More Bailouts!

The Automaker Bailout

The economic crisis for the United States continues to suffer as stocks all along Wall Street fall to record lows.  Every part of the economy cannot escape the current problems, even with the recent bailout.  Most recently, the American automaker industry is facing bankruptcy.  The main three car manufacturers, GM, Daimler-Chrysler, and Ford Motor Companies are suffering insurmountable debts as a result of lost business to foreign carmakers and are now calling on the government in an attempt to get their own bailout.  These companies called for approximately 25 billion dollars, yet offered no plans as to how the money would be used.  The impending decision may seem ideal in the short run to keep the industry alive, yet, the long run results could be more disastrous a few years down the road once the money runs out. 

There is no question that American car companies struggle to compete with foreign companies such as Toyota or Honda.  Foreign vehicles are more appealing to American buyers, pure and simple.   Economist, Peter Morici, believes that allowing these three carmakers to go bankrupt will be the best thing for the industry and will offer the least amount damage.  This reasoning, although it may not be very appealing on the surface, makes the most sense, and thus should be strongly considered by the government before any action should be taken.

“There are problems with the way they develop vehicles and position vehicles within the marketplace” (Morici).  Morici’s statement uncovers the underlying problems that automakers face.  American car companies are simply not producing vehicles that people desire.  This problem leads to the skepticism of lawmakers about distributing the bailout because the companies have offered no plan as to how the money will be used.  It is highly unlikely that 25 billion dollars would be suitable to effectively restructure the companies so that they can turn the industry around.  “It’s only within the context of bankruptcy reorganization that we are going to get the radical changes, to the root, that we need in this industry” (Morici).  By hitting rock bottom, these companies will be forced to reconstruct their entire companies based on the new demands of their customers and rebuild from the bottom up.

Union workers, along with the big three are obviously opposed to this idea, given that it would mean a great loss of jobs and an even larger hit to the economy.  Morici is quick to point out, however, that only further subsidizing the industry with bailout will cause the companies to lose more money and jobs down the road.  People will suffer now, but not nearly as bad as they will in a few years when they are forced to file for bankruptcy.

Any choice that is made surrounding this bailout of the auto industry for the United States companies will involve a loss of some kind.  The bankruptcy is inevitable for these companies in the industry, yet the only difference is how long the government chooses to subsidize them with bailout.  If we want to suffer the least amount of damage and focus our attentions on reconstructing the industry to provide vehicles that native consumers will desire, then it is imperative that the companies file for bankruptcy, cut their loses, and focus on the future.

http://www.cnn.com/2008/POLITICS/11/21/obama.bush.economy/index.html#cnnSTCVideo