The auto industry is in trouble financially. While this may come as no surprise to most economists, the breadth of its trouble is vast. According to Reuters, in the last year Ford’s shares have dropped 80 percent and GM’s shares have dropped 90 percent. Ford, General Motors and Chrysler are all in danger of going bankrupt by early next year. They blame the financial crisis the U.S. is currently in.
Auto industry does not deserve a bailout
The auto industry is in trouble financially. While this may come as no surprise to most economists, the breadth of its trouble is vast. According to Reuters, in the last year Ford’s shares have dropped 80 percent and GM’s shares have dropped 90 percent. Ford, General Motors and Chrysler are all in danger of going bankrupt by early next year. They blame the financial crisis the U.S. is currently in.
United Auto Workers President Ron Gettelfinger has specifically blamed tight U.S. credit markets, a slow economy and a decline in consumer confidence as reasons for low sales. However, the auto industry in Detroit seems to think that things will pick up once the economy rights itself. They have asked the U.S. government to help them out and give them a $25 billion loan, which they will pay back.
GM has asked for $10-12 billion, Ford $8 billion and Chrysler $7 billion. The loan will be used to try to develop a line of more fuel-efficient models. Based on an Associated Press news report, GM CEO Rick Wagoneer claims that a collapse of the auto industry could lead to a loss of 3 million jobs within the first year and have rippling effects across communities all over America.
Quite honestly, I don’t care if the auto industry is in trouble, because when I look at the list of problems that Detroit has, the one that sticks out to me is low consumer confidence.
How many of us have sat around drinking coffee or beer with a friend and said in casual conversation, “Ford and GM need to do something to help their sales, because with rising gas prices people don’t want Hummers.”
It took the industry all but going under to realize this since the beginning of 2007, the auto industry has been in sharp decline. Different models including the Ford Focus, Fusion, Chevy Malibu, Nissan Altima, Honda Accord and Civic are the only vehicles that have seen sales increasing and are in the top 20 car models being sold in the United States.
The Associated Press article also mentioned that Wagoneer estimates that GM is burning through about $5 billion a month.
Clearly the industry is in trouble. The “big three” all claim that changes are being made and, to some extent, they are. Ford is going to sell a 20 percent stake of stocks they own in Mazda, but that is only enough to raise just over half a billion dollars, and after they sell those stocks they will still be the majority shareholder for Mazda, at around 13 percent.
If Ford needs the money so desperately, the other 13 percent should go as well. I doubt that money invested in a competitor is going to immediately help Ford stay in business. What they need is fast cash, but they shouldn’t get it from my wallet.
Also, they have yet to exhaust all their options. The CEOs for the big three all met in Washington Tuesday to discus the loan. All three CEO’s flew in private jets owned by their respective companies. Evidently, the companies have yet to exhaust all their options if the bigwigs haven’t even thought about downsizing their bloated paychecks while cruising around in their jets.
They should exhaust all their options before they ask the government for money. The government giving them a loan is just giving life support to a failing industry. $25 billion is enough to get GM through five months. And I don’t want to pay for GM to exist as a company for any amount of time. It’s a loan the auto industry will not be able to pay back.
And the fact that the government may make a bad investment using my money disgusts me. Yes, losing 3 million jobs would be bad, losing any employment would be a bad route with unemployment at a 16-year high.
But if we give them a loan so as to not lose those 3 million industry labor jobs and the industry continues in its current trend, we will not only lose 3 million jobs, but we will lose $25 billion. It’s a sinking ship anyway, so the government shouldn’t be trying to bail the water out.
Isn’t the idea of capitalism similar to that of evolution; the things that adapt survive and those that don’t die or, in this case, go under? It’s a changing economic climate, and until the auto industry shows that it can turn things around, an effort that it has yet to prove, I say let it go the way of the dinosaur.
