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Hostess and the GM Bailout: Why the Chevy Volt Shouldn't Exist but Twinkies Still Will

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Our free market system works beautifully -- when it's allowed to.

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MINYANVILLE ORIGINAL Reports of the death of Twinkies have been greatly exaggerated. You can bet your less-than-a-UAW-worker's next paycheck that the delightfully unnatural confections and wondrous white breads from Interstate Bakeries Corp. are not going away, news stories to the contrary notwithstanding.

I wish we could say the opposite about the financially disastrous, US-government-subsidized Chevy Volt, but we can't. The fact that the Invisible Hand will ultimately keep us in golden sponge cake reveals everything about what goes wrong when the bumbling hand of politics intervenes in free markets, as it did in the case of General Motors (NYSE:GM).

As you've by now read over and over via today's dominant Facebook (NASDAQ:FB)/Twitter meme, we are about to see the death by liquidation of Interstate Bakeries Corp., maker of Hostess Twinkies, Ding-Dongs, and Wonder Bread, among other nutritionally vacant delights. The sentiment behind most of the posts is one of sadness at the pending disappearance of the products, along with rampant nostalgia for the days when we all carried them in our lunchboxes.

Dry your creme-puffed eyes, my friends. The spongy confections with all the qualities of tasty blown-in foam insulation will almost certainly not disappear from store shelves for very long, if at all.

Why not? Because the economics of selling Twinkies still work just fine. The economics of making Twinkies with a grumpy, highly unionized labor force don't. And our system can and will correct that.

Interstate said its Bakery, Confectionery, Tobacco Workers and Grain Millers International Union-member line workers would need to take significant wage and benefit cuts to allow the company to bring its operating costs into line with other industry players. As a result, the workers told the company where it could shove its Twinkies. Interstate's ownership group essentially responded by saying, "You Ding-Dongs -- forget it. We're closing it all up and selling off the assets."

Which virtually guarantees Twinkies will survive. Given their notoriously long shelf life, my guess is they'll be back in production before your stash even runs out. Why? Because the products made by Interstate are still in high demand. They wouldn't be on every store shelf in America if they weren't, so the brands will be revived and improved.

I guarantee every private equity firm in the country that likes the consumer products industry is taking a hard look today at making a bid for all the Twinkie-related assets -- the recipes, the brand name, the equipment that mixes whatever chemical soup goes into those little buggers -- and that within a few months we'll hear who the successful bidder is. They'll bring in a smart, lean management team, and that team will likely contract out Twinkie production to a highly mechanized, software-savvy, non-union baking firm that will pump out those golden babies at a fraction of the cost of the old ones, but with the exact same (or higher) quality.
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