Wednesday, November 19, 2008

Do We Bail Out Automakers?


Right now the Big 3 automakers are begging Congress for billions in bailout money. In the Wall Street Journal, Rick Wagoner - President of GM - makes an impassioned plea for the money he says will be a short term bridge to help GM get over this rough patch. He points to some amazing things that GM has done and he's right, GM has done some amazing things. However, the are still bleeding cash like there are no arteries left to cut. In 2006 their net loss was almost $2 billion. Not content with that, their net loss in 2007 was almost $39 billion. Assuming a US population of 300 million (I think that's pretty close), it would take about $103 from every man, woman, and child in the country. Do you like GM that much?

On the other side of the coin, there's the case to let the automakers fail. Mitt Romney, who made his millions turning around failing companies, has written an opinion in the New York Times on why we should let the automakers fail. He points out that it costs American companies about $2,000 more per car in labors costs. So, not only do they have to design a better car than Toyota, they have to build it for $2,000 less. No wonder they're having a hard time. He says that allowing them to go into bankruptcy will let them restructure themselves into a far more competitive company than any bailout would allow.

After reading both sides, I think that I have to agree with Mr. Romney. Yes the automakers are changing but they're not changing fast enough to compete. In fact, they aren't allowed to change fast enough to compete. Will it hurt? Yes. It's like heart surgery: it hurts a lot and takes a long time to recover but, when the alternative is a heart attack, most opt for the surgery.

2 comments:

Danika said...

Agreed! While I am not for people losing their jobs, I think bailing them out is a terrible idea. Then every other struggling industry is going to try to get in on the government bailout, pleading the same issues. The auto makers should have to do what all the airlines have had to do - file bankruptcy (or merge) and restructure.

sara said...

I agree wholeheartedly. I think all of these bailouts & bailout discussion are ludicrous. Look how much confidence in the markets the $700B bailout has instilled already.... the dow's under 8000 now. For Pete's sake, let's just let free market capitalism do its thing!