Thursday, November 13, 2008

Bailout GM??

I've been hearing a lot of talk about this, I was wondering what everyone else thought or had heard about it. Their are people who are suggesting we use bailout money for automakers. Paulson suggested that there is no way he would use the money that way, but what if he did? Would it be a good thing? Ford, GM, Chrysler, they are all struggling, but let's not forget that even automakers like Toyota and Honda are feeling the pinch.

I will use General Motors as the example here. It's the simplest example out there right now. There are two options for GM. Either they can beg and plead for taxpayer money or they can simply declare bankruptcy.

The bailout would probably in the way of about $120 billion for two years. That's just a rough estimate put out there by Jon Blank, a senior industry strategist at Decision Economics. Compare that to what the government has already poured into AIG and it isn't a bad number for two years. It would help keep people in their jobs, from factory workers to parts suppliers. All of these workers keep their jobs and keep buying items from retailers, retailers get to keep more people on and these people are able to buy more groceries and so on. The idea of keeping people employed is a good argument for the bailout, but is it just prolonging the inevitable with GM?
It would be very beneficial in keeping the company afloat, but would not necessarily make it competitive. GM has been failing in that respect for quite some time now. We would need a way to ensure that GM would change its strategy by the time they were turned loose. We should probably turn the bums out that have been driving the company into the dirt. They should be completely cut loose, no benefits packages, no severance pay, don't let them benefit from their failure. It's not the average worker's fault the company is failing, so they shouldn't suffer. If need be, take some money away from the CEOs that have been robbing their companies blind. Would you pay someone millions of dollars to run your company into the ground? Sorry, I got a bit ranty there.

This wouldn't be the first automaker bailout, Chrysler received $1.5 billion in 1979. There are a lot of similarities with Chrysler 1979 and GM 2008. Chrysler was hit hard by the oil boycotts because they had been pumping out large gas-guzzlers... sound familiar? It pushed Chrysler in a good direction, they went with more fuel efficient vehicles and gave us the minivan. It also returned a decent profit for taxpayers in the form of a $2 billion check to the US government, seven years before it was required. Would this happen now with GM? There are those that argue that Chrysler should have been allowed to fail in order to streamline Detroit's auto-industry and make it more efficient. But then we mightn't have minivans...

Option 2 - we let GM declare bankruptcy and see if it could turn itself around given a little bit of time. This would hurt the shareholders and we might see a run away from GM stock if this gets talked about too much. They would buy themselves a buffer, might have to cut some jobs (most would be able to keep their jobs from what I gather), but the company probably won't be able to set itself straight in a few months. They might still fail because the same people would be at the helm, but perhaps it would teach them a lesson. A Chapter 11 bankruptcy might not completely destroy a company, but it's definitely a humbling experience.

Personally, I think we should figure out a way to continue the companies' existence by taking money from all of those who profited by driving the company into the ground and heavily taxing fuel-inefficient vehicles that are unnecessary. That might sound socialist, but letting people make money from failing is sure as hell not capitalism.






Transcribed from a rant by The Iowan at 10:09 AM

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