Why the auto bail out is a bad idea.

Shep115 By Shep115, 14th Jan 2010 | Follow this author | RSS Feed | Short URL http://nut.bz/1ygteh71/
Posted in Wikinut>Business>Ethics

Why the auto industry should not have been bailed out of their money troubles.

Why the auto industry's bail out was a bad idea.

There are many reasons why they should have not bailed the auto industry, but here are a few major ones that i think every one should know about. Also for people should know so that they do not let it happen in other parts of the economy.A bailout would provide money only for short-term survival. It wouldn't alter car makers' flawed business models. GM is running through cash at the rate of $2 billion a month. So $10 billion from the government would give it only five months’ breathing room. Can they turn over their business practices in that period.A government handout would allow the Big Three to avoid necessary cost cutting. Because of a strong union, the average GM employee received $70 an hour in combined pay and benefits last year. GM chief executive Richard Wagoner garnered about $24 million a year in 2006 and 2007,Bankruptcy isn’t all bad. It does not mean liquidation. It means taking the painful steps the companies have been unwilling to contemplate to date. The real losers in such a deal are carmakers, equity shareholders and creditors. Bankruptcy would give the automakers the chance to throw out existing employee contracts with their onerous health and pension systems. The unions would be forced to temper their demands if they want the car companies to survive. In the case of GM, it could also dump some of its uncompetitive product lines such as Pontiac and Saturn. Discontinuing five of GM’s eight domestic brands would save the company $5 billion annually.Big Three bankruptcies wouldn’t mean the end of auto industry in the United States. Foreign companies, which already have plants here, could pick up the slack and open new factories. Some 78,000 Americans already work for foreign carmakers, a number likely to rise in the wake of any U.S. automaker demise. The depressed South could benefit particularly from increased production of foreign auto companies.Stockholders deserve no mercy. Some argue that they should be compensated for the fact that GM and Ford’s share prices have hit their lowest levels in decades. But in a free market, stock prices go down as well as up. The automakers’ problems have been clear for years, so investors had plenty of time to get out. As for Chrysler, it’s owned by private equity firm Cerberus, no innocent victim itself. Bailouts have been tried in the auto industry, and they don’t work. In the 1970s, Britain’s Leyland hit the skids, hurt by slipping quality in its vehicles and imports from Germany and Japan. Sound familiar? Leyland, which made MGs, Jaguars and mass-market cars, accounted for 36 percent of the UK market. So the government sunk in $16.5 billion to keep it afloat. The result? Unless you’re a car buff, you’ve probably never heard of Leyland, because it no longer exists. These are just some reasons why they should have not been bailed out of their money troubles.

Tags

Auto, Automobile, Automotive, Bail Out, Cars, Money

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author avatar Shep115
A college student. I like to write about everything that comes to my mind.

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