A government lifeline for Detroit punishes foreign car makers and their American employees for making better business decisions. - Inspired by the Wall Street Journal

It's hard not to agree with foreign automakers here. The collapse of the US auto industry would certainly bolster the sales of overseas cars, but at the same time nobody wants to see millions of people out of a job. Less jobs = less disposable income = fewer cars sold. While nobody is forcing American consumers to buy American cars, their mere presence (in a post-Big Three-bailout world) hurts the potential rewards for the more efficient and successful foreign companies.

For decades now various American governments have been promoting the idea of free trade and open global competition. However when the rubber hits the road and the realization dawns of the unintended and unanticipated consequences of such an approach the US moves to tilt the world back to closed doors.

This is the moment of truth and if the so called benefits of free trade and global competition are to be realized then there may be a period of painful re-adjustment. Even if the big 3 go under (not all of them will) there will, in the future there will be a growing market for fuel efficient, quality automobiles- enough of a market that efficient quality companies from abroad will want to continue to build manufacturing and supplier capacity in the US and Canada to serve that market.

Warping the free market economy to save auto-dinosaurs will not help in the long run. They will just lurch to the next crisis. Not a precedent that you want to set even in hard economic times. If you really believe in a managed free market system you have to let this particular industry run its course.

On another level, is it not sad that any economy has become so dependent on the purchase of automobiles, on automobile manufacturing suppliers and all the infrastructure to support this particular inefficient form of transportation, that the whole of society is perceived as threatened by the collapse of its major manufacturers.

Tilting the game

--
Mel Blitzer

Of course a bailout is unfair to the other automakers. As well as every other company in this country who does not get bailed out. My company went out of business four years ago and no one offered a bailout. I'm not convinced America would suffer much if a couple of the big 3 closed their doors. People will still need cars and if they aren't GM cars, they will be Toyota's or Mitsubishi's or whatever else is selling and provides good fuel performance. The immediate result will be painful, but how long will those automakers wait before we are bailing them out again?

It may not be equitable, but a Detroit bailout is imperative. Those three companies represent a substantial taxonomy of manufacturing, retail and repair workers who whose unemployment would be extremely detrimental to the wider economy. Mitt Romney's plan for the big three, as laid out in the Times, suggested structured bankruptcy. That's good, but they'll need government capital to get back on their feet. At interest, of course.

Sounds a little harsh at first but ultimately I have to agree. The advances being made by foreign companies apparently are appealing to customers and beating out our domestic manufacturers. That is the basis of competition and aren’t we usually pulling for competition and international trade/globalization? Clearly the foreign companies are doing something right. If our Big3 can’t hang, it shouldn’t be the government’s or taxpayer’s obligation to keep them in the running of an industry in which they appear to be lagging. Survival of the fittest. These days that doesn't always mean made in the USA.

I wonder if it would be more effective to take the $34 billion and invest in green technology and infrastructure and retrain the autoworkers and the more than 2.5 million other people who lost substantial jobs. How much would it cost to eliminate the need to drive cars?

Am I the only that remembers the government bailout of the steel industry? Tons of money poured into Pittsburg to permit the modernizing of our older companies. Need to guess how that worked out and where the money went - as Yogi Berra said, "It's deja vu all over again".

It's time to permit natural selection to take hold and permit the strongest businesses with the best products to flourish. In the short term it will be painful, but the companies that rise from this will be stronger and better suited to survive in a true world economy.

Am I the only that remembers the government bailout of the steel industry? Tons of money poured into Pittsburg to permit the modernizing of our older companies. Need to guess how that worked out and where the money went - as Yogi Berra said, "It's deja vu all over again".

It's time to permit natural selection to take hold and permit the strongest businesses with the best products to flourish. In the short term it will be painful, but the companies that rise from this will be stronger and better suited to survive in a true world economy.

The big three don't need money, they need common sense and good design. They can't expect to succeed when they bury needed technologies (who killed the electric car so they could sell hummers) and pay their workers outrageous salaries with luxury style benefits. We are in a global economic crisis - let the smart companies win ie: Honda, Toyota, VW etc.

Well said, Jeffrey. Unfortunately, I was not around for the steel bailout but I think that is an interesting comparison.
Also, having owned both foreign and domestic cars, I can say that never will another one of my dollars be spent on an American car. I know many people who have the same sentiment which speaks volumes to the quality. Perhaps that has something to do with their struggles. Why keep companies afloat that are making products that an increased number of people are not interested in owning?

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I disagree because the foreign car makers who came to the US received special incentives in the forms of tax reductions, contributed assets, etc to locate where they did. The willingness of the UAW to forego or accept reducitons in benefits is a contributing factor to my vote as well. If they are going to keep their jobs, labor needs to concede certain benefits to get their costs in line with the competition.

GM Out of Gas: Too Late for Surprises

I do not think foreign manufacturers are having a party. I strongly believe that Ford has a chance but as a business executive and former CFO of major multinational businesses, one of the first lessons I learned was that top management, stakeholders and the markets do not like surprises. Allow me to repeat that, “they do NOT like surprises!”

The reason that corporations have so many internal reporting mechanisms such as planning, forecasting and a daily or weekly cash flow statements is so they can avoid surprises. They conduct periodic risk reviews in order to mitigate any potential surprises and if necessary, take appropriate actions. GM clearly knew that revenues were down, market share was down, cash was burning at the speed of light and debt was spiraling out of control.

With that in mind, it’s should have come as no surprise to anyone, that GM execs, (who arrived in Washington in a private corporate jet) requested a federal bailout—they need $4 billion just to pay their bills this month, or risk running out of money. They are seeking an additional $18 billion—$12 billion in loans and a $6 billion line of credit.

Now that they’re on the hotseat, the company is finally making plans to shrink its work force by 34%, close nine plants, shut down 1,750 dealerships, focus on four of their eight current U.S. models, cut its debt in half and win new concessions from the UAW. They may have been considering these actions for awhile, but why would they put off outlining a plan until they were running out of cash? Why now? This is not the way to run a corporation. . . or has this become the new standard?

The current board and top management have failed spectacularly, and in my opinion, the government should forget the bailout and allow the company to file for Chapter 11. However, my main concern is that the $18 billion is not nearly enough for GM to survive at current production levels anyway. Furthermore, using rough estimations, the restructuring process alone could cost GM $20 billion.

Another fallout of the global credit crunch is that auto finance companies do not have enough money to lend to consumers. But GMAC Financial Services, GM's finance arm, has applied to become a bank holding company, making it eligible for a slice of the bank bailout pie, as well as giving them access to the Federal Reserve's discount window for emergency loans.

The bottom line is that even if the government bails GM out, who will want to invest in them? I don’t mean to sound contrarian, but I am realistic enough to think that GM filing for Chapter 11 would be the best option for the taxpayer and the American consumer.

We stated in our book, “The Big Gamble: Are You Investing or Speculating?” that maybe we should not give up just yet on GM. After all GM was once considered a rock solid investment, even though in hindsight, it turned out to be mere speculation. But we were still betting that GM could bounce back and steal the spotlight from Toyota. However, looking at the reality of their current situation, perhaps it is too late now.

GM missed an opportunity to learn from the Chrysler bailout in 1979 and 1980. In that landmark case, Chrysler spent months building support for a $1.5 billion loan guarantee. Executives received zero bonuses, took deep salary cuts and negotiated for concessions across the board. Their efforts eventually helped save the company and tens of thousands of jobs. GM did indeed miss an opportunity to learn from this, but unfortunately, that seems to be true of many of today’s corporations. For more information on my new book please visit financialspeculation.com

Henry Ford himself believed that companies should be allowed to fail. Why, then, are we now considering bailing out the company he started? They don't need taxpayer money to fix the problems they created, just some ingenuity and creative thinking. Let them fix their own problems, or let them fail.

Individual US citizens should not be paying for the bad business decisions made by the management of the US car makers.

Inefficient bloated behemoths with poor leadership and management cannot be cured through a cash lifeline. They will eat through that and return with their begging bowl. The BIG 3 are blackmailing the nation with "see how the serfs will lose their jobs". Let them go bust. Detroit can only be reformed if we allow them to self-destruct.

If we make a case for suppl

Help the people losing their jobs, not the fat cat executives with their abominably excessive compensation and perks and the union bosses with their fiefdoms who have made the companies unprofitable and don't have a clue about how to succeed in the flat world of the 21st century! And make a stride toward true free trade.