Auto Industry Bailout: Monday Edition!

It looks likely that a deal is close on getting some bailout money to the ‘Big Three’ American auto makers. Here’s the update from the New York Times: White House Says Deal on Auto Bailout Appears to Be Close

I am still opposed to a bailout. The deal on the table today is only slightly more palatable. It is effectively a bridge loan, along with some controls for the government to enforce modernization.

We should be careful in limiting our expectations. Even with this money GM and Chrysler in particular will have to undergo painful restructuring. There are going to be job losses, wage and benefit cuts, factory closings and product eliminations regardless of the amount of money the bailout includes.

The issues that the ‘Big Three’ are facing are structural. They are not temporary. This is not a case of helping well run companies manage their way through a nasty downturn in the market. It is an effort to breath life into what are, in effect, bankrupt companies.

GM and Chrysler are companies that time has left behind. Their approach to the business is outdated. Their vision is out of step with the modern car market. Their products are unwanted. They took far too long to invest in fuel efficient and cheap cars. Indeed it looks unlikely that they took fuel and energy costs seriously at all until very recently. Their Japanese, Korean, and European competitors all have invested much more heavily in fuel efficiency. The American auto makers seem to have lived in a bubble of denial. Now they are paying the costs.

More than this their industrial model has been exposed as a failure. The notion of being able to pay high wages and benefits in the face of strong and low cost foreign competition was a disaster. GM, in particular, has totally failed to cut its costs in line with its shrinking market share.

So I repeat: my opinion is that even with taxpayer help GM and Chrysler will not survive much longer as they are. They need to re-organize themselves. Ford has done a better job of changing itself and may last.

Hopefully the loans now being talked about come with strong government oversight and direction. That way we can at least hope to see some of the money repaid.