US Car Makers may be forced into bankruptcy

Overnight news suggests that the Bush administration might force GM and Chrysler into bankruptcy. This is hard on the heels of the earlier official statement from the White House that they are considering using some of the TARP $700 billion after the Senate turned down the proposed bailout.

While this is of vital interest to those involved in car making throughout the world, for most of us the significance of this play is whether the US is going to support lame duck manufacturing companies or let them go to the wall.

Unless these companies are allowed to fail we will end up with monstrous manufacturers in the US producing products (subsidised with state aid) that nobody wants to buy. This would equal any of the stupidest policy decisions made by the former Soviet Union in the last 60 years.

If they subsidise the car makers you will see the dollar fall faster than it is going to anyway but it will help support the stock market which will, in turn, support the banks at a time when they most need it. The end result will be the same; it is a question of timing.