Detroit: To bail, or not to bail.

Posted by: David Welch on October 31, 2008

Bailout.jpg

Without some kind of help from the government, General Motors may not be able to acquire Chrysler from its owner, Cerberus Capital Management. In fact, GM probably needs government support just to stay out of bankruptcy next year. GM sources say the government is willing to help, but the Feds want to cut a deal that won’t anger taxpayers. In other words, they want to save Detroit while saving face.

Good luck with that. A recent survey from online automotive community CarGurus says that 52% of American consumers hate the idea of bailing out Ford and GM and 48% like it. So no matter what Washington does, half the country won’t like it. CarGurus surveyed 8,000 people worldwide. Most of the respondents are Americans, but the overseas vote could distort the tally since those people probably don’t care one way or the other about saving Detroit.

Anyway, here’s what I say to Washington’s policy makers. Help the U.S. carmakers get through this. If they fail, the job loss will be too great. There will be depression-like unemployment levels in parts of the upper Midwest, the U.S. will lose more of its declining manufacturing base and the trade imbalance will widen.

Politicians are notoriously bound to surveys and polls. This one says that they can’t win either way. They were handed a situaiton no-win as soon as Detroit asked for help. As long as they’re all going to pay a price with about half the public, they may as well try to preserve the U.S. auto industry.

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Reader Comments

colin

October 31, 2008 02:21 PM

People from overseas should care. Ford and gm own companies like volvo, saab, Opel, Holden, and more.

Snoz

November 1, 2008 06:02 AM

This is not a bail-out; it's extortion. Without the $25bil as freebies to GM,Ford,and Chrysler, the Big3 will cease to exist and 2 million people will be at unemployment line. Something really stinks in this nation when taxpayers are forced to give money to large corporations whose CEOs have for years treated working people with contempt and preached to them about the virtue of free enterprise. To wit: Demanding 7 digit salary while the median income for Americans were $30,000; flaunting their own private jets and yachts; and even decorating their bathrooms with golden sinks and appurtenance. Stupefied by the ornate consumption of the CEOs, the masses were lead to believe that these CEOs deserved all. These wealthy CEOs had not only admirers but also accomplices. For years newspapers, business magazines, and TV anchors have treated CEOs as mini deity or heroes of the American economy despite the overwhelming evidence that most CEOs of big corporations are more akin to convicted criminals such as Enron's Ken Lay, Worldcom's Bernie Ebber, Adelphia's John Rigas, Martha Stuart Omnimedia's Marth Stuart etc,etc than business savvy, honest, and respectable characters. The contemporary meaning of the acronym, CEO, is Criminal Executive Officer. From the imminent collapse of the Big3 to the historical collapse of the American financial system, these catastrophes place in perspective the incompetence of American corporate CEOs when they are not under criminal indictment. What explains the collapse of the pillars of the American economy such as BearStearn, LehmanBros, Merrillynch, WashingtonMutual, Countrywide, Wachovia, AIG, FannyMae-FredieMac, etc, etc and the subsisting on-life-support, the Big3? Using history as the metric, the fact is that despite years of image embellishment from various sources, the American CEOs with all their MBA and PhD degrees are worth no more than shysters in fancy money suits. They repeatedly have demonstrated neither business acumen nor leadership. Since the day the Japanese introduced their cars in USA during 1960's, the CEOs of the 4 remaining American auto companies (AMC,GM,Chrysler, Ford) could not formulate a strategy to stem the steady encroachment by Japanese car makers. Members of dunce list: Roy Chaplain, Roger Smith, Rich Wagoner, Nassar, Ford Jr, Townsend, Nardelli, Schempf, and on and on. Other American manufactures and industries have followed similar path and later abdicated their entire industry. To wit: No TV has been manufactured in USA for over 30 years. No VCR or DVD or CD players were ever made in USA. No magnetic hard-drive is made in USA. No LCD screens. No 35mm SLR camera. No portable copy machines. No laptop. Not even your household light bulb is made in USA. How has American business conceded so much in so little time? Look no further than America's CEOs. These brilliant CEOs claim that in the modern world economy, real wealth is in trading commercial papers not in brick-and-mortar factories. The really clever ones argue forcefully that lower foreign labor cost drove auto factories abroad. Sounds good until the Toyota, Honda, Nissan, Subaru, BMW opened dozens of auto plants in USA and paid their auto workers back home comparable pay as UAW's. Lacking credible business skills, these CEOs conjured up ever more excuses for their incompetence. It is amidst these phony self-serving nonsense that caused America to give up its manufacturing capacity to foreign companies. Even more revealing, the recent financial calamity shows that these CEOs could not properly handle the commercial paper business, either. For too many years the Big3 CEOs neglected to make better cars while pouring their money into commercial paper business for easy profits. That was a foolish bet because, today, the Big3's commercial paper business is in deep trouble: GMAC, ResCap, Ford Credit, and Chrysler Credit, are burning more cash during this financial meltdown than cash infusion from car sales. However, when the Big3 places 2 million jobs on the crap-table, UncleSam's only choice is to advance $25billions and to hope lady-luck saunters over.

Paul (Vw)

November 1, 2008 09:11 AM

I agree, some domestic industry (no matter how continually pathetic their performance) is better than none. But what assurances can be given to taxpayers that it's not just allowing a temporary pause in (what might be) Detroit's ultimate demise? How do we (taxpayers) know when it is time to just take a loss and move on?

In the early 1990's IBM was on the ropes. They brought in the cracker guy (Gerstner from Nabisco) and he turned the company around. Maybe what Detroit needs even more than money is someone (maybe even more than one person) truly capable of leading a turnaround.

c.l.shannon

November 4, 2008 03:25 PM

no - no bailout! why resurect these dinasours just to have to pay to keep them alive another few years. they had plenty of chances to change and compete - they saw the same reality that honda and toyota saw and bet on the fat profit short-term SUV and tuck market.
the money would be better spent creating new industries for the future (or even paying unemployment to the hard working unemployed victims of this mess) its over for them and they have only themsleves to blame.

Karl

November 12, 2008 10:08 PM

GM Ford and (Chrysler not even American owned) should file for BANKRUPTCY then reorganize to make themselves competitive. If they failed it was because of their own negligence to see that fuel efficient cars or alternative fuel cars were needed. If they can't do it let another American company rise up...as this is the American Dream ... and not the American handout.

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Want the straight scoop on the auto industry? Detroit bureau chief David Welch , Dexter Roberts and Ian Rowley bring daily scoop, keen observations and provocative perspective on the auto business from around the globe. Read their take on such weighty issues as Detroit’s attempt at a comeback, Toyota’s quest for dominance and the search for an efficient car.

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