Don’t junk the U.S. auto industry

November 19, 2008

eugene-ludwigMr. Ludwig, a former U.S. Comptroller of the Currency, is founder and CEO of  consulting firm Promontory Financial Group. Any opinions are his own; GMAC Financial Services is one of Promontory’s clients.

The economic upheaval wreaking havoc on the global financial system is threatening to claim another victim: the domestic automobile industry and its financing arms.

General Motors Corp. could run out of cash by January without help. Ford Motor Co. and Chrysler LLC also need fast government intervention to stay solvent. Automakers and the UAW are making their case to Congress this week for emergency help. But even the supporters of a $25 billion aid package for the auto industry are dubious about whether they have the votes to pass it.

This raises the question, why not just let them go bankrupt?  The domestic auto industry is everyone’s favorite whipping boy, and its problems have been growing for decades. Some are of its own making; many are circumstantial. But we cannot blithely accept its failure as somehow inevitable or deserved.

Our economy has been badly battered in recent months, and has become increasingly fragile. The erosion of our industrial base already presents real security risks to our nation. Why would we accelerate this sorry state of affairs at a time of national crisis by sitting on our hands and letting a signature American industry collapse?

The American auto industry is well worth saving, for many reasons.  One reason is that for the past decade Detroit has made heavy investment and steady progress in improving its competitiveness, what it calls “altering the DNA” of American cars.  US automakers spend $22 billion annually on plants, equipment, research and development. Breakthroughs are at hand in developing alternative fuel propulsion systems, and our national well-being and security depend upon seeing them through to completion.

If we allow U.S. automakers to go under out of anger, resignation, or ideology, it will only mean all the work and investment of the last decade will be ceded to our foreign competitors instead of being plowed back into the U.S. economy.

Another reason is the industry’s importance to the job market and the wider economy.  Automobile manufacturing directly employs a quarter of a million workers and indirectly about one in ten U.S. jobs are related to some degree to the automotive sector, according to GM estimates.  So the effects of a collapsed U.S. auto sector would not be limited to Detroit – they would be magnified as the ripples spread to related industries.

If we allow U.S. automakers to fail, millions of retirees depending on auto company pensions will be at risk and auto manufacturing jobs will disappear. The ripple effect won’t end there; millions of jobs in related sectors, such as  U.S. manufacturers of steel, aluminum, iron, copper, plastics, rubber, electronics, and computer chips, will also feel the pain.

Worse yet, the promise of a meaningful future for American manufacturing would fade. As that promise dims, the role played by manufacturing jobs as a passport to the middle class would likewise disappear.

The auto manufacturers did not cause this crisis; they were working hard to reinvent the quintessential American invention when high oil prices and economic upheaval hit, dragging them into the vortex. There is a tendency to think that an example must be made, that someone must be allowed to fail.  But do we really need to cut out of the heart of the real economy? When the patient is in the middle of a full blown coronary, it’s no time to discuss lifestyle changes.

We can and should revisit subjects like executive pay scales and expense controls when the industry isn’t at death’s door.  For now, we should recognize the gravity of the moment, and use the TARP funds and pass necessary auto-related financial stabilization legislation to avoid digging a bigger hole for the national economy.

83 comments

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Seems to me that the US auto industry has been actively resisting building cars people want to buy since the 1970s (coincidentally, when I entered the auto market). And at this point, all their experience and expertise is about conducting downsizing operations, since that’s all they’ve done this generation.

What’s to save?

With united auto workers at $76.00per hr. i think it time for them to take pay cut and aline more with rest work force.

People seem to think that bankruptcy is the end. It’s not. The airlines have proven this several times.

Chapter 11 will allow the auto makers to restructure their costs. Hopefully that restructuring would go from the factroy floor to the board room. In fact the feds should use the $25B loan as leverage to make a few changes.

There is no point putting Americans further in debt to finance the foolishness of high paid execs. It’s time to pay the piper.

Posted by Eric | Report as abusive

I agree with your article. I also strongly agree to your point of executive pat scale adjustments but also include their BONUSES, which by the way are out of line. The contracts these execs write and the Boards of Dir, approve, should be approved by Stockholders, not BoD’s, and this goes for ALL other companies that have created this situation.
Now, Let’s also put blame on the UAW and other unions that have raped the companies, stcokholders, and perspective consumer’s of the auto industry. I would have no problem going along with a LOAN, but ONLY if the UAW steps up to the plate and admit they have caused the auto industry great pain. They’ve not given up anything, and feel they are entitled to every penny their contract gives them. I disagree as I’ve seen work ethics of union personnel cause waste and greed. These folks need to pay for more medical costs, pay more towards their healthcare insurance premiums and scripts, a reduction in pay is warranted, and a reward payment at year end for showing up at work with out taking time off is totally absurd. No one ever paid me extra for showning up for work and putting extended hours when necessary. It appears the only way they will understand the problem is if the companies fail, and they are left without a job at all.
Unions are very helpful and can protect, but more times than not, they proctect in the wrong direction. You do your job, or lose it. Unions have made many people lazy.
By the way, I’m a retired Salary Autoworker, and witnessed many UAW members in action, so I am not fantasizing about anything I’ve noted here. I do not want to lose my pension, by almost every benefit I’ve ever earned and enjoyed, have been removed over the past dozen or so years.

Posted by Jim S | Report as abusive

Thank you for your comprehensive remarks, people need to understand all the relationships that our automotive and manufacturing. Perhaps had we solved the healthcare issue long ago, this situation would have been different.

I will try to feature some of your points on our blog.

P-L-E-A-S-E !

When you loan someone money its usually secured by something. In this case what? The future sales and profits of the big three! ha ! If they are “too big to fail” what’s to stop them from doing this again and “extorting ” more money. Showing up to beg for money from you and me in private jets (google abc news 11/19/20080) and telling of the cost cuts. If the government bails them out, then my 1040 will become the biggest lie in history next year.
Are you listening Congress ?

Posted by No Way Jose | Report as abusive

“People seem to think that bankruptcy is the end. It’s not. The airlines have proven this several times. Chapter 11 will allow the auto makers to restructure their costs. Hopefully that restructuring would go from the factroy floor to the board room. In fact the feds should use the $25B loan as leverage to make a few changes. There is no point putting Americans further in debt to finance the foolishness of high paid execs. It’s time to pay the piper.
-Posted by Eric”

Excuse me, Mr. Eric… the automakers ARE NOT like the airlines AT ALL. Airlines provide a service. Automakers, on the other hand, PRODUCE REAL GOODS (not services) and have a supply chain in which parts move from smaller suppliers to larger suppliers and finally to the automakers themselves. Supply chains depend on a steady flow of raw materials, manufactured parts, lead time for planning and a relatively stable customer base.

If an airline goes bankrupt, it restructures, catches its breath and starts again. Airline passengers can take a bus, train or car to get to their destination in the meantime.

If an automaker goes bankrupt, the supply chain falls like dominoes and the supplier companies go bankrupt left and right. By the time the bankruptcy process is over, there are NO MORE SUPPLIERS left in the supply chain because automotive suppliers live on slim margins and have done so for years now, and can’t survive shutting down.

By the way, who would want to buy a car from GM, Ford or Chrysler once they declare bankruptcy? Who would trust investing $20 or $30 thousand dollars in a Big Three car after bankruptcy? Who would take the chance that the Big Three would go on and survive, even IF they somehow found new suppliers following a bankruptcy?

Posted by Tim | Report as abusive

I prefer to give directly money to all the workers including suppliers than giving money to the three companies. Even If you pay 25 billion to these three wont
guarantee job is still exicited. They continue to cut
the workers transplant to other countries. My and other
people tax money is not for tansplant or pay for Excecutives. They have to cut the salaries and other perks for those executives and fire those in the board of directiors and appoint new people.

Posted by santhosh Mathews | Report as abusive

$76 dollars an hour!!! To strap a bumper on a car?

Think about this, my fellow Americans: Experienced Nurses
make about $25 dollars a hour, and they are the on the front
lines when it comes to saving your life.

Now, do you think that the high school drop out who puts
4 bolts on a bumper of a car that will fall apart before you
finish paying for it should earn 3 times what a nurse does?
Should they make 4 times more than Police Officers? How
about 4 times more than what Teachers make? Firefighters?

I think we can now all agree that the UAW and the Big 3 are
their own worst enemies.

Posted by Keith | Report as abusive

This is an industry that has staunchly resisted both consumer wishes / needs and government attempts to make them change their ways. To say that American auto manufacturers did not cause this crisis is like saying that investment banks had nothing to do with the current financial crisis.

Consumers want well styled cars that are more fuel efficient and reliable. Detroit gave us gas guzzling monsters; Strike One.

Consumers need car companies that invest in zero-emissions technology – electric cars – to reduce the industry’s reliance on carbon fuel. Detroit has killed off several promising electric car technologies, that may have provided sustainable jobs for thousands of North American workers in the future. Strike Two.

Detroit has long allowed the CAW union to manipulate the costs of assembly and parts manufacturing to the point where American cars are unprofitable. There is a good reason why Toyota and Honda factories are non-union: they partner with their employees for mutual benefit. You’re Out!

Posted by Wendell Y., Toronto, ON | Report as abusive

Please, with the airline industry example. Two went into bankruptcy court, emerged, and were promptly allowed to merge (Northwest and Delta.) There has been no demonstrated increase in their profitability or efficiency. Also, if you have flown an airline lately, you must have noticed that you are paying through the nose for everything from pillows to a can of soda. Or, you are being left behind when your flight is cancelled for no reason, or left on the tarmac for hours. This is your idea of an example that the auto industry should follow? Give me a break.

Posted by Curtis | Report as abusive

Eric is totally right, and what is the point of giving them 25 billion tax dollars when they will probably just go bankrupt later anyway? Workers and retirees will still lose their jobs and pensions, just not until after the executives run off with our money

The infuriating thing about this to me is that American car companies have the resources and technology to make good cars that people want to buy, they just don’t feel like it. They do not want to make the necessary changes to become competitive and profitable, and giving them a bailout won’t give them any incentive to do so.

Posted by Tina | Report as abusive

I wonder when people will start talking about “synergy”. To me, it is the only way out – not only for the carmakers but also to all other industries.

I suggest to unite all three big boys and furnish a common plan. This will help expenses to be reduced tremendously and create a great deal of synergy not only in cutting expenses but also in engineering as well as restructuring the whole organization and plants.

Posted by Yaman Yalcin | Report as abusive

I am a consumer who believes it is important to have an American car industry in this country. Critics call helping the American Auto Industry a bailout. I strongly believe this is an investment to rebuild our nation’s economic engine. If we do nothing, the future is clear. We will see even more economic upheaval, communities will lose businesses and revenue, and thousands of jobs will disappear. Give the car companies a chance to make a turnaround. If it wasn’t for the credit crunch, these companies would be on the road to succeed. If Congress does not act, it will be the shortest and fastest road from recession to depression. Our economy is suffering enough. Please help prevent further job losses and devastation to our communities. Allow the car companies to make the electric vehicles so we can stop depending on foreign oil. We cannot afford to lose this cornerstone of our economy. We should not depend on other nations for our manufacturing capabilities or new technologies. And we do not want to contribute to an even deeper collapse that will leave too many people facing further economic uncertainty.

Posted by Mary Maiorana | Report as abusive

Saving the auto industry is not about saving the american auto manufacturing coorporations, it’s about saving the livelyhood of the millions of American’s who are dependent on this industry. Why was it appropriate to save wall street after they made 30-40x their assets in bad investments but when the auto industry is in trouble, the “slick-dressed,” “all of one, and none for all,” “free-market will fix all” mentallity wins out? The auto industry has known for a decade that they are in trouble which is why they were taking such major strides to buy out contracts and downsize. They took a proactive approach to solving their problem but were blindsided by the banking industries unimaginable stupidity. So again, why should we allow an industry who is trying to improve fail, while bailing out another?

Posted by Dis-enchanted | Report as abusive

Define “breakthrough in alernative fuel”
are you talking about Gm’s hydrogen fuel cell cars, estimated to be in production around 2012? BECAUSE Honda has one entering Pilot Markets in 2009. Are you talking about Hybrid technology? Because Honda realized that in the 90′s. Are you talking about E85? Because Detroit tried that in the 70′s and it watched it fail?

Posted by John | Report as abusive

A restructuring of the industry seems the only route to take, given our world-wide inter-dependence upon each other’s economies. Our imports and our exports are vital in restoring strength to our economy. The Big 3, like e’m or hate ‘em, are major players in our export markets. A sensible approach would seem to be the extension of loans to the companies that came with conditions that limited Top-Executive pay, benefits, and bonuses, that reduced the influence of the unions, and that brought auto worker wages in line with jobs held in other sectors by persons of similar education and experience levels. The Big 3 seem very quickly to becoming the Big 2, and these in turn may become the Big 1. With frozen or trickling credit to consumers, a large boom in car sales in the immediate future does not seem likely, and so profits within these companies seem slim. If we are to save them, then they need to either merge, streamline, or restructure, or some combination of the three. In a free-market setting, this is what is expected of companies that find themselves in trouble. Either sell out to the highest bidder and liquidate, get together with someone to strengthen your base, or rethink your game and start over. Chapter 11 has it’s benefits, but also would doom those sectors that rely on the auto-industry for their survival. Where does the bail-out stop? As one industry goes, they all go. Where the US economy goes, so too the economies of China, India, Japan, Norway, the Middle East, as well as Brazil and Venezuela, to name a few. We need to save as much as we can, and in the process, restructure for future strength. Reducing dependence on foreign oil will be only marginally impacted by the conversion of gasoline burning engines to alternatives. The larger picture dictates that not only our economy, but all economies find a replacement for ‘petrodollars’ and the instable credit that has been propped up by them. This is a hard road to walk for emerging economies such as Hungary, as one example. As the oil producing regions, like Norway, Saudi-Arabia, Russia, for examples, feel the credit and economic crisis, their dollars are being brought home, and further weakness are felt around the world. We can only bail out so many, for so long. Let’s get it right when we do it.

Posted by Ursula Stanton | Report as abusive

The only way you do this deal is to attach strings to
this corporate welfare request. Absolutely no bonuses
or dividends will be paid until the bailout money is
repaid in full by these so-called corporations. Next,
all of them have to meet much higher mpg benchmarks than
the pathetic number our great government has required of
them in the past. Not the estimated mpg but actual mpg!
Third, all employees, hourly or salaried; union or non-
union, will face a minimum 10 % cut in pay. Fourth, all
auto industry employees will pay 10% of their medical insurance premiums. Fifth, all retirees, also face a 10%
reduction in pension payments and medical coverage. Last
of all, no raises shall be given until these companies have repaid all of the “taxpapers” bailout money. You want to stay in business, here our the terms. You don’t
like this deal, see ya!!!

Posted by Mack Targoyne | Report as abusive

The basic purpose is transportation in optimum manner. If the competition is in the area of individual transportation and the buyers are individuals, concentrating on products for mass transportation where buyers are not individual should solve the problem.

The auto dealers did not have a difficult time telling lies about their vehicles and using tricks to sell cars. How can anyone become concerned with their well being considering.

There are lots of car manufacturers, choose a honda or other type.

Their lavish lifestyles are rediculous, in my opinion.

Posted by stan | Report as abusive

I didn’t realize how much the workers were being paid. They could probably be cut back to a still-lavish wage and raise $25 billion in a very short time.

What do you get when you cross organized crime with welfare? Did you know that GM workers can fund Ford workers on strike, but if GM supported Ford during a strike it would be a federal crime?

Do you know how to play chicken? You just have to prefer death to defeat. It worked with Reagan and the Soviets. I’m tired of life with the UAW.

Posted by Kurve Ball | Report as abusive

We keep hearing the proposed sacrifices by the auto-makers: executive pay. This is a diversionary joke advanced by the proponents of the $25b loan (on top of the $25b loan approved for “retooling” — don’t make me lough). Obviously the legislators take the tax payers for fools. Dealing with executive pay is irrelevant, if not inappropriate, and will not make a dent in the inefficiencies plaguing the BIG-3. Instead, here are some of their real problems.
1. UAW. It is the legacy costs — stupid — that is at the core of what is ailing the BIG-3! a. no layoffs regardless of workload through “10-30% job bank” (while the BIG-3′s salaried & non-union workers are axed in the thousands); b. Health coverage with minimal copay for ins. premium, doctor visit or medications (for perspective my registered-nurse wife’s copay are $735/mo ins., $50 doctor visit & $20 for generic medication); c. Defined benefits for UAW workers & spouse with health coverage & pension (while the rest of us sweat with 401k with no company contribution).
2. Too many brands and models, approx. 100 for GM (70 too many) versus 30 for Toyota which sells more cars).
3. BIG-3 lose money on cars selling under $20,000. These cars cost more to produce than their Japanese equivalents, but can entice customers only when sold at 20% less than their Japanese equivalents.
4. Too many dealerships (60% more than required) that BIG-3 are prevented from terminating due to legacy structure.
5. And the list goes on and on…
Conclusion: Chapter 11 Bankruptcy is the only mechanism that can save the BIG-3.

Its true that Chapter 11 is not the end, but the only ones that make out in those deals are the executives. The workers, who have put in years of dedicated service, will lose basically everything while the executives will be rewarded for their “good job” saving the company. People complain that UAW members can make what is equal $70 per hr (when you factor in benefits), but I don’t hear anyone complaining about government employees who average $104 per hr. Government intervention started this, they can fix it. The rest is just fashion and opinion.

Posted by Jerry | Report as abusive

I have worked as Ford management. I have worked as Honda management. The Big 3 deserve NOTHING. The pivotal question taxpayers should be asking is: “How can Canadian & American executive and workers at foreign manufacturer plants in North America make the best cars in the world but the Big 3 can’t?”. The reason is simple, no amount of money will change the ignorant, lazy attitudes and sense of entitlement pervasive at the Big 3 from the President to union worker to mail room clerk. They DESERVE to go bankrupt, and starting with the Boards of Directors should be sued by the shareholders for breach of fiduciary care to the companies.

Posted by turismo | Report as abusive

‘The auto manufacturers did not cause this crisis’ – I agree! However ‘they were working hard to reinvent…’ is a bunch of bologney. Invent what? Hummers, Escalades, Yukons…. Invent what? Gas Gulpers – what a new concept. Detroit is a facility that has reached its point of being obsolete and useless, good bye dirty city. And the UAW as well, what purpose do they serve any more other than to line the pockets of the Union itself?

Posted by J Obie | Report as abusive

I am not sure whether a bail-out should be allowed. But I am pretty sure that in these conditions we cannot let the big Two – Ford and GM go down. The comparision with airlines industry re-surgency is non-sense. When I go to buy a air-ticket I only will look into which airline gives me ticket at lowest cost. I am not going to check whetehr how they fared in the past. I buy a ticket of airline means I am using it for one flight not every day. But buying a car is different. I will definitely look into the credibility of the producer. Why should I buy a car from a previously bankrupt company as I need service of it atleast every year and I also have to look into re-sale value of it. I am from India, here Daewoo released a car called Matiz. But then they stopped production and all the consumers were in deep trouble. So the underlining fact is that I will not buy a car from a guy who has previously gone bankrupt, why should i(especially when so many other options are there)?

But giving the money with no strings attached would be another mistake. I see this as an oppurtunity for the Obama administration to force them to do what he promised (bringing eco-friendly car).

I say don’t bail them out. This is what they get for building lousy products for decades. They also don’t even build a lot of their models in the US, but the foreign automakers sure make a lot of their models here in the US. I also think the Big 3 have way too many models to chose from. They seem to hardly ever come out with something good, and build from it in future generations. Look at Honda, they’ve been building Accords and Civics for over twenty years continuing to make them relavent to current times. You can look at BMW too, same thing. They’ve been making the same models forever and updating them so they stay desireable. Granted, BMW and Honda do have new models, but they keep sticking to what works. GM should see that this method works. They’ve been getting great success with the Corvette for over 40 years, Ford has their Mustang. I say find a few models that people like, stick with them, and make them better. Instead, the come out with something like the Aztek.
I also find the construction of the foreign brands to be superior, especially when looking comperative models accross different brands. My rental car experiences recently also seem to prove this point. Bottom line is these companies have been doing wrong for too long, and they made this bed for themselves.

Posted by Morgan | Report as abusive

Funny, the government didn’t bail out U.S. train manufacturers when they began to go out of business.

America long ago allowed the “Big 3″ to actively take steps to replace one of the worlds finest rail transportation systems in the world with miles of asphalt and SUVs. If any loans are extended to auto manufacterers, then equal amounts should go to railways and locomotive manufacturers as well.

Who’s next – shall we start throwing money at airlines too? They are experienced at Chapter 11 operations, maybe it would just be easier to replace Detroit’s executives with the executives from Southwest Airlines.

Posted by Michael | Report as abusive

To aid the Big 3 or not.

Sometimes an alternative, while not a good thing, is the best of two evils.

The late Maurice Chevalier once said;

” While growing old is sometimes depressing, the alternative is much worse “.

” While aid to the Big 3 auto companies may not be too popular, the alternative is much worse “.

Some, many, have predicted that if the big three were to collapse, five million direct and at least another ten million supplier jobs, in the US and Canada, would disappear overnight. As well, another million and a half retirees would suddenly be left with no pension income and no health plans.

22 % of the total North American GNP would be instantly gone!

We could then be very close to an out and out depression!

I respectfully suggest there is a way to help these companies to immediately sell hundreds of thousands more new and used vehicles, AND NOT ONE PENNY OF OUR public monies would be injected directly into GM, Ford & Chrysler to pay pensions and health plans for retirees and multi million dollar severance packages for executives.

This is how I would suggest this be accomplished;

The US and Canadian governments grant anyone – individuals and company fleet vehicles alike – a $5,000 tax credit for each new and up to 3 year old used vehicle that they purchase.

This tax credit would be a direct deal between the governments and the buyers and the buyers could still cut other deals with the auto dealers like “ thousands off “ and “zero percentage financing”.

NO PUBLIC MONEY GOES DIRECTLY TO THE AUTO COMPANIES!

This initiative would result in the immediate sale of hundreds of thousands of vehicles – which, after all, is the main objective.

AND other positive spin-offs – hundreds of thousands of less “green” and some unsafe vehicles would be taken off the roads immediately thus adding to a cleaner environment and a little less dependency on foreign oil.

To those in the auto industry who may complain of Government subsidies and protectionism – while you have a point, drastic times call for drastic action.

Respectfully submitted.

Posted by T. W. (Ted) Gardner | Report as abusive

Well if and when Detroit wants to make serious changes, we’ll see all parties sitting at the bargaining tables again trying to work things out. It’ll take consessions from retirees, from current workers, from management, and from suppliers. Everyone that’s tied to the industry needs to pony up and sacrifice to make it survive. They need to change the way they conduct business. I don’t see any of that happening right now. They all have just run to Washington with their hands out to keep the status quo citing they need until 2010 before bargained changes will take effect. Well I say the heck with that. If it’s such and emergency, then they’d be trying to hammer things out right now. You can’t keep on going in the same direction and expect to get to somewhere else.

Posted by Roundup_Logan | Report as abusive

Why would you bail them out?
Let them amalgamate and start to use their heads first before pissing your tax dollars against the wall. They didn’t catch on when the likes of Toyota moved in and started building small cars and took your market. They keep building gas guzzlers. Do they not understand the majority of people don’t want these types of cars. that’s why they can’t make a buck. They don’t listen to their customer. Complete arrogance. It’s what the US is famous for across the Globe, and you probably don’t even know that. It’s a shame, once a great creative people respected by the entire world can’t see past their own nose. Like we have said before(I shouldn’t have to repeat this , but here goes), “BUILD THE PLUG-IN ELECTRIC VEHICLE, THAT IS WHAT THE PEOPLE WANT!!!!!!” DID YOU GET THAT OR SHOULD I SAY IT AGAIN.
DO IT NOW OR SOMEONE ELSE WILL.

Posted by Brad | Report as abusive

US Auto makers will fail until they can match the quality of Japanese brands. Take a look at Consumer Reports’ annual auto issue.

Why would anyone buy a car that has to be fixed three years into it’s life? This is not necessarily a manufacturing issue but also a design issue.

Yes, the US auto industry is important, but they must change or 15 years later, we’ll be having the same conversation.

Posted by Alex from Chan | Report as abusive

Jobless claims have hit a 16 year high, the market is below 8,000, and the economic news is overall deplorable. OK, so let’s add to the psychology of panic, and let a minimum of 250,000 more lose their jobs by throwing the automobile industry to the wolves of bankruptcy. These fellow Americans will stop buying and the economy will further contract, they will be on unemployment benefits which you will pay for, many will feed their families with foodstamps which you will pay for, crime will skyrocket which you will be a victim of, and families will be torn to sunder for which you will also pay the social cost. Is this really preferable to a bridge loan? It is not rocket science to see that this will be the straw that breaks the camel’s back and a downword economic spiral will turn to the whirlwind of a Depression. Please be careful what you wish for!

Posted by John | Report as abusive

Finally true, accurate and unbiased article. Majority of our society, at least it seems that way, truly does not understand the ramifications of chapter 11 for manufacturing sector with such a broad national span as the automotive industry. There is a tremendous difference between service industry without any product and long term commitments to its customers and the car industry which needs to provide warranties and services. I am tired to hear the bail-out word!! Let’s call it by its true name line of credit. I am also tired of our senators and congressman double standards and hypocrisy. It is thanks to their legislations we are in this financial crisis today. It is due to their policies that allowed converting bad loans to securities and allowing those to be insured. I have not seen any action on the part of our government or Congress to keep these financial wizards accountable for their actions. On the subject of accountability, perhaps our Congress should take a pay reduction to $1 until they manage to balance the budget!!!
The UAW workers are not paid, as many are made to believe, $76 an hour. This the burden cost to the company which includes benefits. The true earnings are in $25-35 range, which is in line with other car manufactures, another untrue misconception!!!
The economics 101, tells you that a country the size of the USA cannot and will not survive on the service industry alone. The manufacturing industry has for years provided wealth to this country. They invested into R&D, helped create and maintain small businesses, which are so vital to the overall economy. I am American by choice not by birth, and I am very proud of it. I lived in many countries all over the world and what amazes me the most is the fact the great number of born Americans take this country for granted and do not support their local communities and businesses. It is unthinkable to see top government officials or top CEO’s in countries like Japan, Germany and France driving any other vehicle than the one’s manufactured by their respective domestic automakers. The local media in these countries does not take any possible chance to pick on the local industry but to the contrary they support their national industry in an unbiased way. In closing, let’s focus on what is essential to the good health of the American industry and their people and stop proliferating the same misguided perceptions.

Posted by Peter Swiecicki | Report as abusive

It seems to me that the SUV is a great choice of car. You can carry the soccer team and look cool. That’s why they sold so well. The only reason why they stopped selling is because of $4/gallon gas.

Now that the recession has hit, gas is $2/gallon. SUVs should be selling like hot cakes. It seems to me that small electric cars are not the way to go. People aren’t buying ANYTHING now because they don’t have money. It doesn’t matter what GM puts out. Look at the port of Long Beach. Thousands of unsold, fuel efficient foreign cars are clogging the port. So please, quiet with your, “GM mismanaged and didn’t listen to the consumer.”

Posted by Mike | Report as abusive

The auto makers should file for bankruptcy and restart a non-uinion shop.

Remember Henry,
You know, Henry Ford. Who’s going to be the next Henry Ford of this new age. If you’re American and you don’t know who I’m talking about you better Google him. He created your auto industry from nil. Remember when the combustable engine was the latest thing, well Henry grabbed that idea and ran with it. The combustable engine is now the ‘Horse & Cart’, get my drift, it’s finished. The Plug-in Electric is the future, don’t deny it. Did the Government throw your tax dollar at the makers of the old Horse driven cart. Of course they didn’t, they were progressive, forward thinkers.
You all go on about getting rid of foriegn oil so it doesn’t dominate your lives. You whinge about pollution (Why do you think there’s so much cancer in the world? You know with the amount of combustable engines blowing toxins into the atmosphere(air) you are all heavy passive smokers). You whinge & whine and talk, talk, talk. Is that all you are good at. You all go to University, where are all your Engineers?
Get of your bums and do something, because the guy next to you isn’t going to save you.

Posted by Brad | Report as abusive

The auto makers along with the UAW dug their own grave years ago. Let them lie in it. The wage/benefit packages are unbelievable and, most certainly, unsustainable. Frankly, I am very tired of “too big to fail”. The industry needs to be restructured. And I know this will mean large job losses. This industry needs to join the real world and it will not be pleasant. Millions of the rest of us know about job loss as through the years we worked for companies that weren’t “too big to fail”. To save the industry is a lost cause. It has to downsize and in a dramatic way. Sooner is much better than later. The American economy has gotten incredibly bloated and now the air is leaking from a thousand holes. All we’re doing now is trying to stop the thousands of leaks with trillions of dollars. Let it leak so we can get back to a reality based economy.

Posted by Zeke | Report as abusive

I say let them sink!

Posted by Infowars | Report as abusive

Nonsense,

Give the auto industry billions now, and they’re just back later asking for more.
Repeat until we have no money to do anything at all.

Or we could put the money into transition benefits: unemployment, retraining, funding pensions if needed. In other words, to citizens as opposed to companies.

And maybe actually help someone.

Posted by John Bannick | Report as abusive

I think you should ‘Junk’ the industry,
Let the old school companies go to the Chinese or the Japanese. At least they know how to run a Manufacturing company. I think the US has become a little too Maternal. Too many mommy’s boys in charge now, forgotten your heritage.
It looks like the countries that you call 3rd world have turned the tables. Everyone might have to line up on the Chinese job que soon. How embarrassing, a World Power? To who?
If you still think that the SUV is agreat car you have major problems. Good Luck.

Posted by Brad | Report as abusive

Amen and thank you. This is a real, honest look @ the current state of affairs for not only the for the auto industry but the entire world economy. This is the biggest issue to hit since the great depression. People who believe this is a minimal issue do not comprehend the long-reaching affects of such a demise. The ENTIRE world economy relies on this industry. To assume otherwise is naive at best. Congress is the last place to look for a line of credit. Additionally, if one thinks this only affects the Detroit 3, think again. Look at Toyota idling plants as well as the retail industry looking at bleak holiday results. This is a matter of life and death for the world economy. Besides, $25 billion is only 3% of the amount given to the banking industry – without a blink of an eye. Nobody in the world should be against this loan/credit.

Posted by Frank Turner | Report as abusive

Bankruptcy for the airlines: let me think about those worthy entrants in the famed hall of bankruptcy. Braniff, TWA,Peoples Express,Northwest are entrants into that dark night. But I think I have seen some of their planes sitting on the tarmac in Arizona just the other day. I believe that tarmac is called the Resthome for Jets. So, I guess you’re right, there is life after bankruptcy.

Posted by Broadview | Report as abusive

No matter how much money had been invested, no matter what it had cost, no matter how many jobs depended upon it, on 15 April 1912 attempting to bail out the RMS Titanic would not have been a wise investment of time or money.

Posted by bill | Report as abusive

I agree with the comment about them filing Bankruptcy. Why should we the American people continue to help these people get richer. More and more business’ are doing away with Pensions, and retirement packages. It seems that if we cut the top dawgs pay, and event he employees for that matter. Imagine if every business were part of a union, the price of everything we have to have to survive would be triple the price of what it is currently. They do not need to be making what they do. Let them pay part of their own medical expenses just like every other red blooded American.

Posted by Sue | Report as abusive

If the auto industry is having a coronary, I, as a taxpayer should not be looked upon as Medicare. This IS the time for our government to impose restrictions on the use of our money. Will this $25B lead to more? GM runs 6 domestic auto companies and 6 foreign. It has partnerships with many more domestic and foreign auto companies. Is it unfair of the US to ask GM to SELL some of its foreign assets to make up part, if not all of the $25B + it and other US auto makers are asking for? When a poverty-stricken american asks for government assistance, and they had $181B in income and $55B in assets, would they get even a penny?
By the way, Toyota has 3 product lines and is the #1 car company in the world.

Posted by Tom | Report as abusive

I think we should let the auto industry fail. The author says breakthroughs are at hand with alternative fuel propulsion, but provides no evidence and no time line of ‘what at hand means’.

Secondly let the free market function. If these three companies die or come out of bankruptcy leaner and meaner, perhaps that is a better solution. Other smaller car companies might prop up given the chance and in time people will be re-employed.

I don’t believe the tax payer should help the auto companies survive. Let them do that on their own. Otherwise they will simply repeat their errors and expect another rescue in the future.

Posted by Paul | Report as abusive

It already has failed. The “economy” just pushed the failure to now instead of next year or the year after that. The only reason this has a chance of being proped up is to guarantee the Union Labor Vote. There is no other reason why you cannot be “allowed” to fail, reorganize, clean house and actualy build something that people want to buy, at a price they are willing to pay. In the old days, only the winner got to go home with the tropy, now they give them to the winer’s.

Posted by NAK | Report as abusive

Tariff all imported vehicles.

Use the monies to maintain domestic auto solvency.

Tariffs are constitutional, (not)”Free” trade agreements are not.

And govt does not take ownership in private business.

Lastly, the American consumer does NOT always deserve the lowest possible price regardless of job loss, toxic assembly, defective design, child labour, & environmental damage.

Politicans need to find the the guts to say that to the public.

Posted by OhioOrrin | Report as abusive

While I do not like bailouts, auto company bankrupcies at this time would likely be devastating to the American economy.

Those who urge bankrupcy may have conflicts of interest: The Republican party wants to kill the unions. Many hedge funds likely own credit default swaps, which will pay off if the auto companies go under. Many of those contracts will likely be paid by AIG, out of taxpayer dollars. The taxpayer would also foot the bill for failed pensions and unemployment insurance.

Congress should make the funds available to save our auto industry, with strings attached to modernize the companies.

Posted by Linda G. | Report as abusive

Please do *not* provide loans or other federal funds to GM, Chrysler, and Ford.
None of the reasons cited in the press make sense.

If GM goes down, the demand (for cars & parts) shifts to Ford and Chrysler–it won’t go away. If the demand for cars isn’t there, you help no one by splitting demand across 3 car co’s.

If the bailout is supposed to cause GM to make more fuel efficient and low pollution vehicles:
Why support the weakest most insincere car company in the lot? The Volt is all promotion and no reality. Remember that this is the company that killed the electric car…etc.

If you’re just trying to help the GM employees:
Why them instead of WaMoo-lians or Circuit City folk? Makes no sense to play favorites.

If you’re trying to help auto industry in general:
Why help one player (GM) at the expense of all the *US* employees and parts makers for Honda, Toyota, etc?

If you simply want to stimulate the economy:
Invest the same $ in new national assets with *lasting* value–NOT more cars. What’s better for America: more new cars or asbestos-free schools, fire-safe nursing home, clean/fast transit, hospitals without staph-infections, better-insulated homes? Isn’t this a no-brainer?

So *don’t* help GM. As Barack says, this is a time for *transformational* change. Bailing out Detroit is more of the same. Don’t do it. Please.

Posted by John Schlosser | Report as abusive

I drive a Ford truck. I love my vehicle. I am Canadian. Canada has a lot of oil. We stand to benefit from oil shortages. But the free market is something beautiful and worth defending. So is our air and water. If we let the market do its thing, allowing risk to be rewarded and letting dinosaurs become extinct, we would all be better off. We would have wind turbines – and probably natural gas micoturbines powering homes with heat and electricity. We would have natural gas vehicles – and of course cars with electric motors powered by fuel cells.

When I bought my car – after not driving for years – I told myself that my Ranger would be the last gasoline vehicle I would ever buy. I am looking forward to huge economic growth as we build different types of factories to penetrate new markets. I want the rulers of the glorified gasoline stations in the Middle East out of our lives permanently and completely. I want the free market to decide how the chips fall. For sure I really don’t want folks taking my cash to pay others with much higher salaries. That’s like rubbing salt in the wound.

Posted by Don | Report as abusive

We are not junking the auto industry, they are doing it to themselves. The executives are arrogant and undeserving of help. Until they are forced to liquidate their excess assets, they will continue to burn money. It will be throwing our money away. Chapter 11 would send a very necessary message.

Posted by Laura | Report as abusive

1. I do not like the use of the phrase “bail out” in this context that the media likes to use it. When we talk about “main street”, applying the label “bail out” or “hand out” is appropriate. When we talk about “wall street” or the business community, the label “investment” is more appropriate.

2. No investor will invest without a business plan that seems to have a reasonable chance of returning the investment with interest. This should be true of current government activities as well, although the return may not satisfy a Venture Capitalist.

3. The Auto Industry needs capital, which can only come from the Government or the Oil companies (what about them, by the way?). The money should be made available by the government if they have a viable business plan for the future. If there is not a viable business plan, then we would be just throwing good money after bad. In addition, strings should be attached to focus these companies on the national interest as well.

If these criteria are not met, let them go into bankruptcy protection.

4. By the way, very few people will make a major investment, such as a car, in a product from a company in bankruptcy protection. Too many concerns about service and support for such a large investment. Any auto company that seeks bankruptcy protection will completely fail without a doubt. Bankruptcy protection just is not an alternative option for an auto company. It is not a service company, unlike an airline.

5. Another by the way – someone wrote here that we let our locomotive industry die, so why not autos. Well, this is not the late 40s or early 50s when we had 50% of the world’s GNP and no economic competitors. This is the 21st century where through our enlightened global leadership there are hundreds of millions of people world wide realizing the American dream and providing real competition that just did not exist 50 odd years ago. We could afford to be Laissez-Faire about our economy then and let the locomotives die, along with fountain pens, etc.

Posted by Jack | Report as abusive

The main cost differential of the US auto industry is the impact of staff benefits. No union has(can ?) agree to any serious salary reductions, so in many ways allowing GM to enter into Chapter 11 is the “quick fix” that the industry needs to regain some competitive position…

Just adding money to the industry without fixing up the inherent weaknesses is throwing good money after bad…

Posted by michaelr | Report as abusive

I own a small manufacturing company. The current economy has caused great stress to us as well. The difference is that we have to find solutions to deal with it on our own, because there is no bailout for us.

Posted by Julie Gross | Report as abusive

I say let them go into bankruptcy. This will force them to rethink how they should move forward. Nobody helped my mom when she couldn’t make the mortgage payment on more than one occasion, she went out and got another job and we didn’t get to order pizza that month, or get that new GI Joe.

The big 3 have some significant improvements to make:

Restart with non-Union workers and non-Union suppliers. They may have done a lot of good 30+ years ago and that should always be remembered, but they are not necessary anymore.

They need to concentrate on reduced costs, start doing things lean and reduce the amount of different products they produce. Instead of GM offering 10-15 (or however many) models, offer 4-6 with few variations. Reduce the amount of options on the vehicle (who doesn’t want AC, CC, PB, PL, PW and a CD player? Make them all standard). You can increase the velocity of manufacturing, reduce the cost of inventory and be more profitable. Let the aftermarket folks “Pimp your ride” instead having a 1 unique car after another roll off the assembly line. It’s really easy, just simplify your product offering.

If the auto industry in America had done everything possible to cut costs, improve quality, and reduce risk, I’d say fine, lets help them get back up and get going again. But they have consistently mismanaged their operations and it is going to cost them…unfortunately, it will cost 250,000+ employees who had no say in it their jobs, but I chalk that up to the Union’s involvement as much as the big 3. Good luck to all involved, I’m not sure there is a Silver Bullet here, but there can still be a positive outcome if folks are willing to make some significant changes to the way they’ve historically done them.

Posted by Tom | Report as abusive

A bailout that is conditional on revamping the industry will still put the 98% of employees, not involved in engineering and design, out of work for two years while these new, competitive vehicles are being created. Unless – of course, we pay them to continue building those same old non-competitive cars, that won’t get bought, in the meantime.

Posted by Chris Erickson | Report as abusive

The airline carrier bankruptcy example is a poor analogue to the outomotive industry, and is not a valid comparison.

A valid comparison to the airline carrier industry would be the car rental industry – a bankruptcy there would not threaten a national competence and industrial base, but merely reorganize a retail-like chain that rents cars to move people around.

Bankrupting GM, Ford, Chryser is like bankrupting Boeing and the US airplane manufactureres – laying waste to a national asset and industrial base that is a competence, a core security asset, and a strategic industrial base. It is based on engineering expertise, production expertise and unique physical assets, and deep technological experience and know-how.

People need to see the bigger picture and what is really at stake.

GM is not like an airline carrier, and such comparisons are illogical and ludicrous.

Posted by Kent Howell | Report as abusive

I can’t fault the auto makers too much.

The big three could have built all the fuel efficient vehicles in the world but the American consumer would not have bought them.

SUVs are around for a reason … because that’s the market.

Posted by Walter | Report as abusive

The difficultly is that these are multinational corps. Who will just siphon off any funds supplied to foriegn shores.

Any bailout funds.
1. Must be kept inside the US.
2. Other funds that were designated for US operations,
must remain in the US. (no bait and switch)
3. Priority must be to retain US jobs.
4. All levels of management must take pay cuts equal to or greater than that of the UAW benefits.
5. All future management pay increases must be tied to percentage increase in UAW benefits.
6. All checks and agreements to be signed must be done by congressional auditors.

Anything else, and you’ll end up with the same result as if they went chapter 11. The big 3 will use these funds to offshore the remaining US jobs.

Oh, as if someone was sending a subliminal message, Reuters security word for this posting is “toast” !!!!

Posted by Tim Keating | Report as abusive

Bravo Mr. Ludwig!

You’ve put into words much of what I’ve been thinking for the last week.

If the Big Three stubbornly resisted the change to smaller more efficient cars it was not “their idea” to do so. I think the auto industry is perhaps best understood as a reflection of its shareholders and customers priorities.

I’m afraid that the media, the President, and some outspoken Senators are pretty well explained by the insensitivity and hubris they’ve been spewing.

The automotive industry paid for the birthing of the middle class in America. It brought a good living to its workers and customers for a hundred years. It gave us products that were recognized worldwide as the best of the best.

Why in the hell would we bail out a bunch of overpaid leeches who’ve gambled away half of our retirement funds and turn our backs on the folks who gave us what we wanted for all those years?

Posted by John Eberly | Report as abusive

The Big 3 have made fiscally irresponsible decisions that have led to their current cash flow disaster. Don’t be fooled into thinking that “American” cars are made with “American” parts. They are not. I am in the automotive industry and sell parts to repair shops. The parts that are used in original equipment manufacturing are more often than not made in China, France, Mexico, Brazil, India and other off-shore countries. The big 3 committed themselves to producing an inferior product and only lately have been trying to correct the errors of their ways. After several years of their $0 down – 0% percent financing they are experiencing a cash crunch. Who’s going to bail out the numerous repair shops that went belly up during those years because everyone and their mother was taking advantage of the Big 3′s short-sighted effort to increase sales of their vehicles? The Big 3 tried to crush our industry by selling cars at a rate they ultimately couldn’t afford and now we’re going to have to foot the bill for their greed and stupidity. Not fair! Detroit will undoubtedly loss jobs and money…but who’s speaking for our customers who have lost their entire life’s work and savings? It’s time people are held accountable for their actions.

Posted by bailmeout | Report as abusive

I have worked as Ford management. I have worked as Honda management. The Big 3 deserve NOTHING. The pivotal question taxpayers should be asking is: “How can Canadian & American executive and workers at foreign manufacturer plants in North America make the best cars in the world but the Big 3 can’t?”

- Posted by turismo
________________________________
If you, as you’ve claimed, worked at both, what prevents you from figuring out the answer? It’s just 3 letters: UAW – as simple as that. There’s no unions at foreign auto plants in the USA, and the management would do everything they can to keep it that way.
It’s well known that the Big3 are losing (yes, losing!) about $1500 (give or take some – depends on the model and current “incentives”) on each vehicle they sell. It’s also known that about $2500 in each car cost represent retirement and health care expenses for current and former employees. Remove this extra cost – and all of a sudden there’s profit instead of loss.
Whoever tells the workers would be abused without union representation – it’s shameless lie. When Nissan started hiring in Canton, MS, people were queuing for jobs despite of no union being there (or maybe because of?). The pay is somewhat below UAW rate – but there’s no union dues to be paid regardless of being employed or receiving unemployment benefits. There are benefits, too – not as luxurious as UAW package, but in line with other non-union jobs throughout America. And – the most important part – NO retirees to provide pensions and benefits to.
Just let the Big 3 to break free of UAW stranglehold – and they’ll be viable again. The bailout would not help with that – after all, the Congress Dems are the best buddies of the unions. The Chapter 11 will.

Posted by Anonymous | Report as abusive

How many of the “big 3″ executives flew to congress on a commercial airline (as opposed to the company jet)? If the big shots are not willing to show a little constraint, why should I, as a slave to taxes, pay for their excess while they lay off other taxpayers for whom I will have to pick up the slack? Double whammy to me – if I manage to keep my job.

Posted by Kevin A | Report as abusive

“Worse yet, the promise of a meaningful future for American manufacturing would fade. As that promise dims, the role played by manufacturing jobs as a passport to the middle class would likewise disappear.”
________________________________________

You forgot to add: a passport to the middle class for high school dropouts thinking they’re entitled just because they were lucky to be born in America, and because their father and grandfathers and all the uncles are/were the union members.
The times have changed. As soon as it was discovered that a Mexican or a Chinese can do the same job just as well for just a fraction of pay and no benefits, and the cost of manufacturing elsewhere, including shipping, tariffs, bribes to local honchos, etc.etc. is less than local production costs, guess what? The jobs moved to wherever it’s most cost-effective to produce. The only jobs that stay are the ones that can’t be done elsewhere (your drain can’t be unclogged in China, so plumbers are safe) or require special skills not available out there. The artificial preservation of jobs and compensation levels through labor agreements can’t be sustained anymore.
Manufacturing used to be High Tech in XIX and 1st half of XX Century – not anymore. It moved down the food chain. These days, the passport to the middle class is at least a college diploma – and more and more it’s less so with time passing. Now beside a diploma (especially “liberal arts” meaning “no marketable skills”) one needs to have also some certain skills to be hired into a middle class level job. Of course the night with a boring professional book is less appealing than a night with a 6-pack of beer and TV, but that’s how you get into the middle class these days. And manufacturing jobs, with very few exclusions (but how many of new Abrams tanks and 5th generation fighter jets we need?) are being more and more working class jobs (by definition, below the middle class threshold).

Posted by Anonymous | Report as abusive

Congress referred to the Detroit Automotive industry as “dinosaurs” isn’t this the pot calling the kettle black? Our Federal, Michigan State and Detroit City governments are much more in need of a overhaul than the Detroit Automotive industry.

While the bailout sounds like a corporate handout, it is not. It is a loan needed by a company that has junk bond status yet is too big to get corporate financing. Chrysler already did this in the early 80′s, and the government profited from the interest on the payments. Also realize that ‘dumping union contracts’ to be cost competitive won’t work. The UAW will still be the employer of choice for any newly reborn GM. Experienced employees will still demand high wages/benefits (the current UAW wage is very comparable to those offered by non-UAW plants). And the taxpayer would still be on the hook for the unemployment benefits given to the 425,000 employees waiting for the bankruptcy to settle, along with the pension plans thrown to the PBCG (Federal Pension guarantee). Pensioners get only a portion of what they paid in, leading to more stress on Social Security. While a restructured GM might be desirable, bankruptcy filing are far from ‘taxpayer neutral’.

Posted by Mike | Report as abusive

What is wrong with the US,
You want your Government to give your money to obscenely rich business people, when you can’t even go and see a Doctor in your so-called Democratic country. Give the 25 Billion to small enterprising Business’ that employ many more people and might come up with some new revolutionary ideas. Don’t forget Henry Ford. The belief that large organisations create more jobs is a myth you gullable people all fell for. Take a minute and have a good think about it. Who employs & supports most of middle America? It’s not the corporations, it’s the small business’. Remember the small butcher, baker, fruit shop. How many families did they employ, many more than your mega stores of today. Remember the bulk of a corporate profits go to shareholders & company executives not to the workers. Why bail these fools out, let them sink and give other people a go. Do you realise that corporations usually pay less than 10% in taxes, while the individual or small business has to pay 30-50%. These bail outs are just a redistribution of wealth from the small business & taxpayer to the mega wealthy, and let me tell you many of the owners of your corporations aren’t even Americans. Don’t be fools.

Posted by brad | Report as abusive

Hi
Why not cut the pay of automakers from 80 dollars an hour to 50 dollar an hour
Why not put a cap on CEO income, Dispose off all private jets , and pay should be based on performance.
Doctors lose licence if they make mistakes , Why not sue the CEO and take them to the cleaners if they fail

Resident, New York

Posted by resident | Report as abusive

GM burned through $7 billion in the last quater. Their share of the $25 billion, was reported to be $10 billion.

At best this ammounts to 6 months of operating costs, and then what?

It seems unlikely that this ship which has been trying to turn around for the last 10 years, will manage to spin on a dime in 6 months.

Posted by Mike | Report as abusive

Mr. Hardenburg, please retain your mindless comments, and don’t waste people’s time with your foolishness.

Anyways, the problem is the whole system a mess. Big companies, from which the economy is highly dependant need more government regulation (call it socialism, or w.e.). These companies can’t take foolish risks, then allow for the execs to retain their multi-million dollar salaries. Economic freedom sure, but economic responsibility must also be taken into account. When companies begin to take the wrong path, government intervention is pivotal,so that economic downturn can be prevented before it starts.

Posted by Will McCdoudleson | Report as abusive

I was in the

I believe the matter is incredible easy: the US goverment is like any other credit source, it can set standards and goals for their money:
a)reduce wages
b)reduce all the ridicule union benefits.
c)trim top company officials salaries and benefits.
d)focus on the business of making new cars that the public wants.

Posted by Pablo | Report as abusive

Yes, the impact will be massive. But this $25bn isn’t going to change these car-makers into profitable companies; it’s only going to delay their bankruptcy for 6 months or 1 year by paying a price of $25bn which will be burnt away by these auto-makers? What good is this going to do to America? It is like just pouring water into a vase with a hole, hoping that it will be filled up; it won’t – let them go bust and we should be able to clean it up although it seems impossible.

Posted by Jinjae | Report as abusive

Lets face it America,
Your so-called Auto industry is in its final death throws. Foreign companies have been whipping your butt for years, and you’ve ignored it. This industry has no hope for you, it’s over unless you lead the way with the plug-in electric car. A subsidised economy is no more than a magic trick, and we all know they’re not real. Just look at your Agriculture industry, it’s just another form of welfare. Now because of your in-ept government led by a fool who couldn’t even put together 2 words, your Auto ‘Welfare’ Industry is just about to start doling out the welfare cheques as well. ‘Henry Ford’ would be turning in his grave. Surely you people are smarter than this.
If you choose to prop up industry the inevitable outcome is they eventually fail. Unfortuanately welfare doesn’t fix the problems only new ideas do.
If you all keeping living in this fantasy land you will have nothing left. As far as I can see the only industry you have that makes any real money is war, and soon you won’t even own that.
You see you can only make money 2 ways. 1/ You Plunder, 2/ You create. Unfortuantely the plundering is over for you, it’s now time to create.

Posted by Brad | Report as abusive

they’re already dead. any attempt to undo decades of misteps in a matter of months is wishful thinking. $25B won’t save them. only WW3 can save these dinosaurs

Posted by Kombo | Report as abusive

The problem is firstly sales. The government is no good at sales (or manufacturing or finance…). GM wasn’t ready for the double whammy of a gas price escalation and a credit crisis. Now the gas prices have moderated but the credit crisis has not. The credit crisis should be fixed, by bailout and regulation/oversight.

As for the manufacturers, they should make and sell cars until they go broke. The government can pick up the pieces more cheaply then, and soon thereafter we’ll be back to normal with no hangover.

Posted by James Short | Report as abusive

The big 3 make smaller vehicles – and they sit on the dealer lots because Americans are buying SUV’s. Even the so called enviromentalists in CA government are driving SUV’s (check out thier fleet vehicles on the city websites!) -> not the small, environmentally friendly, green cars that they are trying to force the big 3 to make. In capitalism, manufacturing builds what is selling – not what folks are preaching. It is not only the managment that is at fault – but every American that bought a large vehicle instead of a small one….

Posted by CtheLight | Report as abusive

It is incredible that we even have this debate flooded with irresponsible, lynch-mob mentality against one of our key industries. Obviously, bankruptcy is not a solution for any automotive company, especially in the present economy. Would you buy a car from a bankrupt company or do you know of anyone who’s done it lately? Mr. Ludwig presented an excellent rational case in support of a bridge loan for our domestic auto industry, which, if one judges by the only existing precedent – Chrysler’s “bailout” 30 years ago – at the end may very well turn out to be a good investment for us the taxpayers. The prospects for Chrysler survival back then seemed at least as bleak as for the Big 3 now (note that Ford had profits earlier this year until wild swings in gasoline prices and subsequent credit crisis hit it hard). At the end Chrysler paid the loan seven years before the deadline with $300M profit for taxpayers on a loan of $1.5B, which would be roughly equivalent to $7-10B in todays dollars.

It is interesting that the Big 3 have been profitable almost everywhere else but in the States. One of the main reasons is that in Europe and elsewhere there are stable national energy policies that facilitate good planning. For example, they have stable gasoline prices around $6-8 with the help of taxes used for infrastructure and similar. As it became brutally clear now at the end of these disastrous eight years of George W. Bush administration, we have no energy policy or industrial policy for that matter. This is a great opportunity for President-elect to develop one. It should include stabilizing gasoline at $3-4 with implied taxes to be used for improving our infrastructure and promoting green transportation. Then watch the Big 3 returning the loans well before time, with ample profits for taxpayers and with some great new green technologies in their again profitable vehicles.

Posted by John | Report as abusive

Any company which produce products which do not sell is allowed to go bankrupt, why the big 3 be given an exception? Jobs lost as excuses….etc? What have happened to free market concept and belief?

Unless the BIG 3 with its super rich CEOs know that their companies can go bankrupt and they can go unemployed( hopefully no golden handshakes have been arranged in their contracts other the incentive to fail has already been embedded), flying in their private jets to beg for bailouts, only then they may be able to find a better way to compete with other car makers and keep their jobs as well.

All this hooplah about CEOs and private jets is just a red herring. John said it all in his comment, just read that; perfectly said. As for bankruptcy working as a viable option for the airlines (Eric’s comment), there is one key difference–the average American isn’t buying an airplane. But we do buy cars. Would you feel comfortable buying a car from a bankrupt carmaker? How about getting it serviced and getting parts with the prospect that the manufacturer could disappear shortly? Bankruptcy is not a workable solution. We need to lend a helping hand to the Big 3.

Posted by Mike Archer | Report as abusive

The Big 3 are not looking for a bail out! Only a loan from the Federal Government. If you look at the amount of Federal monies that all the employee,s at the Big 3 pay into the federal taxes you will total this in the billions.This would basically be a loan from the people-to-the-people of the Big 3 automakers!!!!! I beleive the Big 3 automakers should shutdown all their plants for 6 months and let the american people feel what the impact financially to this country would be. Also after 911 all three companies dontated 10 million dollars each along with product to New York City.

Posted by Danny Kirkpatrick | Report as abusive

As the controller of a closely-held business enterprise I can partially agree with “bankruptcy is not the end” but it will cause significant “collateral” damage through additional bankruptcies throughout the automotive supply chain.

A significant portion of our business base was/in within the steelmaking industry,(another industry known for the same faults that the american automotive industry is guilty of.) While steelmaking continued to run “business as usual” they kept continued, extended pressure on the supplier base for lower and lower pricing and extended payment terms(90 – 120 days). Within a short 1 – 2 year period we experienced roughly $750,000 in lost revenues in addition to losses in ongoing business due to closed capacities.

The winners in the whole bankruptcy scenario?, the accountants and attorneys for the bankrupt companies(thanks to their having first priority to available funds) and the officers and interim officers of the bankrupt companies. Years later the venders(those who survived)received less than 1/4 of 1 percent of what was due to them.