Auto bailout hinges on restructuring plan

Congress just announced that if the automobile industry comes up with a restructuring plan by December 2nd, it could discuss an industry bailout in December. For now this means, no bailout until next month at the earliest. In the last three months, the industry has burned through $18 billion in cash. And Congress does not want to provide taxpayer money to the industry unless it can figure out how to transform itself.

I guess the CEOs will need to work over the Thanksgiving vacation if they have any hope of getting taxpayer money. But as I posted, there's a way that General Motors Corp. (NYSE: GM) could follow a six step restructuring plan to save $16 billion. If its two smaller competitors could come up with a similar plan, there's a good chance that the industry could cut itself back to a profitable core.

I am relieved that Congress has reached this decision because I do not like the idea of throwing taxpayer money into an industry that will not change the way it operates and thus will keep coming back to Congress asking for more money every time it gets close to running out. By putting the pressure on the industry to reach its own restructuring plan fast -- Congress can test the mettle of industry leaders. This will help determine whether the industry is capable of saving itself.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in GM securities.

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