Next Up for Some Bailout Money…Detroit!

Posted on November 10th, 2008 in Uncategorized by Karl

The latest group coming to Washington looking for a bailout is the Detroit automakers.  GM, Chrysler and Ford are all losing money at record pace and (some say) at risk of bankruptcy.  The Obama administration has a huge dilemma on its hands – what to do about one of the most uncompetitive industries in America?  (And if they save Detroit, when will the bailout madness end?  What about the airlines?  They need help too.)

The reality is that GM, Ford and Chrysler may be “too big to fail”, and Washington may have no choice but to step in and save the autos.  Not doing so would be politically, economically, and strategically unimaginable.  However, I would challenge Washington only to use taxpayer money to bail out the industry if it demands that real, strategic change is made to get the US auto manufacturers competitive again. The biggest mistake we can make is to give the auto industry what they (and the unions) are looking for – a blank check.  There’s no way we should do that!

Any government led bailout needs to demand real, apolitical change.  These companies need new leadership willing and able to make dramatic changes.  Close plants that are inefficient and producing cars that no one no longer wants.  Demand stringent requirements on fuel efficiency on all new vehicles.  Get rid of the unions and their uncompetitive demands.  And, yes, downsize the companies so they can operate more efficiently.

The obvious downside to all these changes is layoffs, major layoffs.  This will not be easy.  (And sadly the reason Washington may not have the guts to do the right thing.)  But if significant change is not made, we will waste a lot of taxpayer money and find ourselves dealing with this mess again – very shortly.

One final point…let’s make sure we bail out the creditors of the automakers and not the equity holders.  It would be a crime if our bailout funds helped get the Ford family and the big shots at Cerberus out of the mess they got themselves (and all of us) in to.