There’s been a lot of talk lately on both sides of the border about whether or not we should bail out North American automakers. It’s a fuzzy issue, made clearer recently during a speech by auto analyst Dennis DesRosiers at the Ontario Trucking Association convention.
In a nutshell, he surmised that GM, Ford and Chrysler are likely toast if they don’t receive a government bail-out. (Ford’s apparently in a slightly better position, since it has liquidity). He also said the root of the automakers’ problems are cyclical in nature. By offering creative financing and major incentives to buyers, the industry in the short-term postponed any downturn in new vehicle sales. But once that inevitable downturn did occur, it coincided with an unexpected credit crunch, delivering a double-whammy to the ‘Detroit 3,’ who at the same time have been losing market share to the likes of Honda and Toyota.
DesRosiers said GM, Ford and Chrysler have successfully trimmed the fat from their organizations and also reduced capacity. Now they’re in the process of re-aligning their product lines to bring them in tune with consumer demands. They need government help to enable them to weather the current storm, carry their strategy through to fruition and hopefully emerge stronger when car sales pick back up.
Should government let the Detroit 3 go broke? After hearing DesRosiers speak on the issue, it’s difficult not to want to give the US-based automakers one more chance. After all, it’s been reported that nearly three million jobs could be lost if GM, Ford and Chrysler go under. The US and Canadian economies cannot afford such a major blow at a time like this – or any other time for that matter. Furthermore, DesRosiers said Chapter 11 protection is not an option, as consumers would ultimately lose any faith they have left in the products offered by the Detroit 3. A Chapter 11 filing would be the death knell for either one of them.
But on the other hand, there are some ethical questions that still beg for answers. For one, how do you support the Detroit 3 and not Toyota and Honda, which are also struggling yet aren’t knocking on Washington’s door with their hands out? DesRosiers pointed out the so-called ‘new domestics’ have created over 40,000 jobs in Canada alone during the same time the Detroit 3 have shed over 55,000 jobs. Where’s the fairness in that?
Also, the unions – the CAW particularly – appear unwilling to make concessions. As DesRosiers said, there’s an impression that any rescue package would be a bail-out of the CAW and UAW – not the automakers themselves. Before I see my tax money handed over to GM, Ford and Chrysler, I want to see big-time concessions made by the unions.
Thirdly, executives at each of these companies have to demonstrate that they have a shred of common sense if they’re to be trusted to spend the bail-out money appropriately. It’s hard to have faith in them to do the right thing when they show up for bail-out talks in Washington aboard private jets. As DesRosiers said, that was such a major tactical error it is difficult to comprehend how these CEOs can be trusted to turn these massive ships around.
Bailing out GM, Ford and Chrysler will be a bitter pill to swallow. But the North American auto sector is a $2 trillion industry with seven million jobs directly connected to it. At a time like this, can we afford to let them fail?
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