By Greg Holden -

The first edition of this article was written in early December while the U.S. government was still considering whether or not to bail out the Big 3 – Ford, Chrysler and GM – with taxpayer money. That bailout has gone through and now we are faced with a second issue: bankruptcy.

The current debate rages over whether such a “controlled bankruptcy” will be beneficial in the long-run for the automotive and manufacturing industries, or whether it will simply push them past the point of no return. While we contemplate the pros and cons of this move try to understand that this issue is by far more complex than simply bailing out a failing industry, as we will see.

Pro #1: As President Obama has said, the systematic bankruptcy of these auto giants will allow for the restructuring necessary to make a more fuel-efficient automobiles and help ease the shift to greener forms of energy in order to limit our dependence on foreign countries for our energy supply. The pros from this move are obvious. If this restructuring is successful, Obama may be correct and the U.S. may be capable of shifting towards more fuel efficiency and producing fewer greenhouse gases.

Con #1: While glorified in theory, and only in the long-run, the above point basically ignores the fact that the U.S. automotive and manufacturing sectors will suffer near-death experiences in the short-run. Especially since that is basically what bankruptcy means. It is a type of death certificate. As these industries are restructured over time, and while jobs are theoretically being created, those sections of employees who specialize in skills which are being cut-back will find themselves on the street, so to speak. The day-dreaming about “what will be” leaves out the whole part of economic anarchy in the short-term. This simply cannot be ignored.

Pro #2: In light of the first article, one pro of allowing bankruptcy would be to finally deliver a type of punishment to an industry which has been slow in developing more efficient technologies due to self-deception and a sense of invincibility while the rest of the world was blowing past into the field of green energy vehicles. This may be the sanction that was long overdue to large, bloated, inefficient companies which are oh-so-symbolic of this recent financial crisis and recession. Chalk this up as a victory for the American taxpayer (that is, of course, if you call bailing out a company that later declares bankruptcy a victory).

Con #2: While this bankruptcy scheme appears to be a long-term savior of an inefficient industry, the truth is that its success is highly dependent on outside factors. The success of green energy cars depends on there being a demand for them. Demand for these vehicles increases when gas prices sky-rocket. However, during this recession Crude Oil has fallen off its peak of $147 a barrel last July to hover around $50 a barrel today. Without a dramatic increase to gas prices like we saw last year, the demand for greener vehicles will simply not exist. Second, American cultural mentality places a value on the status achieved by owning a large and powerful vehicle. If hybrid, or other green energy vehicles do not possess the same attached status, they will not be very successful.

These merely demonstrate a few of the complexities. If these requirements are not met, a forced bankruptcy and subsequent restructuring will simply hammer the final nail in the coffin of the American automotive industry.

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