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“Bailouts:” Of Priorities and Principles…

Monday November 17, 2008

There is much debate going on in the US over the potential bailout of their own auto industry. They seem to be very conflicted over whether or not they should go through with any kind of bailout or just let them suffer supposed consequences of their ways. If they are given the loans that they request, they are then capable of retooling factories for product consolidation over the world, among other things, which would relieve them of some of their cost burden. Of course, letting them possibly fail requires no effort at all, but millions of people will be out of their job, many other companies could fail (suppliers, for example) and the country will incur a number of issues from the added unemployment and the economical damage done.

While this doesn’t seem to rattle them too much, as progress is moving along at a snail’s pace, it is odd to see that Opel, on the other hand, as a subsidiary of GM is going to receive some sort of government aid package from the German government. Now, why would the German government by fully willing to help-out Opel, as a German automaker wholly owned by General Motors, but the American government be so reluctant to aid the parent company, which is the either the largest or second largest automaker in both the US and the world?

One important thing I should note before I go any further is how I’ve put bailouts in quotes in the title. Why did I do that? Because what they are actually looking for are loans, and not any actual “free money” to be given to them. they merely want someone to back them financially, so that they can get on their feet through their own plans for restructuring, and then they can pay the money back. How do you know they will pay it back? Granted that there is a risk involved if they were to fail, there is the precedent of Chrysler having been granted a similar deal in the past and having not only paid their loans off in full, but having done so early as well.

Then there is is their second bailout right? For Chrysler, this would be the second time that they are receiving such aid, yes. However, for GM and ford, this is the first time that they would be looking for and/or receiving any government aid of the sort. The notion that they “have to get bailed out AGAIN!” and therefore will need to in the not too distant future, which I’ve heard argued before is therefore entirely false.

But this is all because of product, right? While one could have argued that they weren’t doing so great throughout much of the 80s, trying to claim that the product is lacking today would be like trying to blame global warming on smokers. While it’s sure to generate a lot of controversy and make nice, attention grabbing headlines, it’s completely false. The product today is, for the most part, as good if not better than the competition and you can find plenty of reviews (both from professionals as well as from consumers who actually own the cars), and quality/reliability data which will back-up the notion that any gap that existed in the past has since been closed.

What about the SUVs? Well, I would have to argue that they did no wrong in selling what the people wanted, while they wanted it. I would also have to point out that they imports had little or no Suva in their lineups before the SUV craze, but scrambled to add a number of them as the trend picked-up. Toyota redid their Tundra to boost the size and power up to match the competition just in time for all of this mess to begin, while Honda introduced a new Pilot as well. No one saw this coming, everyone jumped on the SUV bandwagon during their heyday. It would therefore not be fair to fault the American automakers for selling in-demand product and trying to make money.

So, then what is it? Many people will cite the differences in ideologies between the different societies. However, isn’t it odd that the “transplants,” as they are called, will get plenty of tax breaks in order to move their business into the US, while the home team seems to get the cold shoulder?

Why is it such a hard decision to make? I don’t know… You tell me.

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