Do GM, Ford and Chrysler deserve a Grand Auto Bailout?
Last night, the biggest three automakers in the US, General Motors, Ford and Chrysler ,also dubbed as the “Big 3”, went to Capitol Hill begging for a US$25 billion bailout from Congress. There has been a lot of opposition to this proposal because it still remains unclear where the money would be taken from to finance this another massive rescue plan.
I watched Treasury Secretary Hank Paulson last night in his hearing with the Senate Finance Committee and he reiterated to senators that the TARP was exclusively for the financial sector and does not include the automakers. There was no secret though that some lawmakers, especially from the Democratic aisle, are bent on getting the Detroit triumvirate a piece of pie from the TARP. Some argue, though, that the Big 3 should just use the US$25 billion granted to them in a separate legislation earlier this year for creating cleaner cars. And there are those who think that GM, Ford and Chrysler should simply declare bankruptcy and directly face the day of final reckoning.
For those who think that the auto makers should be left to file Chapter 11, they have a point. First of all, the business model of the Big 3 is not efficient and has hemorrhaged them for years because of the lopsided contracts they entered with the auto workers’ union and with the car dealers. How do you expect the American taxpayer to bail out a company and never hope to get their money back? Second, bankruptcy will eventually make these companies deal with their inefficiencies and will get them to trim down and be more competitive against the Toyotas and the Hondas, which have been pretty successful in the US.
It is understandable that politicians will look after the interests of their constituents and they will fight tooth and nail to keep the Big 3 afloat thus averting the situation of massive layoffs. However, the world has changed and the new rules point towards the survival of the fittest. The Big 3 are the now the dinosaurs of the auto industry. And we all know what happened to those humongous reptiles.
Nathan Andrada
nathanandrada.wordpress.com
