The Eclectic One

…Because labels are a poor substitute for thinking

GM Bailout: Thanks, but no thanks

Posted by Bill Nance on November 12, 2008

Meagan McArdle has some thoughts on bailout of the Auto Industry:

The Juice:

I think this misses the point of the financial bailout.  Whether or not it works–and I sure hope it will–I don’t think very many people wanted to bail out the financial industry because we were so moved by the plight of those plucky traders on the mortgage desk.  We bailed them out not because they deserved it–they didn’t–but because if we didn’t, there was a very big risk that they would take us down with them.

This is not generalizeable to other industries.  Money is weird.  Finance is weird.  There is no other industry that is, first, so tightly coupled, and second, severely affects every other industry in the country.  Moreover, there are few other industries that are so vulnerable to panic.  Strategic injections of capital can actually salvage operations that are otherwise sound.  GM’s operations are not otherwise sound. (emphasis mine)

Let there be no mistake, America is in for some very serious long-term pain. Government action is going to be required to mitigate some of that, but we can’t be so short-sighted that we continue to merely put off the inevitable to score points in the next election cycle.

The primary reason Detroit continues to do so poorly is that they continue to produce vehicles that no one wants, which don’t hold up over time and cost too much.

Pouring more money, at taxpayer expense, into companies which are fundamentally broken and have been so for decades is nothing more than writing a hot check to stave off the inevitable.

We’re currently driving a Toyota and a Subaru. Before that, we had a Ford-made and a GM-made car. We are not driving American cars because they cost too much, they get lousy gas mileage, they break down constantly and retain no resale value.

It’s time to let GM and the rest go down the tubes. Let the lines be sold to a new startup who is committed to producing cars that don’t suck. Maybe some of the supply-chain companies can form a new company from the ashes of these unprofitable, incompetent behemoths. And maybe labor can be smart enough not to kill the goose that lays the golden egg when it comes time to negotiate new contracts.

I’d much rather see government loan cheap money to someone with a solid business plan than send more of my money down the existing Detroit rat-hole.

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2 Responses to “GM Bailout: Thanks, but no thanks”

  1. If America bails out GM and/or Ford we should demand a change in the leadership and management teams. Until someone Disrupts these companies and changes their management approach these companies will not be viable competitors. Read more at http://www.thephoenixprinciple.com

  2. Bill Nance said

    The problem is bailing them out in the first place. NO BAILOUT. NONE, NADA.

    Let it burn and let something worthwhile emerge in it’s place.

    I’m all for the U.S. joining our European and Asian rivals in giving giant no-interest loans to people who have a solid business plan. Giving my money to worthless, visionless bean counters with no more business acumen than the average high-school dropout is beyond bad. It’s criminally stupid.

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