Category Archives:

Detroit Automakers Bailout – Criminally Stupid

Thursday, December 4th, 2008
Posted in Advice by Joel Gross

Over the last few weeks, the Big 3 automobile manufacturers based in Detroit (GM, Ford, Chrysler) have been pleading for a government bailout.‚  The Detroit automakers say that they need a bailout because the credit crisis has impacted their businesses.‚  Of course, idiotic management might have had something to do with it: top executives at all three companies notoriously flew to request federal bailout funds from Congress in their private jets.‚  The problems in the Detroit automakers extend far beyond their executive teams though.‚  For the last forty years poor management, powerful unions and bad ideas have combined to rot all of these companies through and through.

Why do I say that the detroit automakers are criminally stupid and we should not bail them out?

  • All three have been hemorraghing cash at an incredible rate since before the credit crunch started.‚  During this time, company executives have continued to pull out millions of dollars in cash.
  • Alan Mulally, the CEO of Ford, has just offered to reduce his salary to $1 for now and the other executives have also reduced their pay…. but this doesn’t make up for their massive pass salaries and the fact that if the government gives them money they stand to make billions down the road.
  • The automakers have obligations that are beyond ridiculous that were extorted out of them by the UAW in years past.‚  For instance, the Jobs Bank program has 12,000 people who show up to work at factories each day… and then sit in the “job bank” playing crossword puzzles for $31 per hour.‚  Read this article on the problem from back in 2005.‚  Utterly ludicrous.‚  And now they want my taxpayer dollars for this type of BS?
  • Besides the jobs bank, the unions and the Big 3 automakers have had their hands deep in Uncle Sam’s pockets for way too long.‚  The Big 3 get lots of tax breaks other companies don’t get, they already have received many billions of dollars in special government loans set up just for them and they still can’t pass muster.‚  It’s time to put all these companies into bankruptcy proceedings and let much more efficient companies take over the factories.

Bankruptcy is by far the best option for these companies. Bankruptcy will force them to restructure their companies and perhaps sell assets to better-run companies that can use them more effectively.‚  People keep saying that hundreds of thousands of jobs will be lost if these companies go bankrupt, but that is just not true.‚  Most companies that enter bankruptcy proceedings continue operations throughout bankruptcy.‚  Even if the auto companies were forced into Chapter 7 bankruptcy proceedings (liquidation), other auto companies would buy the factories and continue employing many of the former Big 3 workers.