We learned a very valuable lesson from Silicon Valley in the last 3 decades: smart people work best when there's a healthy amount of risk and a commensurate does of ownership. I was disappointed for a lot of reasons about the $25 billion bailout of the Big 3, which will prolong the inevitable by about 1/2 a year at most. I don't like the idea or execution of any of the recent bailouts, but at least with this one we got to see who it's going to, and we'll get to see the numbers on the balance sheets of publicly traded companies.
I didn't like it for a reason a lot of people haven't mentioned: I want to set the smart people free. The Michigan Mafia and their big-labor counterparts currently hold sway over quite possibly the greatest concentration of genius in the Western Hemisphere. GM lost 20 billion in a year - the scope of these companies and their supply chains is almost unbelievable. And I'm not only talking about technical savvy, either - what industry can claim the same marketing genius? The Big 3 are also some of the largest financial institutions on Earth, and the capital that they and their near-bankrupt suppliers hold is a gold mine of real estate, machinery, software, and industrial processes. And right now, it is all bottled up by bad management, dead weight labor agreements, and ugly command-and-control politics.
I grew up in the city of Manchester, NH. It was the second-largest textile producer in the world in the 19th century, a veritable water-driven Palo Alto in its day. The city was literally owned by the Amoskeag Manufacturing Co. In the early part of the 20th century, however, the manufacture of textiles came under heated competition from overseas. The United Textile Workers of America (I could make this up, but I'm not) organized strikes, but still pay decreased and hours went up. The position was untenable. The company closed its doors in 1935. The city was left for dead. A generation later, many of the mills remained boarded up, but my parents grew up in a normal town that offered plenty of jobs, good schools, universities, and a manufacturing base that was growing. Two generations later, Manchester is regularly rated as one of the top cities in America to live in, and has a burgeoning high-tech industry - which, by the way, largely occupies the renovated mill buildings.
When (not if) the Big 3 go down, what will happen? Sure, some people will be royally screwed, and unfairly so. Certainly anyone over 55 or so will need to be taken care of somehow. A good portion of the best and brightest will no doubt move to warmer haunts. But what will the 80% of brilliant engineers who stay do? They won't stop making things. There's a good chance they'll even keep making cars, or at least parts for cars, since machinery and factories for just that will be getting sold off for pennies on the dollar, and they will be free to pursue their ideas rather than muddling through layers of bureaucracy for years to implement bastardizations of those ideas. The only difference is that they'll make them faster, better, and cheaper than how they're made now. What will happen when crooked politicians lose their rackets and can't buy seats in local government anymore? Mothers and small businesspeople and teachers and police officers will run to fill the vacant seats, and all that comes from that is better schools, safer neighborhoods, and regulations that bolster new businesses, instead of putting up barriers for them. Venture capitalists swoop in like vultures to pick clean the intellectual property that never made it past paranoid middle managers, and polluting heavy industry will move out and to be replaced by high tech as has happened in virtually every successful modern city in the US.
Detroit, Flint, northern Ohio, Gary - this has been called the Rust Belt for 30 years. It has been in decline as its institutions have calcified. It's a cold place, but it's not the climate - Chicago and Minneapolis are as vibrant as ever. Detroit is regularly talked about as "America's Third World City" to paraphrase. The threat of Ford and GM dying isn't killing Detroit - it's the stench of decay, prolonged and virtually unstoppable. The best thing that could happen to Detroit and all the rest would be for these companies to die, and quickly. You don't have to look all the way to New Hampshire to see why, either - just cross Lake Erie. Pittsburgh was almost as bad off when US Steel was in its death throes; now it sports a diversified economy and is (almost) a hip place to live.