Should we bail out the auto sector?
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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Desrosiers is on the take.
I heard him give the same speech the other day to a different crowd. He is obviously a paid shill for the Big 3– likely GM. Slamming the unions (and Kenny Lewenza, personally) and making a pseudo-scientific case for the bailout money. The guy has zero credibility in my eyes– and I’m not even a union supporter.
Let these companies go bankrupt and let a foreign company take them over. It’s the only fair thing to do. No-one should be forced to pay for these company’s malinvestments. the union workers who work there now would likely keep their jobs, and the pensions would likely be slashed, but at least they’ll have jobs in the upcoming crack-up boom.
It is very hard to feel sorry for auto makers that have been spending money so foolishly – like buying up failing auto companys instead of putting money into better technology for their own products – and then over charging local customers for poorly built autos. (maybe they thought we would not notice) We are paying for foolish add ons that we get no benefit from – like sports that make some people rich at the exspense of all car buyers-. The biggest reason people buy cars built in other countrys is that we better built autos and a lot better feul economy – other countrys have put their money into better technology to help the industry and enviroment – The big reason for higher cost of foriegn built autos is goverment tarriffs. No bail out unless they promise better feul economy-better built autos-lower cost to buyers-and huge cuts to executives pay. thanks edsdozin
Why should tax payers bail out an industry that has no idea what they are doing and no plan going forward. First of all it is absolutely ridiculous that G.M. management, thinks that it should take over Chrysler given that fact that currently they are not making money, and are nowhere close to having a business model that is sustainable.
They need to change management or fail. If they fail the market will react, and the gap will be filled with product that is both relivant to what today’s consumers are willing to buy, at a cost that is competative and allows them to make a profit.
A bailout simply allows them to continue to fail.
The problem I have with this is that I’ve lost 30 grand because of the auto industry. They’ve slached thier prices so much that the 2 new vehicle I bought last year are worth nothing now. This pisses me off the most because the industry guided by greed is going to be bailed out and we the consumer tax payers will once again pay the price. I say let them fail and be bought by responsible people if they still exist and perhaps destroy the Unions while their at it. Just a little venting.
Government should not bail out Domestic auto makers. Nothing will change and the money they received from the Government will go in vain!. Business is cold, only the strong should survive ie. (Toyota,Honda,hell even Hyundai)
James, it is good to hear someone in media giving some good pros and cons to this issue. When I listened to the three CEO’s arguments, it seemed that they were setting up a “straw man”. They were casting the issue as if all three automakers and all their suppliers would disappear if they had to go through a bankruptcy! And on the other side, if they received the $25b, every job would be saved! Neither scenario is true.
Plenty of companies enter bankruptcy protection and come out healthier. Some don’t make it. Then other healthy companies are able to purchase the assets of the defunct companies, and the slimmed down post-bankrupt companies can finally become profitable! They might even get gov’t financing to restructure in bankruptcy, but their current cost structure is unsustainable even with a bailout.
We would not be “letting them fail”. They did that on their own.