What to Do With the Big 3

Daniel Khaneman and Andrew Rosenfield in the NYT:

The combined equity valuations of Chrysler, Ford and G.M. total less than $6 billion, which is not even a fifth the valuation of Honda and only about a twentieth that of Toyota.

When faced with disaster, the natural response of people — and businesses — is to fight for time and hope for the best. The likely outcome of this strategy would be a succession of failures that would spare no one. We believe that there is a better way: simultaneous bankruptcy filing by all three companies would substantially reduce both the uncertainty and the stigma for each one.

A coordinated filing would send a message that the problem is systemic — not an indication that American manufacturers produce inferior cars and trucks. It would also signal that a systemic solution to save the industry is in the works.

We do not suggest that this would be a panacea: the American carmakers’ market share would most likely decline, but less so than if the companies were allowed to fail one after the other.

The Big Three are competitors and not all would welcome the idea of coordinated bankruptcy. And even if they wanted to, they could not simply decide to simultaneously file, because any such private agreement could be viewed as a garden-variety violation of antitrust law. Government intervention will be required.