Tuesday, November 18, 2008

Auto Industry Bailout Discussion

I have been reading lots of material on the requested (and perhaps doomed) auto industry bailout demanded by GM and others. There appear to be people of good will on both sides of the issue, so I thought it might be a good idea to briefly summarize the arguments here for Mod-Bloggers, and let our own esteemed thinktank take a crack at sharing their opinions.


The automobile industry has long been the backbone of American industry and thus the backbone of the American economy. Allowing any of the Big Three to outright go bankrupt - or worse be bought out by foreign powers - would be tantamount to surrendering the future of American jobs to outside controls. The Big Three themselves are direct employers of hundreds of thousands of Americans, but more importantly they are INdirect employers of millions more who provide parts, chemicals, electronics, websites, advertising, etc. to these companies. The failure of the American auto industry would put nearly 1/3 of the American workforce out of a job, and thus plunge us into a true Depression.

But luckily, we have a simple solution. Give the automakers an additional $25 billion guarantee on their debts and/or outright loans, to be paid back to the American government. This is a paltry sum compared to the $700+ billion already secured for the economic system, and can br drawn from the moneys already allocated.


There are reasons why the Big Three automakers are failing, and in particular why GM is on the chopping block. They have failed to adapt to a changing marketplace, and have been insulated in the past from their own failures by a government eager to protect auto jobs at any cost. American automakers are producing cars that no one wants, at a price no one wants to pay. Furthermore, the largest cost for automakers today are unwieldy commitments to Big Labor negotiated during boom times. These contracts can only be renegotiated, by law, when a company is in bankruptcy. Keeping automakers out of bankruptcy and reorganization simply keeps them shackled to business models and debts that they can never get out from under, which would require on-going government subsidies.

But luckily, we have a simple solution. Do nothing. Allow GM and the other automakers - if needed - to go into bankruptcy and reorganization. Let them renegotiate their debts, reorganize their management and workforce, and emerge a stronger company. This requires little government intervention, and no extra outlay of taxpayer funds to accomplish.
What do Mod-Bloggers think? Did I summarize the arguments adequately? Which side do you find yourself agreeing with? Or is there another P.O.V. that needs to be considered? Let us know in the comments section.


shadowmom1 said...

I'm for the reorganization plan. A "rescue" can always be tried of the reorganized companies fail.
Airlines have reorganized many times and they still provide the service. We have lost airline companies, but not the industry.

BowHunter said...

another BIG point in the argument for a bail-out would be the argument against chapter 11. The thought is that no one would buy a car from a company about to go out of business.

Do you think that the owner of an Isuzu would have bought that car if they knew that today there would be one or two dealers in the state authorized to perform warranty repairs? Do you think people would have bought a Daewoo if they knew how hard it would be to get replacement parts? A car is the second biggest purchase a normal person makes in their lifetime. People don't want to chance that purchase on a company that may be going out of business.

That being said... and although I rely on the domestic auto makers for a large part of my income... I am still not making a judgement of weather I am for or against a bailout.

shadowmom1 said...

Chapter 11 is reorganization to get the company into a better financial situation. Chapter 7 is actually going into bankruptcy. I would suggest Chapter 11 now, with the possibility of the government stepping in if that fails to restore health to the auto companies.

Jason said...

The UAW needs a little tough love. It derailed the Cerberus deal at Delphi. Today GM suffers a loss of about $2,000 per vehicle sold. On the other hand Toyota whose employees are not part of the UAW earns a profit of about $1,200 per vehicle sold. If GM was able to operate with labor prices near Toyota’s it would have pocketed an additional $29,715,200,000.

GM bailout nonsense

dennis said...

Besides the Federal goverment looking into possibly bailing out the auto industry.. Why dont the big three oil companies ExxonMobil, Chevron and ConocoPhilips look into way of helping out?? They once again posted record profits and oil and cars work hand in hand..The big three can loan the auto industries a couple of billions of dolloars which is pocket chanage to them and help them to get back on track..help to speed up the process of making more fuel efficient autos in which in the long run will allow the big 3 oil companies to yet increase their profits as well as allowing them to exits even longer on account of all the talk of oil soon running out!!! Does anyone agree??

shadowmom1 said...

I love Dennis' suggestion! It should at least be discussed.