Sunday, November 23, 2008

Big Three Auto Bailout is Wrong Solution

Hardly anyone would disagree that a vibrant domestic auto industry is vital to our future energy independence as well as leadership in fuel-efficient technologies such as electric/hybrid vehicles and batteries.

That said, a taxpayer-funded bailout for the Big Auto is not a practical solution as it will only delay the inevitable demise of the Big Auto. It will not fix their flawed business models, bloated cost structures, inferior products and an out of touch management, which have contributed to the problem at the Big Three. The goal should be to solve the problem and not push out the problem until later.

Both the management at the Big Three and the UAW are disconnected with the existing realities in increasingly globalized automotive markets of 21st century and as such should be allowed to go the way of the dinosaurs. Simply throwing $25b of taxpayer money without any path to viability would not accomplish anything, especially when these people cannot seem to get anything right.

The Big Three management and UAW have displayed an utter lack of vision on how to solve the problems their compaines face. The fact that CEOs of the GM, Ford and Chrysler flew in private corporate jets to Washington to beg for taxpayer money, shows how disconnected they are with any sense of time, place and circumstances.

They need to be forced to make the painful and tough choices they have been unwilling to contemplate to date. Bankruptcy is not such a bad solution as it is made out to be. Only a complete restructuring will allow a modern auto industry to emerge with new vision and business model that can compete in the global automotive marketplace. The restructuring must focus on the following:
  • Fix the cost structure including new labor agreements
  • Bring in new management with fresh vision for a new start
  • Commitment to invest in innovative technologies such as fuel-efficient design and electric car batteries.
Last but not the least, taxpayer paid bailouts set the wrong example and would encourage more bad behavior in the future. How does one make sure that bailouts remain what they are supposed to be: "one time exception".

4 comments:

tzboy said...

Legacy costs due to "bass ackward" union contracts are killing the Big Three. Renegotiate contracts with UAW, and build reliable cars that people actual want (better gas mileage or hybrid), to have any hope of survival in a world dominated by Toyota, Honda, etc.

-rj

CommonSenseThinker said...

Hi RJ,

Thanks for your insightful comment. Could not agree more. The restructuring must focus on sensible labor contracts and focus on future technologies. I wonder why Big Auto was making so many gas guzzlers earlier this decade while sacrificing R&D into future automotive technologies. As if there was a collusion between Big Auto and Big Oil to support each other.

Varun

Anonymous said...

Great points! If the US Government gives the automakers this money without the UAW either disbanding or making sizeable concessions, then the US Taxpayer needs to revolt and kick these congressmen and women out of office. Unions made sense 100 years ago with the exploitation of children, poor and unhealthy work conditions, etc. We now have ample laws to protect the worker. Unions are no longer needed. They are killing American business!

Stacey McClure said...

Here's a good fix. Instead of giving money directly to the car companies, Give about 10k to all of the welfare recipients who use the "I don't have a car" excuse for not working. Stipulate that the check is only payable to a car dealership for the purchase of a new car. Stipulate further that they must keep the car for 7 years and must now find a job and get the heck off welfare! The Government saves by not having to pay the welfare and the auto industry gets money the old fashioned way, they earn it!!!