The Big Three

Just a month and a half after the financial sector in the United States received a $700 billion bailout package, the U.S. auto industry is begging for it to be their turn. U.S. auto executives are seeking $25 billion to save an industry on the brink of collapse. And Canada wants in. Industry Minister Tony Clement will be traveling to the United States to try and set the framework for a joint deal. But is another bailout plan using taxpayer’s money really justified? I’m not fully convinced.

There’s a lot of data that seems to indicate a bailout plan for the automotive industry is an absolute necessity. GM, Chrysler and Ford employ nearly 250,000 people in the United States, and affect nearly 4 million other jobs including suppliers, dealers and rental companies. Up to 70,000 of these people are Canadians, as automobile parts often cross back and forth through our border up to 7 times prior being installed into a vehicle. A filing for bankruptcy by any one of the Big Three could have catastrophic consequences for our already fragile economy. These facts seem to suggest that a bailout of the industry is crucial and an absolute must.

In my opinion, however, to bailout the Big Three is not to rescue the auto industry despite claims made by their executives. For decades, major U.S. auto manufactures have been plagued by mismanagement, inefficiencies and rising labour wages. For the past 10 years, stubborn managers without a clue how to deal with internal problems have been eroding shareholder value. And what’s ironic is that GM CEO Rick Wagoner will receive a 33% pay raise in 2008 while still pleading for the governments help. Oh, and all Big Three CEO’s arrived in Washington in their fancy private jets in an effort to convince the government they need emergency funding. Bailing them out will do nothing to sort these problems, and they will continue to persist, bailout or not.

What the auto industry needs is consolidation and a major management shakeup. The Big Three cannot co-exist and prosper at the same time like they did in the past, there’s just no room for them all in the industry. At the same time, The Big Three (or perhaps soon to become the Big Two) and their Board of Directors need to take a serious look at their respective corporation and consider complete overhauls of management and business operations. Using taxpayer dollars to support firms that have made so many mistakes in the past just doesn’t seem justified.

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Tags: automotive, bailout, Economy, united states

This entry was posted on Thursday, November 20th, 2008 at 4:13 am and is filed under Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.