What road ahead for the Big 3: Morningstar's take

David Whiston, a Morningstar analyst, gives hig take on the auto industry's restructuring plan.

He feels that the Big 3 are finally facing up to the fact that they have to cut a lot of their redundant brands - it's the only way to survive.

The UAW is likely to cooperate with this. They may consent to a new round of buyouts. They also agreed to let GM delay funding the VEBA (Voluntary Employee Benefit Agreement - the health care fund that the UAW is running on behalf of members) and to suspend the jobs bank (an insane agreement crafted in much better times where workers who can't get an assignment can collect most or all of their pay while waiting for a new one, if it ever comes).

Whiston feels that a bankruptcy for the automakers would eventually lead to a liquidation, which would be disastrous to the economy. He feels that this would cause the US to lose its manufacturing edge. He does feel that the restructuring plan the auto industry is proposing is the right move, and that Ford has the best management team of the Big 3. However, the government needs to move right now, or else it will be too late. That said, the new government will almost certainly need to provide additional aid to the automakers in 2009.

I guess it's either aid the automakers or aid the displaced workers. However, I would argue to Whiston that GM, Ford and Chrysler aren't simply their management teams. The auto industry has a long established culture of groupthink and complacency. Ford clearly is in the best financial position, so if we agree that their management team is that good, then perhaps my suggestion should stand: aid Ford, and force GM and Chrysler to reorganize in bankruptcy. GM and Chrysler might well be unable to restructure sufficiently. Appointing an auto czar as the government proposes is no guarantee that the government will be able to ensure the automakers restructure appropriately. I wouldn't oppose keeping GM and Chrysler on life support so they can file bankruptcy in better times, but they may not have what it takes to be successful businesses in the long term.