Thursday, December 04, 2008

Auto Bailout

You know, hearing about this auto bailout is starting to get to me. Why are these companies going to the government for these large sums of money to help them out? Why is that okay? I knew that after the $700 Billion bailout was passed through Congress that companies were going to begin coming out of the wood work. Can they use the $25 billion out of this money? Not that it makes it any better. Dana Perino has said that we need to conserve that money and to use it for its intended purpose “…stabilizing and strengthening our financial system." I guess this doesn’t qualify as stabilizing/strengthening our financial system. Okay… If that’s not enough, GM executives say the $25 billion loan money would come with enough strings attached to it that they are not sure it can be used to solve their cash crisis. So, WHAT DO YOU WANT THEN?!

I do understand that if “The Big Three” (GM, Ford and Chrysler) go under that there will be approximately 2.5 million people will become unemployed if these business go under. However, while all of this is going on, I hear about the COO and CEO’s of these companies’s arriving in Washington in their privately owned jets instead of flying commercial like the rest of us struggling Americans. They are the reason we are in this mess to begin with. It was their bad business decisions and uncompetitive labor agreements which began this mess. Many people claim that the bailout will only postpone the inevitable anyway. Someone said that, “Failure of one of the companies is necessary if the economy is to work properly.” Their problems are their own doing, but now the rest of America has to save them. Where do they think this money is going to come from?

Well, and then think about this – if a bailout doesn’t happen then bankruptcy certainly will. What will happen if these companies go bankrupt?

1. Buyers would be unwilling to buy from a bankrupt automaker because of fears about resale value and warranties.

2. The company, along with credit analysts, has also questioned whether it could get financing to reorganize while in bankruptcy.

3. If GM were unable to pay its bills, it could be forced to liquidate and sell off assets rather than reorganize. And if it can't pay its creditors, auto parts suppliers would suffer and many would likely fail.

4. Still, bankruptcy would be tough. It would mean shedding numerous brands and probably thousands of dealerships, and entail closing plants and laying off tens of thousands of hourly workers.

5. 2.5 million jobs

6. Spending by auto company employees who lose their jobs would hurt stores and other businesses in cities where plants are located.

The advocates of a bailout insist that the risk of failure is too great - that even the best case scenario for bankruptcy would be too great a shock to the struggling U.S. economy. The critics say a bailout would be throwing good money after bad - something the government can't afford to do after already promising close to a trillion dollars for other bailouts.

So, what is the answer? What should be done?

1 comment:

hollybeth75 said...

We've been threatened. By who? That would be General Motors. GM comes to Washington with absolutely no plan to weather the economic storm other than to grovel for taxpayer money. Do you get that? No plan! Nada! It's either hand over taxpayer funds or we're going to bail .. and if we bail we're taking the rest of the country with us.

What arrogance!

The Big Three returned to Washington in their hybrid cars. They presented their plans in hopes that this will be enough to get them a government bailout. But guess what? There doesn't seem to be any really drastic changes. Their business models haven't really changed. Their adhesion contracts with the unions are still in place. There aren't any secure plans to pay back the taxpayers other than creating a government oversight board. Oh yeah ... that makes me feel so good; a government oversight board. I feel better already.

There is some talk about symbolic cuts. The CEO of GM and the CEO of Ford say that they will work for $1 a year if it means their companies get a taxpayer bailout. That's great. The problem isn't solved by paying CEOs a buck a year. The problem is solved by bring in some management talent that will make extremely difficult decisions and them paying them a gazillion dollars if they can pull their companies out of the fire without raping the taxpayers.

There is already a provision under our laws to take care of this mess. It's called Bankruptcy. Chapter 11 bankruptcy, to be more exact. Reorganization. The magic of bankruptcy is that all outstanding contracts that are making it difficult for these automakers to compete and survive would or could be cancelled --- and that includes the contracts with the United Auto Workers. Nancy Pelosi is saying that bankruptcy is not an option. Why not? For the very reason I just set forth. Bankruptcy would not work well for the unions.

The capitalist system - free enterprise - has lifted more people out of poverty than any other economic system ever devised by man. Freedom works. And freedom means the freedom to fail if you don't live up to consumer expectations or if you allowed yourself to be drug into unprofitability by asinine union agreements and products the consumers just don't want.

My guess is that the only way these auto companies survive is if they have to fight their way through this without taxpayer help. A bailout is the easy way out for them. What a stupid idea it is to throw tens of billions of dollars at these companies only to have them declare bankruptcy down the road.

There's another idea floating around out there. Let's just take Ford, GM and Chrysler and combine them into one large auto company. Oh yeah .. that ought to work. Nothing like good old-fashioned competition to spruce up the marketplace.

And speaking of competition ... there is no way the Big Three can survive under their current agreement with the unions. These unions cannot be allowed to bring these automakers down. Get rid of them.

Love, Neal Boortz