More Federal Money Won't Help the Big 3 Automakers

Can you imagine anything sorrier than the spectacle of CEOs of three of the great names in American industry, Chrysler, Ford (F), and General Motors (GM), trooping to Washington to ask for $25 billion in taxpayer money?

Pathetic. First of all, even if the bailout made economic sense (which it absolutely does not), $25 billion won't come close to fixing the automakers' problems. Rick Wagoner himself admits GM's share of the money would only carry the company through the first quarter, at most. So what exactly is the point?

Besides, what ails the auto industry isn't a lack of capital; what ails it is a cost structure so bloated that U.S. automakers are chronically uncompetitive. The Big 3 pay $2,900 per vehicle more to build a car, on average, than Japanese automakers do, according to Fortune. You won't be surprised to learn the major source of that cost gap, either: labor. Of the Big 3's $2,900 cost disadvantage, $1,600 pays for gold-plated health care for workers and retirees, while restrictive work rules add another $600 or so. And have you heard of the "jobs bank"? It pays laid-off autoworkers 95% of their regular pay, plus benefits, to sit around and do nothing.

And the Big 3's CEOs expect taxpayers to subsidize that?

Critics argue that U.S.-made cars are hopelessly uncompetitive. That's wrong. U.S. auto designers are among the best in the world. (Many Japanese automakers rely on them.) And U.S. auto workers can be among the most productive in the world. Non-union U.S. plants operated by non-U.S. manufacturers such as Mercedes-Benz and Toyota turn out vehicles of extremely high quality.

The Big 3's problems would fix themselves, therefore, if only the companies could get out from under their crushing labor obligations. In the meantime, virtually no amount of bailout money would do much good.

Investing in these companies without a complete change of their business model, their managements, and labor contracts is totally hopeless. Only one alternative makes sense: reorganization in bankruptcy, including comprehensive labor cost relief. The only way the government can truly help the industry is by assisting in such a reorganization, and ensuring the companies emerge from it with a clean slate.

But a cash bailout in the meantime? Congress might as well light a $25 billion bonfire in front of the Capitol.

Comments

[PeteK:]

No wonder not many politicians dare talk about
bailouts for these big 3. Such a HOT POTATO.
Seems big 3 created their own demise. chapter 11
is the only way to go. Taxpayers shouldn't suffer
for failures like that. Michigan is such a mess, big 3
should not stay there any more.

2008 Nov 25 06:07 AM

[nowaywalker:]

The only thing I'm really sorry about is hundreds of employees left without job. There isn't their fault in the big 3's failures but, of course, it's pointless talking about. Let them go through bankruptcy, maybe after that they'll acquire better management habits.

2008 Nov 25 08:12 AM

[Mister Jimmy:]

Serious, painful and meaningful concessions from all stakeholders should be mandated before Federal funds are extended to the auto industry. Bankruptcy, however, would be a disaster. It would ensure its liquidation and mean the loss of billions in tax revenue, cause the failure of many local communities, put tens of thousands on to Medicaid and Federal unemployment benefits, increase our dependence on foreign powers...and the list goes on. So, if you think that bankruptcy is a less expensive alternative for the taxpayer, think again.

2008 Nov 25 12:21 PM

[33Nick:]

You know there comes a point where we all have to work together and realize we can't make a profit if it hurts someone else, eventually we will pay for it. I obviously feel strange about bailing companies that offer its workers better health benefits than I have and who produce cars that are more expensive and less reliable than its cheaper to make here in the U.S. foreign competition. Unfortunately, it's very political, the CEOs don't want to be the first want to mention the "bankrupt" name for fear of upsetting the unions. And, nothing happens.

Something has to happen, and come on, we're all in it together. We all feel the pain. I have seen my bills go up, as well as groceries and general salaries not following the same curb. We have to work on a general re-haul of the way we do business if we want to face up to international competition.

2008 Nov 25 05:41 PM

[doubleguns:]

A bailout of the big three is like throwing water on a beached fish. No matter how much water you throw on the fish it will still end up a dead rotten stinking corpse.

I do not want to be an unwilling participant of the monitary bucket brigade trying to save the big three.

Time for the big three to get a desperatly needed haircut. Nuff said.

2008 Nov 25 06:41 PM

[violet:]

Whoever thinks the Big 3 should not get the loan. and i say a loan because they intend to pay it back. However will AIG or all the banks? Ithink not.You under read jerks should all get out of America and go live in Japan, China or where ever. When you live in America buy Ameican. Other countrys all around the world buy the products from the country they live in. America hasto many jerks that just dont get it.....We used to manufacture TV, Stoves,Clothes,Toys, etc etc. Till people started buying imported Junk...and i say junk because thats all it is junk. I remember when my parent bought a TV in the 1960 s it was a Zenith and t lasted 35 yearsin fact i still have it i my basement and it still works well. Get ith it people if we giveup our autos then we just should et China ome in and just take over he whole United States of America

2008 Nov 26 12:58 PM

[SMcKenzie:]

Mr. Hill, you are so right. They would be back within 6 months for more money. Yes, I too feel bad that many people would lose their jobs, but it seems at times, "all good things come to an end".

The employees did have some say to this. They are the ones who let their unions bargain for these outrageous benefits and huge hourly wages that have helped cripple the economy for years now.

Bankruptcy is the best option in my opinion. They would be able to restructure and renegotiate contracts with vendors. This would ease up their cash flow and give them more leverage. If they go under I'm sure someone would be willing to buy the companies and start where they left off.

I'm not doing that well now. I pay my own health insurance and the company I'm associated with as a contract driver just cut my pay by an average of $1,100/month.

2008 Nov 26 04:55 PM