Road Hogs - the auto bailout

The US car giants - GM, Ford and Chrysler - have won themselves a taxpayer-funded multi-billion dollar bailout to prevent their destruction. $17.4 billion, in fact. This picture should put a smile on your face for Xmas. Or maybe not once you think about it.

Let's look at this logically. Car manufacturers are up merde creek because people aren't buying their cars. Why is this? Well, firstly it's because, as the poster explains, American (and British) cars are rather crap, and the public knows it. In the UK you see French, German and Japanese cars everywhere. Not Fords. The European and Japanese models are better value, more reliable and (frankly) look better. Secondly because times are tough and people want to balance their books and save right now, not splash out on a new motor.

So the US car industry has failed, and has only itself to blame. (The management that is, not the general labour force.) If the bailout goes ahead the message will be that no matter how ossified your business strategy, how incompetent your leadership and how poor your sales, you will never, ever, go to the wall. You are immortal. And when times are tough the government will take money from more efficient, more successful businesses, and ordinary families, and use it to bail you out.

Of course this money can come from only 3 sources: higher taxes, higher borrowing or printing more notes. Any of these options will ultimately cost jobs in other, more efficient, sectors. There's no escaping that, however you try to cut it. So on balance it's probably better to let the industry die. Harsh, indeed. Which is why the US and UK governments probably won't do it.

Now lots of people's jobs are tied up in the car industry. And no-one wants to lose their job, so I feel a lot of sympathy for those whose livelihoods are at risk. It's not their fault. But it is the fault of the management. Why didn't they adapt and produce cars the public want? They could have saved themselves. But then of course they are a powerful lobby. So if the US and UK governments are going to bail out the car industry, they should insist on big changes. Fire the management. Demand changes to contracts with unions and suppliers and take preferred shares to at least have a chance of re-couping some of the money. Whenever there is a bailout, governments have to make it plan that there's no such thing as a free lunch.