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Question of the Day – Bailing Out Auto Makers
By JLP | November 14, 2008
Here’s today’s question of the day:
Should the government offer a bailout package to American auto makers?
First off, I’d be interested to hear Jeremy‘s thoughts on this question as both of his parents work for GM.
My opinion:
Unless things change drastically, I have serious doubts that a bailout would even work in the long run. American auto makers are saddled with lots of debt and have obligations to their retirees. On top of that, they are producing cars that people don’t want—or can’t get financing—to buy. Finally, they don’t seem to have a plan for the future—what happens when oil and gas prices go back up again?
Not only that, how can we afford to bail out car makers?
Of course, others may legitimately ask: how can we afford NOT to bail out car makers? What would happen if auto makers were allowed to fail? That’s a scary thought.
Topics: Business News, Question of the Day | 34 Comments »
November 14th, 2008 at 12:23 am
How can we afford not to bail out the car makers?
It is going to suck. It is going to suck bad. But it is going to suck whether we waste trillions on these bailouts or not, so we might as well start the sucking now and recover. Let it hit bottom then lets build it up!
November 14th, 2008 at 12:43 am
No. The current structure needs to be allowed to crash, so that decent car manufacturers can pick through the rubble and rebuild – ideally without the UAW. It’ll suck, but no worse than the long, slow death Detroit has been experiencing, and would continue to experience if GM and Ford become what the Chinese call “State-Owned Enterprises”.
Even the Chinese couldn’t make SOEs work, and are busily closing them or dumping them, so why would we do any better?
November 14th, 2008 at 5:53 am
A bailout of the Big 3 is a also a bailout for the bloated inefficient UAW.
The Big 3 must file for bankruptcy so they can be properly reorganized without union interference. Why can foreign manufacturers sell small cars at a profit? Because of lower labor costs. The US has to stop supporting inefficient companies.
November 14th, 2008 at 7:05 am
Let ‘em reap what they’ve been sowing for decades.
The bailout for auto industry would not be to save them from a “perfect storm” of events that’s led to their downfall. The auto industry is in trouble because it is poorly run and has been for a long, long time. Additionally, the auto industry has to also contend with the whims of the auto unions which is not the only problem, but a big part of it.
So, if we bail out the auto industry, what’s the next poorly managed industry, company or small business that’s going to be expecting the same.
It’s all about accountability, and there seems to be less and less every day — whether individual, corporate or gov’t.
November 14th, 2008 at 7:38 am
Large corporations pushed for globalization, universities preached globalization and our politicians supported the corporations. Guess what it smacked ‘em in the face.
The whole point of globalization was to make profits off low wage jobs. The disintegration of the unions is now inevitable.
November 14th, 2008 at 7:47 am
No way should the auto companies be bailed out. Let bankruptcy come so they can properly restructure their debts, labor agreements, and pension/healtcare obligations. Chrysler needs to be shut down and the few valuable assets remaining sold to other companies. Ford and GM can emerge from bankruptcy and be competitive without any government bailouts or interference.
It’s easy to bash the US auto industry and pick on them for their past mistakes or because you don’t happen to like their cars. The truth is that GM, the second largest car manufacturer in the world, has done very well on a global scale outside of North America. Ford has also done well in some regions. These companies do make cars that people want to buy (from gas guzzlers to highly fuel efficient) but they just can’t make a profit in the US.
The problem? Current and legacy labor costs along with dumb work rules. All GM, Ford, and Chrysler plants are UAW controlled here. Not one single “foreign” manufacturer has to deal with the UAW at any of its US plants. The union is literally driving the Big 3 off a cliff and all the jobs are going to Mexico or China.
Americans can make good cars at a competitive price. Honda, Toyota, etc. prove that every day in their US factories. Only GM, Ford, and Chrysler are closing up shop.
Don’t bailout the UAW!!!
November 14th, 2008 at 7:56 am
By continuing to ‘bailout’ companies, banks, insurance companies, etc. we are simply moving long-term debt problems from one area to another. It is somewhat akin to a consolidation loan. Unless you fix the problem that caused you to be in debt in the first place, a bailout or a consolidation loan just enables you to continue bad financial decisions.
At sometime we have to say “No”, and allow personal responsibility to be the instructor that it needs to be. One of the problems with the American auto industry is the UAW. My dad worked in the coal mines for 37 years, and in the beginning the unions did a good job of getting adequate benefits and safety regulations in place. Unfortunately, once the mines were safe (relative) and the workers had good benefits, they would continue to strike demanding more money. It got to the point where the mine owners weren’t making enough profit to justify the business so they started shutting them down. The only companies that are still open (in that area) are the non-union mines.
The Bible teaches us that we sow what we reap and unfortunately it is harvest time for many companies including the auto industry.
November 14th, 2008 at 8:46 am
No I do not believe we should bail out the auto companies. We tend to believe right now that failure is a bad thing. It is short term, but if you never let your children fail what do they learn about success? No failure eqauls no success in my mind.
The auto companies have been hampered by the UAW and government. And they have not been run well either. Seems like getting a bailout from government isn’t helping banks. I doubt it would solve the auto company problems either.
I don’t recall seeing anything in the Constitution that says that government shall not allow any business that is “too big to fail” fail. Let’s let it happen now and let them start rebuilding something worthwhile.
November 14th, 2008 at 8:55 am
First, I work at a GM facility. Not as an employee, but as a supplier representative. If GM fails, I’m out of a job. But I can’t support a bailout. It would be a waste of money. GM’s business model is broken. Money will not fix the problem. They must get their costs in line with their revenues. This means more union concessions, more job cuts, more benefit cuts.
These guys make more money than I do, they have the best health insurance I’ve ever seen, and they have a company provided pension. I have to purchase my own insurance with money out of my own pocket, and fund my own retirement plan. Why should I, or anyone else, give GM my money so the employees can keep their great pay and benefits.
I’m not jealous, or bitter. I’m a believer in capitalism- and this ain’t capitalism! GM needs to do whatever it takes to survive- either sell more cars or reduce expenses, otherwise DIE!
November 14th, 2008 at 9:09 am
I agree with most of these comments. Let businesses make their decisions and reap the rewards / suffer the consequences. One other point I’d add: the Democrats pushing for a bailout are trying to link any bailout to automakers’ agreement to speed up production of fuel efficient cars. Now that may be a fine business judgment for automakers to make, but it’s a terrible precedent to set if govt. starts dictating business decisions to private enterprise. (This is going beyond the limits on exec pay, etc. that the banks agreed to.)
Of course, if they take the money, automakers have no right to complain having business decisions dictated to them. It’s just a dangerous precedent being set that no one’s really focusing on.
November 14th, 2008 at 9:48 am
I agree with everyone above, especially about the uselessness of the UAW. Unions lost their way a long time ago and now are just greedy and selfish. They only care about themselves and can’t open their eyes enough to see that everything is connected beyond their immediate wants; they are digging their own graves.
November 14th, 2008 at 10:17 am
Absolutely not. I cannot support essentially rewarding their business model – not without sweeping changes that I can’t see being agreed to or enforced.
My neighbor’s son works for GM. He hasn’t been to work in 4 months and is still drawing full salary. And he’s eligible for early retirement at the start of the year. He frequently talks about how he would never work anywhere where he wasn’t guaranteed the benefits he gets at GM.
November 14th, 2008 at 10:33 am
Bailout should come with heavy stipulations, unlike what they did with the banks, namely:
-eliminating the unions
-destroying the pension funds and healthcare benefits (won’t be a problem if we get nationalized healthcare)
Someone noted that GM (if I remember correctly) was a profitable company overseas, just not here due to healthcare costs. Well duh. Get rid of the healthcare costs.
November 14th, 2008 at 10:37 am
Hey JLP, thanks for mentioning me, even if it is due to an unfortunate circumstance with my parents. As you mentioned, both my parents work for GM, and my dad has already been told he’s out of a job in a few months. My mom has nearly 30 years in, so she is still working, and their only hope now is they get some sort of retirement buyout. The future is pretty bleak.
But, I’d also have to agree with almost every other comment so far. A bailout won’t solve decades of mismanagement and the legacy costs the UAW has created. They’ve been digging this hole for years by holding the big 3 by the balls constantly threatening to strike if their blue collar workers didn’t make 60k/year and receive a full pension and paid health care. A bailout won’t fix that.
Right now, GM alone pays nearly 6 billion dollars a year just to pay for current retiree health care! Many more billions go to the pension plan. And get this, GM’s retired workers now outnumber its active workforce by 2-to-1. Yeah, they are paying more money to people who don’t even work for them anymore than the people who do. You can’t throw money at that and make things better.
It pains me to say they shouldn’t be bailed out since our family has a few generations that worked for the auto industry all their lives, but you really can’t fix this one.
November 14th, 2008 at 11:00 am
They will get their bailout. This is the “Change” so many Americans voted for.
November 14th, 2008 at 11:02 am
Absolutely no bailout.The thought is pure craziness. The UAW created this problem, let them provide the funds for the bailout, as they are very wealthy. I have to pay for my own insurance,have not gotten a raise in 3 years,and fund my own pensions.Using “MY MONEY” via taxes to bail out any of these companies means I will be unable to fund my own retirement, and that is not fair.Let the UAW save them. I don’t care who gets laid off,who is going to support me if I get laid off–no one!!
November 14th, 2008 at 11:35 am
No bailout, please see most responses above. I’m am in agreement.
November 14th, 2008 at 2:16 pm
Without major changes to the way the Big 3 auto companies operate, giving them Federal money is a waste and won’t solve the problem. It will just prolong the present situation. In essence the government will be enabling the workers and retirees to continue to live the life to which they have become accustomed by taking money away from folks that make do with much less.
Having said that, I also am cynical enough to think that politicians will be unable to resist the siren song of a Federal bailout.
November 14th, 2008 at 7:40 pm
First, how many logical, responsible decisions has Congress made in the last few years?
Now think about who’s in the majority and the party of the President-elect. Who is a major supporter of the Democrats? Who gets the votes out?
Now what do you think will happen next?
November 14th, 2008 at 8:30 pm
Is it a bailout or a loan? Should the government loan them money to get through the “end of days” economy? Let’s all panic and blame some guy making $60,000 a year supporting his family for what is going on at GM. Let’s take some retired person’s pension away from them. How about promised health benefits. Seriously? Have a little faith. Life will go on even if you do not knife you’re neighbors? Please let’s come through this with some dignity. This remindes me of the Twilight Zone episode when the aliens did an experiment to see how people would react when cut them off from outside communications and fear set in. Let’s shoot the guy trying to get in at the last minute with his family. Hey Mike #9, if the grass is greener why didn’t you fill out an application? Taking the high road? I don’t work for GM it is just really is sad that the panic has made it to the GenX. Calm down people. Cars will sell again and GM will be able to pay back the loan. Do we really need to take this out on hard working blue collar Americans or should we just bail out the paper pushers?
November 14th, 2008 at 9:39 pm
Kim,
Let’s be realistic here: it’s not ONE guy making $60,000 per year that we’re worried about—it’s the tens of thousands of them that’s the problem. Read Jeremy’s comment from above. GM has more retirees to take care of than actual employees! GM simply can’t compete under those circumstances.
As I told Jeremy in an email this morning: each time the UAW reached an agreement with GM, it was just another nail in GM’s coffin.
November 14th, 2008 at 10:02 pm
Yeah you are right it it is the tens of thousands of jobs that is the problem. GM was competing two years ago. Cutting benefits to retired people is not the answer to this market. Two years ago there was no coffin. All of a sudden the world has changed? I get it.. this time is different. The posts here are blaming employee benefits as the problem. I just thought maybe our generation would think things through. GM’s employees made the company. They did not break it. It is amazing they made it 100 years with having to pay employees a living wage. I for one am glad to have lived to see the employees finally bring down a 100 year company.
November 14th, 2008 at 10:07 pm
Kim,
When GM began offering retirement benefits, people retired at 65 and lived to 70 or so. Now they retire at 60 (or younger) and live to 80 (or longer). We do live in a different world. It sucks, but those are the facts!
November 14th, 2008 at 10:23 pm
PS
Are retired employees benefits prepaid? Like on a quarterly basis through out the working career?
November 14th, 2008 at 10:32 pm
I will sleep well knowing all along it was a fiduciary problem. Could you people have let me in on this before I bought shares?
November 15th, 2008 at 9:49 am
The worst thing this government did was to start bailing out companies……..what happened to free enterprise ? I do not agree with the auto makers bailout..
November 15th, 2008 at 10:16 am
The more I look at this fiasco, the more a Honda or a Toyota will be my next car, I’ve always owned GM cars, and each newer car i have gotten has been worse quality wise than the last one. Everybody is right, a bailout wont fix the problem. It hasnt fixed AIG, it hasnt fixed the banks. everything the govt has done since last summer has failed. I used to have my car insurance thru AIG, after they were bailed out, I cancelled with AIG and went to another company, If the Big 3 get bailed out, I will never buy another GM, Ford, or Chrysler. I will not support stupidity with my money.
November 15th, 2008 at 11:27 am
A big NO!
This will start others in the line soon – Airlines, Retailers, etc. How do you decide who should be allowed to fail and who should survive? (Granted we already started a precedent by bailing out banks, but one could argue banks are needed to keep the lubricant in the economy going).
Also, I wonder what Honda and Toyota would think of this. First they open plants in the US to appease the xenophobes, now the govt will tilt the playing field away from them.
*If* we do a bailout, I am hoping the deal would include shareholders equity will be the first to be wiped out.
November 15th, 2008 at 11:29 am
This seems like the perfect time to rebuild the american auto industry.
I say bail them out but force them to come up with vehicles that run on alternative resources immediately. Maybe give them enough to survive for 2 years and enough money to completely revamp their assembly lines to accomodate for hydrogen fuel cell and electric car mass production. The american public would flock to such vehicles. And Detroit has been sitting on these prototypes for decades.
If they want to survive, they have to adapt. Enough of the gas guzzling BS….or NO BAILOUT!!!!
November 15th, 2008 at 11:57 am
My view of the american auto industry is bleak. I see three phases to the problem. The first was when they put computers in cars, second is when they added electronic functionality and third they are now heading towards electronic propulsion.
Japanese companies will win the contest everytime. Just look at TV’s, DVD’s, computers, video games and cell phones.
November 16th, 2008 at 4:02 pm
JS: this is, unfortunately, the idea Congress has in mind. The problem is the technology isn’t ready for prime-time, and State-Owned Enterprises of this sort have never been good at delivering useful consumer products, especially in a competitive market. China is shuttering its SOEs at a vast rate, so why do we want to follow Nepal (who just elected a Maoist government) and adopt bad ideas from the People’s Republic?
If we want alt-energy vehicles, the best way is with a high gas tax. In that case, Detroit – and Tokyo, Germany, etc – will come up with alt-energy cars to meet consumer demand. They’ll get field-tested and debugged by early adopters, and then bought by the mass market. But as long as gas can drop to $1.50/gal, there won’t be a market incentive to push for alt-energy vehicles except to appeal to the latte-drinking Prius crowd who watches Al Gore documentaries.
November 16th, 2008 at 8:32 pm
Amen Foobarista! Even my husband laughed at your last line!
November 19th, 2008 at 3:36 am
NO BAILOUT…………I can’t believe the government is handing out free money like candy………now all the major companies are standing in line to beg for cash……
December 13th, 2008 at 11:46 am
As it is painfully obvious everyone on this site is against the auto bailout, I have just one question. Are you also against the bailout of Wall Street?
I am from Michigan, so obvisouly I am partial, but I don’t see why you can be for one and against the other. I understand that having money in the banks to “lubricate” the economy is important, but having 1-in-10 jobs nation-wide directly or indirectly dependant on the auto industry is also important. That is not to mention that the banks took that money and are sitting on it instead of using it as the government had intended.
Just curious about your thoughts, let me know what you think.