Monday, November 17, 2008

US Auto - To Bailout or Not To Bailout?

If you make them - they will come!
auto capitilist bailout governement
"Detroit was far too dependent for profit on large cars and had not paid enough attention to safety or fuel-efficiency. The energy crisis, regulatory demands, and a cyclical downturn in the market were instrumental in pushing Chrysler, the weakest of the “Big Three” automobile manufacturers, to the edge."
US Auto Industry Crisis - 1979

That seems to be the question hounding the US government. Without government intervention bankruptcy seems imminent. So should the US government (taxpayer) foot the bill to save Detroit or let free market economics take its course?

The implications of this demise will be severe in terms of job losses and economic ripple affect of this collapse. If things were bad today they would be much worse in this scenario. US economic recovery will definitely be impacted.

On the other hand if the auto industry went under - in the long run we will still survive. Maybe a more nimble and stronger auto manufacturer will emerge out of this bankruptcy. Management's inability to restructure came too late. The writing has been on the wall for many years - maybe it is time to let this saga run its course.

A grey area somewhere in the middle may be what we will end up with. Some support from the US taxpayer and some drastic changes made by the US automakers to mitigate the risk of collapse. Probably a sticky situation, not unlike the current financial institution bailout where the treasury is flip-flopping on buying toxic assets and wondering how to put its $750 billion pile of cash to good use.

In my view - sometimes its better to let things fail. You gain experience by bad experience.

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