Bailout? Goverment Should Lead Takeover of “Big 3”

Big changes are required for the US Big 3 AutomakersThe “Big 3” U.S. automakers made headlines again this week as, hat in hand, they once again appeal to Washington D.C. lawmakers to bail them out.

For a government that champions free markets and open competition as official policy around the world, this not only reeks of hypocrisy, it sends another signal—remember the government-led bailout of Bear Stearns earlier this year?– to large, moribund and poorly performing multinational giants and entrenched managements that U.S. government leaders are willing to step in and save their bacon at taxpayers’ expense. Maybe there’s a better way?

Hat in hand

News broke last week that GM, Ford and Chrysler want Congress to appropriate some $3.75 billion to back an initially approved $25-billion of government-backed loans and tack on appropriations for another $25-billion over subsequent years so that they can carry out plans to develop and build more fuel-efficient vehicles.

Thing is they also want more flexibility and leeway to determine for themselves how these funds are spent. “Auto-industry lobbyists want Congress to set rules that will allow the initial $25 billion to pay the full cost of upgrading assembly plants, parts production or engineering to improve fuel efficiency, said the people, who didn’t want to be identified because the plans are still being developed. The current rules limit loans to 30 percent of the cost,” according to a Bloomberg business news report.

What’s wrong with this picture?

More fuel-efficient vehicles? Come on, these are the guys who’ve been completely blindsided by fuel and energy price rises and whose sole strategy over the past decade has been to build bigger, more expensive gas guzzlers.

These giant companies are a mess. GM and Ford lost $24.1 billion in this year’s second quarter, as foreign competitors, the Japanese of course at the top of the list, again ate their lunch while executives continue to enrich themselves to ever greater degrees.

Let’s face it, the “Big 3” are more like poster children and business school case studies for how not to manage a multinational corporation in a key manufacturing sector. The U.S. government stepped in and bailed out Chrysler in the eighties. A generation later, and it’s not only Chrysler, but all three demanding U.S. taxpayers bail them out again.

Why is it that Japanese, German, even Korean vehicle manufacturers seem to be able operate in the U.S. better than our homegrown industry pioneers? Even with them shutting down manufacturing plants here at home and re-opening others, and sending jobs, down to Mexico and other countries? Hell, the Chinese’ll be here and doing better than they are soon enough.

“Our plans, which require significant investments, are at risk because of limited access to capital’’ Greg Martin, a spokesman for Detroit-based GM, was quoted as saying in a Bloomberg business report.

He declined to comment on whether GM is seeking more than the original $25 billion.

“This program will open capital that is necessary to make sure our transformational plans continue at full speed and give us the best chance to succeed.”

Best chance to succeed? We need taxpayer money to back us up? What’s wrong with this picture? Why not nationalize them, temporarily at least, boot out management and start over by restructuring and privatizing them?

Saving jobs, taxpayers’ funds

Saving Bear Stearns, and again pumping liquidity into an already overheated money supply engine, was bad enough but at least a consortium of private sector bank competitors stepped in and spared the federal government, and U.S. taxpayers, from bearing the entire cost of the salvage operation.

“This is a horrible idea, another transfer of funds to failed ventures,” David Littmann, senior economist for the Mackinac Center for Public Policy in Midland, Michigan, told Bloomberg. “If this were a good idea, the market would price the debt accordingly and give them the money.”

Where are all those huge hedge and private equity funds when you need them? We’ve been hearing all about they’re huge appetites for risk for a couple or few years now. Apparently, none of them are willing to step up and provide the capital the automakers say they need to see their “strategic” plans through to fruition.

Given “Big 3” managements’ track records, who can blame them? If they’re so desperate for funding and capital, better that the government should be a more demanding “investor” and in so doing provide at least some real justification to coming to their aid.

How about letting the “Big 3” fail and/or taking them over outright? A public-private consortium could be formed to carry out a restructuring in line with long-term plans to transition to flexi-fuel and electric vehicles with taxpayers as shareholders. Once things are well under way and some real progress can be shown, auction and/or sell of the public stake and make a distribution to shareholders.

If the U.S. government, in the name of its citizens, continues to shore up such poor performers they should take a page from T. Boone Pickens’ and other aggressive investors’ books and demand a more active role, stake and say in how these companies are managed.

Andrew Burger
Andrew Burger
A product of the New York City public school system, Andrew Burger went on to study geology at the University of Colorado, Boulder, work in the wholesale money and capital markets for a major Japanese bank and earn an MBA in finance.

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  1. Should The US government bail out American corporations?

    Does corporate America share its profits with the tax payers? The answer is absolutely not.
    Do they share the profits with their employees? The executives are paid millions.
    The US Government should bail out all corporations large and small is that right? The answer is no. If it is a viable business, they can raise the money from investors, if not, let them close shop.
    If the government decides to bail them out if should be at a cost (like shares in the company) where the government will make money and have a say in running the company. Even better have a public referendum where the voters decide.
    Carmakers want money from the government; the financial institutions want money – where does it stop?
    It is about time corporate America should learn they have to stand on their own feet. Where is corporate America financial responsibility?
    They claim the government is abusing its financial responsibility; it seems Corporate America is no better. They also go to their workers to take a pay cut, is that fair? It seems the little guys are the ones that always pay the price for corporate financial abuse and miss-management.
    Other corporations in the world are not asking to be bailed out – they go out of business.
    Jay Draiman
    The corporate barracudas have no conscience they will step on anyone, stab anyone in the back and fudge the numbers to climb up the corporate ladder and receive the hefty bonuses.
    As family values have declined in the last half a century so has corporate integrity and honesty, it seems that corporate America will do almost anything for the buck ($) no holes barred.
    What a shame that corporate America has sunk so low.
    The government is no different, honesty and integrity is a foreign language, they only serve the special interest groups. (We all know why).
    What happened to the American people who placed their trust in the government? (The public officials they voted for).
    We are faced constantly with another corporate or governmental scandal of wrongdoing. When is the American public going to wake up and demand an honest government and honest corporate America? Americans wake up before it is too late.
    Jay Draiman

  2. just another uneducated idiot on manufacturing and the mfg producs about 10% of GNP when you incude the support structure and suppliers.we will have no middle class without decent paying mfg jobs…i’ve traveled the world beijing, shanghai, korea, europe…other countries require we produce almost all of our products including vehicles with their content..they have no health care costs…we’re losing this game and all I read is idiots….

  3. We all had dreams. When I married in 1962 we thought that if we worked hard, saved our money; someday we could help our children and enjoy our retirement years with diginaity. However, in our life plan we did not take into account corporate greed. Why should the corporate CEO’s trive on our hard work and we live our golden years in an envirement of uncertainity. I thought as Americans we were better than this!

  4. Schmed,

    Thanks for the comment. I guess my comment back is it seems your vast knowledge of how the world works is probably not put to its best use by simply calling people idiots, don’t you think? Unless you just get off on that, you should try contributing more than self-righteous insults. We’d all like to know how to solve these tough economic and environmental times we’re in. I’m happy to pass on your comment that we’re all idiots. But it does nothing, creates nothing, contributes nothing, and is much more useless than saying nothing at all.


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