Bailing Out the Auto Industry

Where will it end? That's the question on everyone's mind as GM, Ford, and Chrysler-the big three of the U.S. auto industry-paid a visit to Washington, D.C. The companies want a piece of the government bailout, but no one is quite certain if such a move will help the ailing automakers.

America is a country that loves to have her cake and eat it, too. When the free-market economy was red-hot, and people were making big money, there was no better economic system in the world. Too much regulation was regarded as the death knell of a prosperous economy, and fat cats stood against social programs, like welfare.

It's now interesting to see who has recently visited Washington, D.C. with hat in hand. The vaunted auto industry has finally imploded, and they've joined the nation's top financial institutions in crying out for government assistance.

Big three sparked the big mess

GM, Ford, and Chrysler have long fueled much of the growth and prosperity in this country. They employ nearly a million people among them, and are responsible for the financial success of a series of related industries including steel and auto-part companies. With so much at stake, everyone, including members of Congress, is wondering why the companies have fallen so low.

Mired in an inventory of SUVs and big sedans, the big three have looked foolish when fuel prices recently skyrocketed. Meanwhile, Honda and Toyota were patiently waiting for the energy crisis that everyone knew was coming with their compact, fuel-efficient cars. Choking on their exhaust were the big three, who looked positively blind-sided by the turn of events in the marketplace.

Credit crunch the final blow

By their sheer enormity, the big three have remained afloat, even while foreign car companies have been driving circles around them. It's in no small part thanks to the huge subsidies that they've received from Washington, and an oil industry that has kept fuel prices artificially low.

Now GM, Chrysler, and Ford are in a tremendous crunch. They have no cash to innovate, and no time to raise more funds. Should the auto industry be allowed to fail?

Pundits agree that the impact would be extremely painful, and are discussing the possibility that letting the big three fall would be in the best interests of the economy in the long run. If a pre-packaged bankruptcy was initiated, where terms and conditions for creditors were negotiated ahead of time, the companies could start from scratch. They wouldn't be committed to overly-expensive pension plans to vendor contracts. They would have the latitude to innovate, building their companies based on the successful models of Honda and Toyota.

At this point, no legitimate alternative seems plausible. A government bailout would stop the bleeding for a time, but it wouldn't heal the wound. The big three and the government need to make a decision: Either embrace a free market system with all of its ups and downs, or choose the much-maligned alternative.

By:

Greg Mischio