WASHINGTON -- The founder of General Motors -- the charming, risk-taking Billy Durant -- was never as famous as Henry Ford. But while Ford built reliable black boxes, GM focused on variety and color, feeding an exuberant American consumerism. During the initial months of the Great Depression, GM had the nerve to introduce the Madame X Cadillac boasting 16 cylinders. Who could be depressed with that kind of vroom? In the late 1930s, GM's "Parade of Progress" -- a traveling showcase of the latest auto technology -- visited 251 towns where 12 million Americans saw the shape of a gleaming, streamlined future.
But in our current downturn, General Motors has become a symbol of decay rather than renewal. As one senior administration official recently told me, "The biggest economic question is now: Should GM be allowed to fail?"
Few companies more deserve failure. General Motors overproduces cars that few people want to buy, propping up demand with financial incentives that result in consistent losses. The company is weighed down by massive overhead and crippled by unsustainable labor contracts. GM has made incremental progress on labor costs and product quality -- the Cadillac CTS has plenty of vroom -- but these changes have had the effect of a watering can on a three-alarm fire. General Motors -- the first company in the world to make $1 billion in a year (1955) -- is now losing nearly $1 billion a month.
For many, the answer is simple: GM should declare bankruptcy. With its creditors in charge, GM could restructure, sell off assets and perhaps emerge on the other side a leaner, more competitive company. A government bailout, in this view, would only reward mediocrity and delay the inevitable.
But bankruptcy for GM presents unique challenges. Most Americans would probably buy a microwave oven from a company in bankruptcy. But who would buy a car and warranty from such a company? One of the primary considerations in purchasing an automobile is service and support during future years. Let's not obscure the matter. The bankruptcy of GM would probably mean the end of GM.
But GM will not be allowed to fail. No president, in the end, would risk this massive shock to a fragile economy. President George W. Bush supports quick access to Department of Energy funds. President-elect Barack Obama will certainly not take economic risks for the sake of pure, free-market doctrines he does not hold. Economists estimate that a rapid auto industry meltdown could cost up to 3 million jobs -- perhaps sending the jobless rate as high as 9.5 percent. It could also result in a bottomless psychology of panic.