IBM (IBM) will pay about $4 billion in taxes this year. Procter & Gamble (PG) will pay closer to $6 billion. If GM (GM) is losing $1 billion a month, the income taxes from the two healthy companies could support is for nearly a year.

With about $40 billion in tax payments this year, Exxon Mobil (XOM) could support all of The Big Three. Since the oil company made money off high fuel prices perhaps that is only just.

Treasury may knuckle under to calls for saving the US car industry. Some analysis puts the job losses at almost three million if all three of the car firms go bust. But, that assumption is almost certainly wrong and there may be absolutely no reason for the Fed or Treasury to put much capital into Detroit.

What is missing in the debate about the car companies is two things. The first is that the root problem behind the failure of these firms is not as much the economy is it is their lack of ability to make cars that anyone wants. The Japanese and Europeans have done much better and they have the balance sheets to show it. The other issue is that the burden of labor costs and debt won’t be washed away simply because the government provides even more debt which will have to be repaid.

The fact of the matter is that Ford (F), GM (GM), and Chrysler have remarkably valuable assets, but they are hidden under layers of obligation which will continue to crush them even as the economy improves. Until those obligations are cut away, the US auto industry will remain in a permanent decline.

The federal government is better off insisting that The Big Three auction off their assets to financially healthy owners. If interim loans have to be in place to buy the time for that, then so be it. The advantage to offering the car companies in pieces is that there are a number of potential buyers from private equity firms to foreign car companies. If the UAW and creditors are faced with domestic car companies in Chapter 11, they will almost certainly negotiate their fates with firms which have the capital to keep the American automotive industry operating without interruption. Will bond holders, creditors, and the unions take less than what they have if a qualified buyer is in the wings? Probably, because what they have is only on paper in the terms of UAW contracts and loan documents. They disappear when The Big Three do.

The American auto industry does not need a loan; it needs a forced restructuring. If it gets that some jobs will be lost and some write-offs will be taken but the fate of the car companies will be substantially improved.

Douglas A. McIntyre

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