Does saving the 3 automakers insure jobs here? Yes. Of course it does. But does it also ensure that these companies, in order to cut costs and stay afloat will cut their highest paid workers? Of course it does. Where do those highest paid workers reside? Right here in the good ol’ US of A as members of the UAW making union pay at $74 an hour.

This money from the government is necessary- these companies employ hundreds of thousands of people and not just at company owned plants. Think of all the laborers and employees that have positions at subsidiaries of these companies. What will they do if the automaker suddenly stops ordering windows or windshield wiper blades?

However, the bailout money should come with a very clear caveat- re-structure your business to compete with the other auto makers or we, the taxpayer, will not prop you up. One merely has to look at Toyota to see how a company should treat its workers.

During this economic crisis, when American companies are shedding jobs, Toyota has not fired ONE person. See this courier press article for what they are doing for their employees- http://www.courierpress.com/news/2008/nov/01/making-the-most-of-down-time-toyota-uses-for/.

In your opinion, what do you see as the best solution to the problem? Do you think that breaking up vehicle conglomerates like Ford (who owns Ford, Lincoln, Mercury, Mazda, and Volvo) should be broken up into single entities to foster competition in the marketplace?

This much is clear- changes need to happen, and fast. Otherwise, we may see the end of vehicle manufacturing by American automakers. How strange would it be for the world to exist without Ford, the company started by the inventor of the machine that has changed the world?

I thank you for your insightful and informed post. I also welcome your comments and can be reached here- http://www.blemmon.blogspot.com

I found your arguments against the issuance of a bailout package for U.S. car manufacturers to be extremely informative. It is important to examine this type of governmental expenditure given the current economic downturn. You bring up several great points in defense of your assertions.

I agree with you that companies composing the Big Three (Ford, GM, and Chrysler) are bloated corporations in need of an overhaul. They need a shake up that will restructure their management and restore their prominence as premier American brands, delivering products with amenable features customers want.

However, I believe it should be a concern of our nation’s citizens that foreign automobile makers have such a stranglehold on the domestic market. I do not share your sentiment that this is an unavoidable reality.

American cars can indeed make a comeback through careful revision of their manufacturers and their subsequent realignment with the market. You advocate that the industry should be left to fail, yet what do you think about this sector’s synergy with other areas in the economy?

According to the Center for Automotive Research, as many as 2.5 million workers could become unemployed nationwide if any one of these corporations go bankrupt. That is a significant amount of jobs lost, especially considering the recession is expected to raise the unemployment rate considerably by the year’s end.

It is true that the Big Three have been consistently unable to competently respond to foreign competition, and they have indeed been mismanaged for years. Yet they appear to exist as a cornerstone of the American economy and job market.

Therefore, wouldn’t it be a better plan to keep these corporations afloat, but in doing so demand they concede to requirements they have been avoiding for years? Stringent mandates could be attached to the bailout, successfully realizing the implementation of guidelines such as higher fuel economy standards.

These types of policies would not only help to address environmental concerns, but they would help automobile manufacturers to put cars on the road better matching the evolving demands by consumers for more innovative products.

I agree with you that “the new car ‘bubble’ has burst,” but more pragmatic policy approaches could be introduced to address the U.S. carmakers than to simply let them fail.

Bush is now backing a bailout. If he did not, the failure of the big 3 would forever be blamed on the Republicans. So it is going to happen, whether people on this site like it or not.

If the recession is deep enough, Japan, Korea, German, Sweden will bail out their manufacturers.

There are arguments for and against, but it will happen.

At least you can have a car repaired. When was the last time you tried having some kind of electronic consumer product repaired? The stuff is literally designed to never be repaired. Just throw it out and get a new one. But who hates Sony?

How come nobody calls it “planned obsolescence” when Steve Jobs announces the next new improved iPod or iPhone?

Absolutely laughable.

Perhaps they can call them Heritage Autos, and sell them at farmer’s markets together with heritage tomatoes and heritage turkeys.

As long as an independent company underwrites the warranty on a GM or Ford I don’t think many people will care that GM or Ford are in Chapter 11. I won’t.

Er… wasn’t that the cause of the trouble on Wall Street? Bankers investing your money in toxic mortgage securities and saying, “It’s OK, Moody rated them, AIG insured them.”

When people don’t take responsibility for their own buying decisions and their own products, things start going downhill.

Okay, stop national flood insurance, AND don’t bail out GM. Deal?

Too funny.

I disagree. The bailout situation is caused by building homes where they have no business being built. We reward bad decisions.

Building on a flood plain is as stupid as anything that GM has done. Hoping that it won’t rain is not a plan.

BTW, so you can stop imagining that you are conversing with a bunch of know nothings, I have been in the HQ of GM and Ford doing business. I have had dozens of dealers as clients. Furthermore, I don’t know PCH101’s resume, but having sparred here with him at length I can vouch for his intelligence and reason (though he is often misguided by his left leaning sympathies). I would say he has a good handle on this situation, even if his solution is unlikely, it is reasonable (though basing in socal is a terrible idea, I recommend North Carolina).

Once again, don’t be fooled by the huge numbers. From a percentage standpoint, loss of GM won’t do us in. You have to realize that they haven’t been making any money for a while now, and even at their size, they are no longer that big a force in the country. No one is bailing out my company, why should I have to pay to bail out theirs?

bridge2far,
There is no anti-american car bias here at all. The problem is that what you think is an american car company, isn’t. The 2.8 are the most unamerican of the lot.

Warranty worry warts and Bankruptcy panic people,

I can name several manufacturers who sell big ticket items that came back from bankruptcy. Usually, the first thing they do is start honoring warranties. If warranty fear is a big deal, then GM could simply sell the warranty from a third party insurance firm with their vehicle to allay fears. There are dozens of these companies.

If you disagree with the idea that bankruptcy won’t work for GM, then you need to make a good case for that. I really haven’t seen one that convinces me, not that it matters. I don’t believe we are worse off without GM.

“What about YOUR favorite subsidy arguments” –

Here is the thing. I am against all of them. AND, two wrongs don’t make a right.

The only argument that stands a chance with me is to demand a bailout on the grounds that government interference is largely responsible for these failures. Unfortunately, the left ain’t going to change any of that, so it doesn’t make any sense to bail them out so we can continue to strangle them.

Really? Are you are they aren’t Dana 44s? If they are Dana 60s, they should start selling them here, finding a ‘real’ Dana 60 is very, very difficult.

Back to the article. To me, the most salient point is that bottomless pit aspect. I have yet to see any proponent of this bailout state emphatically that x billions will do the trick. Asking for $25 billion, knowing full well that that is just enough to keep the lights on, deceives the public and deserves to be rejected outright.

Ford: Quite sick, but could potentially recover on their own. Some medication (Chrysler-style loan guarantees) may be needed for complete recovery.

GM: Has massive injuries, requiring almost-heroic efforts to save, including amputation (Pontiac, etc.) and organ transplant (much of management). It’s hard for me to see recovery without some kind of reorganization, maybe under government-backed C11. Without government assurance, it seems likely to me that a C11 filing will lead to massive sales losses and a downward spiral to C7.

Chrysler: Needs life support, and may not be saveable. It’s time to start talking to next-of-kin about organ donation (Jeep) to another automaker.

Excellent analogy. I’d carry it further:

Ford: Patient has engaged in many high-risk dangerous activities in the past but appears marginally committed to stopping smoking, at least, and has improved his diet.

GM: Patient is smoking in the oxygen tent and insists that cigarettes are good for you. Says he’ll stop one of these days anyways, but only because the damn liberal media has convinced everybody about smoking being bad for you.

Chrysler: Patient insists that those aren’t cigarettes, and they aren’t even in the hospital anyways, and besides, we’re all being controlled by satellite transmissions and high-fructose corn syrup. Plus, just threw up toxic waste all over the room.

Not that this would end the debate. We’d be fighting over the benefits of using Linux vs. Windows, plus the Mac crowd would have to weigh in.

What about the other guy?:
Some people live in Pennsylvania or Illinois or Montana . . . because their parents did, because they have roots. But if they could afford a nice getaway on the beach they sure would love it! Hey . . . maybe I’ll start saving!

vs

Some companies sell small and midsize cars because that’s about all people buy in their home markets. But if they could sell half a million or so pickup trucks with a five figure profit, they sure would love it! Hey . . . maybe I’ll build a plant down in Texas!

I remember reading how many vehicles, services, and donations the big 3 gave during the 9/11 crisis and how little the transplants gave even though they were having record sales. I use this as a point as to why we should have a domestic manufacturing base not as a way to justify keeping Detroit in its current failed state.

Unfortunately, the reality is there is going to be mass job loss in order to right size these companies. It is just a now or later situation.

While the wind and rain may be an act of God, the decision to build and re-build on the coastline where we know the wind and rain will strike is most definitely NOT. That decision is the root cause of the problem, and that decision is very much akin to management decisions. And we’re bailing them out, and will do so again when the next big one strikes.

A more fitting analogy . . .

Poor management decision:
Build houses on the gulf coast, because it’s warm and sunny and the view is great!!

vs

Invest in pickups and SUVs because gas is cheap and people are buying and we make thousands of dollars on each one!!

Act of God:
Oops . . . hurricane strike!

vs

Oops . . . crude oil / gasoline price bubble!

Obvious outcome:
Your beautiful house does not look so good anymore!

vs

Your truck plant does not look so good anymore!

Bailout time
Federally subsidized insurance

vs

????

How can you honestly believe that in times like this, they would have the resources to take over a part supplier’s factory and keep it running? There is no cash to do this. There is no headcount free to take this on. There is no knowledge of what to do . . . do you think running a production facility is like turning on a washing machine?

We are walking on the edge of a knife, and even with our best efforts and the best circumstances, we could go over. (Again . . . hence the need for a bit of insurance to make it across the precipice and emerge healthy and competitive on the other side.) But a small (or not-so-small) push in the form of failed suppliers and more market chaos/consumer fear would almost certainly send Ford over the brink.

If a loan to GM keeps them afloat long enough for the economy (and her domestic competition) to get healthy, and makes the scenario you propose a possibility . . . then it will be money well spent.

What about earthquake insurance, also funded by taxpayers sold by the California Earthquake Authority?” -Bozoer Rebbe

You are equating the management abilities of Rick Wagner with a natural disaster. LOL.

While I would agree with your assessment of Government run insurance programs as bailouts, they are bailouts we as a nation believe are warranted, mainly because the bailout situation is caused by an ACT OF GOD, not an act of an incompetent CEO.

Too funny.

Everyone of us who cannot afford a new Big 3 car every 3 years has faced this question individually. At some point your car just plain costs more to fix then to get a new one. One week its a rad, then the ball joints, then just when you think you are safe for a bit you need a tune-up. That is the way a bailout is going to work. A little fix here a big fix there but eventaully you just come to the conclusion that it is cheaper just to drag the old one off to the junk yard and look for something new. Funny how the model the auto industry has gotten us all used to is now happening to the companies that designed planned obsolescance. Go Figure!

The only way to make a bailout successful (and not a postponement of the bankruptcy) would be to force GM to use it for major restructuring. Eg paying for it to close a couple of brands, with the thousands of job losses that would entail.

But can you imagine any politician getting involved in a deal that resulted in huge job losses even if it saved the company and more jobs.

Also I consider a bailout of Detroit far more palatable that the financial bailout. Detroits exec have made some bad decisions a big part of the reason that they are in such dire financial straights is the historic issues of pensions and health care. The financial business that are receiving the bailout had non of these issues. They drove there perfectly good business into the abyss for pure greed.

We bailout other industries all the time. We even bail out whole other countries. Iraq comes immediately to mind. And Israel and Afghanistan.

Korea and Germany were and are huge beneficiaries of American military largess.

The whole military spending thing is nothing but government money going to private industry. Same thing for Medicare. And the recent banking/insurance $700 billion bailout is another prime example.

I am a farmer. Farmers have received government bail out money umpty nine times over the last 50 years and few complain. I recently received a $5000.00 farm program check.

Government employs about 23% percent of American workers all paid for with taxpayer money. Few would argue that they are efficient and competent.

I find it odd that the automotive sector is held to a different standard. True they are incompetent, but so are the other examples I have cited.

The Japanese government has done little for its carmakers. The infamous Japanese shaken system does encourage people to buy new cars there more frequently than here in the US. And the Japanese carmakers do have some other advantages, such as a better educated and stable workforce.

But if the Detroit Big Three are saying that they deserve subsidies from the United States government because Toyota, Honda and Nissan get subsidies from the Japanese government, they are lying through their teeth. Don’t believe it.

1) If GM goes C11, will people buy cars from them? My guess is no. You would think that polling or focus group testing could come up with some data. I bet GM has done that, hence their refusal to consider C11.

2) Why wouldn’t GM’s management be forced out as a condition of a bailout? That’s what happened to AIG.

3) Psychology is a huge factor in economics. To ignore that is irrational. Lehman’s bankruptcy had a profound effect on the markets. Wouldn’t GM or Ford (but probably not Chrysler) going under be similar? If not, why?

Discuss amongst yourselves.

I don’t think the government should be in the business of saving GM or conducting its reorg. I don’t care if GM goes down; I just don’t want it bringing the economy down with it.

If GM failed, I would want the government to prop up Johnson Controls, for example. Why? Because several manufacturers use them. GM’s bankruptcy, slashing of output and non-payment of invoices would bankrupt Johnson Controls as well. Ditto Lear or Delphi and a few others. So, if GM owes Johnson Controls $1B in receivables, the government pays all or a significant part of it and offers a low interest loan to restructure for the drop in GM business (something like 50% of their business, I thought).

Ultimately, GM gets nothing, and the government doesn’t help it restructure. It can crash and burn on its own, but it gives Ford, Toyota and Honda time to find new suppliers or help the suppliers downsize drastically to accomodate the lack of GM.

The only areas that are grey are things like: if Ford survives the fall of GM, should the government take over their VEBA cash payment ($4.5B)? Last man standing type thing? There are questions about pension liabilities, but it is fairly common government practice to take those over as well during bankruptcy, so I don’t know that is a true new cost.

The government would not be in the business of saving our manufacturers or restructuring them. It would be in the business of protecting our economy. Make more sense now?