Should GM Get Bailed Out?
Over the past few months, the media has bombarded the Naive American with horror stories about the US economy. We’re told the US government needs to spend about a trillion US Dollars ($1,000,000,000,000.00) to bail out our financial engine. The average Naive American (including the author of this post) is not a financier with an advanced degree in Economics.
Banks and other financial institutions provide capital to businesses that actually work to create products/services used all over the world. If financial institutions stop lending money -fearing borrowers will not be able to repay their loans- it is obvious that production of goods of everything will be affected. Companies are forced to layoff workers. The laid off workers buy less products and services and the companies are forced to make more layoffs. The process spirals and could easily lead the US (and possibly the entire world) to a massive recession. In a nutshell our elected officials need to come up with a well though out plan that has a main approach and several alternates to quickly fall back on to assure success (perhaps I should become a politician).
While being concerned about the US financial system, which is typically represented by Wall Street with all its irregularities, immense greed, little accountability and in the minds of many Naive Americans with an ever growing touch of criminal activity, we are faced with the problems of a public company by the name of General Motors (GM).
GM is one of the three largest US automobile manufacturers. Among their products are brands like Cadillac, GMC, Hummer, and Saab. Most vehicles in the US are concentrated in metropolitan areas. The mix of cars and trucks varies by location. I happen to reside in a Minneapolis suburb. Due to car-pooling I head out of home no later that 07:00 AM and get to work between 07:30 AM and 07:45 AM. In the evenings I leave the office around 05:30 PM and arrive home shortly after 06:00 PM. I fight rush hour traffic during both commutes. Crawling through rush hour gives me the opportunity to observe vehicles on the road. After removing from the mix Asian and European models, it appears domestic makes combined account for less than half of cars, Sport Utility Vehicles (SUVs), trucks and mini-vans. After removing Chryslers and Fords from the mix it becomes obvious that the Naive American is not buying too many GM vehicles.
There are different reasons why consumers buy a vehicle. Some like the image portrayed by owning the largest, heaviest, gas-guzzler, off-road vehicle. As you may imagine this type of vehicle is quite useful if you reside in a metropolitan area were paved roads are properly maintained. Some of us go for the myriad of options and colors. In the past decade or so, the Naive American has been gravitating towards quality vehicles at an affordable price. Perhaps GM has not been offering the right product at the right price. GM wishes to portray itself as an innocent victim of the recent Wall Street fiasco. The savvy Naive American just needs to go to the Internet and use their favorite stock tracking / investing tool and display a five (5) year graph of historical values of GM stock. Perhaps GM’s current state is the result of poor management, poor marketing and poor products
When the price of gasoline was at an all-time high, GM started advertising the Chevy Volt. The Volt is an hybrid car designed to allow the American commuter to use electricity more than fossil fuel; an appealing offer. This is especially true when the advertised base price for the two-seat car was under $20,000 US Dollars. The TV commercial is gone. The main reason is that the car is just a concept vehicle and the price is closer to $40,000. This information comes directly from GM’s well-compensated CEO. By the way, GM’s stock is currently under $5.00. Main stock exchanges typically require higher prices or the company may be de listed.
A few days ago the three largest US automobile manufactures met in Washington, DC with representatives of our government. The envoys of the car manufacturers flew in for the meeting in their private jets. When was the last time the Naive American flew in a private jet? For the publicity alone, they could all have driven their American cars from Detroit. The CEOs aren’t even using their own cars, but they need our help to continue to produce.
So the big question for the Naive American is should we bail out GM? At least our “career politicians” in Washington, DC (led by Speaker of the House, Nancy Pelosi and the Senate majority leader Harry Reid) said they want to put the bailout on hold until December to allow the car manufacturer to come up with a “viable” plan. The Democrats wish to convince the Naive American that Washington is on their side by playing hard to get
Should the US (and all Naive Americans) decide to bail out GM? Naive Americans believe our elected “career politicians” will come up with the proper answer to address the state of GM. Keep in mind, that these elected officials lack accountability and generally rely on popularity/good looks to get elected. Additionally, lobbyists (esp. those representing car manufactures, oil companies, and union autoworkers) will have more to say about the final approach than the Naive American.
GM, the other car manufacturers, oil companies, and for that matter any other business in the US should be treated the same. One of the myths the Naive American has been led to believe is that capitalism always triumphs and the USA is the bastion for it. The US government, however, provides subsidies in the form of aid and help to several countries, industries and special groups.
In conclusion, when a business is no longer viable it should cease operations. This is capitalism, correct? The Naive American can bail out GM by purchasing their products. If the Naive American wants to purchase Chrysler and Ford and not GM so be it. If the Naive American wants to purchase Asian or European vehicles instead of Chrysler, GM or Ford so be it.
What the US government needs to do is understand the real reasons that led to the current state of GM. If it was greedy management, poor designs, low quality, union autoworkers, high costs and lack of accountability (to name a few) then let GM disappear. Chrysler and Ford will need to change their business or follow in the footsteps of other poorly managed companies.
