environmental terms) rise from the ashes?

2 thoughts on “Posner and Becker: Let the Big Three go bankrupt

  1. Anders Brenna

    The question is not whether to let them die or not, the question is when.
    Is it worth a couple of billions to postpone the bankruptcy until the rest of the economy stabilizes at the bottom, or should we just get it over with?
    I used to think that it would be worth it to postpone, but now I’m leaning towards letting go sooner rather than later.
    The world economy cannot be saved at this stage. It’s a question of whether to crash-land, or not to land at all. And you know what they say: “Any landing you can walk away from, is a good one”.

  2. Joakim Welde

    Generally agree on most points, but not on blaming slow product development for the failure of American brands. If one looks at the German car industry they’ve been no faster in developing new models, with mighty Mercedes previously allowing 10 years between model changes for their important E-class, and even 12 years for one generation of the prestigious S-class (1979-1991). BMW, Audi and VW were not much faster, allowing 7-10 years between changes.
    The French car industry may not be comparable with their massive state ownership allowing for large mistakes without consequences, but they also generally had at least 7-8 years between changes.

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