Monday, 15 December 2008

What is the Big 3 Bailout supposed to accomplish?

It will have a severe impact on the economy (not to mention the lives of the workers involved) if GM, Chrysler and Ford folded up shop and disappeared into the dustbin of capitalist history. But is that really what would happen? Apparently not. The big worry is that the US Auto Manufacturers will file for Chapter 11. You will note, there is a big difference between Chapter 11 and Chapter 7.

Chapter 11 allows the company to exist, under court protection, and restructure to solve its revenue issues. Inefficient plants are closed or sold off, union contracts renegotiated, head count is reduced etc. and then the company exits protection and resumes business.

Under the bailout plan the companies must close or sell off plants, renegotiate union contracts, reduce head count etc.

So what exactly does the bailout provide, that Chapter 11 doesn't? It depends on the side of the fence you're on. It buys executives time so that they can avoid the hard decisions Chapter 11 imposes on them. Or is that too cynical?

If the auto maker executives don't have to make those tough calls now, well then when? The bailout is not a magic pill that will make these companies profitable. It just delays the inevitable.

Yes there is the fear that Chapter 11 is not enough, and that Chapter 7 will come into effect. Why is that bad? The entire company is broken up and sold off, but assuming there are buyers, then the plants reopen under new brands and employ thousands of people. If there aren't buyers, well then obviously there isn't demand for the product so forcing automakers to make unwanted product is obvious lunacy.

Either there is a market for new cars, or there isn't. We can't make one where one doesn't exist. Or will the government deliver you a shiny new vehicle in reward for tax dollars being used to produce said car?

The entire automotive industry is in decline right now. Honda and Toyota are cutting back production, (without reducing head count.... yet), and they make the most popular vehicles. So how will the former "Big 3", who make less popular vehicles, avoid cutbacks as well?

Look, if we truly believe the Communist model is the one we want to follow, lets have a vote on it huh? I think its only fair that if tax dollars are going to be used to prop up these failing companies, the people should get an ownership share. We should benefit from the good times (if they ever come) as well as pay in the bad.

Just in case someone wants to take my liberal merit badge away from me, I absolutely believe the government should be investing into our economy. I just believe the government should be investing where there is strong potential for growth. I also believe the government should be there to help the workers that have lost their jobs, through EI, health insurance and retraining. But propping up dying companies without a guarantee of profitability? When a tree is dying, you let it fall or cut it down, and you plant a sapling where it used to stand. You don't prop the tree up with 2x4s and hope for youth to return.

2 comments:

saskboy said...

Michael Moore is on the right track in this I think. The entire companies could be bought for the price of a bail out loan. The govt's should buy them up, fix the management, build infrastructure (like governments do in times of crisis) and then sell the companies off again in a decade.

Catelli said...

Its an idea. Though the costs to sustain the companies over a decade might prove too onerous to bear. That and governments have a horrendous track record running companies.

But, this is what I like about your idea. It has a beginning, a middle and an end. In short, (though simply stated) its a plan.

I'm not hearing a plan when it comes to the proposed bailout. There's no middle or end, just give us money. (in a similar vein I have the same issue with the financial system bailout, money's going in, nothing's coming out).