Steering through the Automotive Crisis
by Efin Advisor | November 19, 2008
This past summer hit American auto makers hard. Gas prices were at record highs. People began driving less. A wave of demand swelled for hybrid cars, most of which are produced by foreign car companies. As if this were not enough, the economic crisis now in place dealt another blow. The first thing people stopped doing (other than dining out) is buying new cars.
America’s “Big Three” are now asking for a $25 billion dollar bailout from the federal government. General Motors has claimed its corporation will run out of money by the end of this year or early next year. Similar situations face Chrysler and Ford Motor Company.
Aside from the huge loss of jobs that would occur if these companies went under, the financial crunch could also cause the price of new cars and the cost of replacement parts to skyrocket. Were companies to stop making replacement parts, current owners would be hard pressed to maintain their older vehicles.
Are we being driven to the brink of an abyss by a reckless auto industry? Should the government bail out the car companies at this critical time? Would you buy a car from an auto maker who was in bankruptcy? And what about the millions of electric, hydogen or bio-fueled cars we will need in the decades ahead to replace the gas guzzlers? You take the wheel.
So let me get this straight: GM enters into production on the Volt (a car no one will buy) and continues to operate under a flagrantly stupid business model, and it expects the U.S. government to bail it out? Thanks but no thanks. Companies need to take responsibility for their actions.
I bought a Japanese car about 10 years ago, and now my son drives it and it works just as well as it did when we first purchased it. You make subpar products for decades, and then when the foreign market overtakes you, you claim it wasn’t your fault? You reap what you sow. I’m perfectly happy buying my cars from abroad if it teaches lessons to companies like GM.
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I think bailing out GM is a must for the government. You can argue all day long that the car companies don’t deserve it, but the American public does deserve a working economy and the millions of people employed by the auto industry certainly didn’t ask their executives to make the dumb moves that they did. It’s not a matter of retribution, it’s a matter of public good. And to that end I think it would be downright irresponsible of the government not to try to help the economy in every way it can, even if it means bailing out a company that might not deserve it.
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Bailing out these automakers will do nothing except grant a temporary stay of execution. These companies are the victims of their own bad business models, as Chris said, and handing them billions of dollars will not mean these companies will ever change those models. If anything, it’ll show them that they can take all kinds of risks and not have any consequences if they go wrong because the government will just bail them out. Giving money to these corporations now will show all other big companies that they can make the same kinds of moves and just be saved by the government. Is that really what we want?
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I work for an American auto company and I have to say it is truly imperative that we support the bailout for this industry. Many of the problems encountered by these automakers are not their fault. Sky high gas prices, the economy forcing people to buy fewer cars, government incentives to produce electric cars that are unprofitable, foreign competition, and tons of other factors have led the industry into a corner and they really have little control over their situation. Millions of people in this country will lose their jobs if this bailout doesn’t take place. Please don’t punish us for the realities of the economy.
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We are ok with bailing out the banks, but not the car companies? Not sure what the distinction between the two is. Both are vital for our economy and employ thousands of people. Both have hit hard times. Maybe they deserve it just as much as Wall Street.
If GM or Ford or Chrysler fails, not only will we see thousands of jobs shipped over sees, we will see American’s losing one of our oldest industries, and i don’t think we can accept this.
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The reason the auto industry is failing is because they have a poor business model. They build cars that cost far more to make than imports and are much less fuel efficient. They are just a drain on money. Its no wonder they cannot compete. I recently switched away from my american car to a european one: it handles better, has better mpg, and is just a nicer car for less money.
If these companies fail, we also get the added benefit of being able to lower tariffs on foreign cars. This would make those cars even cheaper for americans, so we would be able to save a lot of money that way.
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My initial reaction to bailing out the auto industry was a positive one: I thought we should. But the more I think about it, the less sense it makes. These really are terrible companies. They make inferior products. My volvo is 12 years old and still running strong and you hear very few stories about american cars doing that. Maybe its time we just let these companies die. This bailout would be just like a farm subsidy: we give money to an inefficient company so we have that company. Guess what: subsidies do not make economic sense. It makes sense to give money to the banks: they need that money so americans can spend. Giving money to these companies does not give us nearly as clear a benefit.
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We’ve seen what happens when the plant of a car manufacturer closes and its not pretty. Think about how many people work for these companies and then think about how many will be unable to find another job. For the most part, these are unskilled workers; they do not have a strong education but can lend their labor to a car company. Its hard for these people to move on. Look at Fling Michigan. That city was destroyed when a car plant closed. The real question is not whether or not we think this company deserves help, but whether we think these employees deserve help. I for one think they do and that the american people have an obligation to help those in need and this is a really easy way we can do it.
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