v'ܩ Bailout for the Automakers?
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Bailout for the Automakers?

November 11th, 2008

gmThe United States government has been giving away cash faster than they can print it these days.  They just extended the bailout of AIG to $150 billion. Now President-elect Obama, Speaker of the House Nancy Pelosi, and Senate Majority Leader Harry Reid want to send money to Detroit to bailout the “Big Three.” GM, Ford, and Chrysler are all burning lots of cash these days, and after the $700 billion bailout to the banks and Wall Street they decided to hold their collective hands out and see what happens. To be honest, I don’t blame them one bit. However, I think that it is ridiculous that the American taxpayer continues to foot the bill for these terrible businesses that can’t seem to take care of themselves.

Too Big to Fail

How does a company become “too big to fail?” It seems we have heard this time and again. Why is it that when you get bigger and affect more of society, you suddenly don’t have to perform? I guarantee that my company is not too big to fail.  If we stop executing well, our business will cease to exist. If we stop doing things right, we will stop making money just like all of these big businesses. Unfortunately, at that point, we will all start to look for new jobs because Uncle Sam will not be writing us any checks. So my question is, why are AIG and GM more important than small businesses around America. Why are their stockholders protected at the expense of the taxpayer?

These companies have done a terrible job at what they do. AIG invested a lot of money in mortgage backed securities and they have lost large amounts of money because of the recent housing crisis. As a taxpayer, this is not my fault. This is AIG’s fault. Let them fail. There are other insurance providers who have not made risky investments. I am sure that they would all love to have more business. If you are worried about the people being insured, the government should help transfer them to other companies. The government could lend a helping hand to them, and they could do it with much less than the $150 billion they have given AIG.

Dividends and Bonuses, Really?

The banks that were part of the $700 billion bailout are still paying out dividends and bonuses. Why? I thought that dividends were given to shareholders as a way to distribute profits. It seems to me that when there are no profits, there should not be any dividends. The banks are also still planning on handing out big bonuses to their employees. (They are smaller than they used to be, but huge nevertheless). My company gives bonuses as a way of profit sharing. This makes sense to me. Once again, I promise you that if we don’t make a profit, there will be no sharing at the end of the year. Now generally I would just consider these practices to be stupid and a sign of a badly managed company. However, when I as a taxpayer am giving money to these companies to SAVE them, I really don’t think these things should be happening. If you are at the point that you need rescued to keep from going belly up, it is time to stop giving stockholders dividends and employees bonuses. Uncle Sam should not be in the business of issuing dividends.

AIG, Banks, and soon the Big Three

GM, Ford, and Chrysler have all done a terrible job recently. By recently, I mean the last few decades or so. We had an energy crisis in the 70’s. It is now 2008, and they still haven’t realized that energy efficient cars might be a good thing. They now, 3 decades later, need money from the government to retool their facilities so that they can build better cars. I really don’t have that much sympathy for them. It takes years of mismanagement and incompetence to reach the levels that they are at. Now granted we are in a tough economic environment. It is tough to sell big ticket items like cars right now. Given that, lets look at a comparison between a good company like Toyota, and a not so great company like GM. Toyota just cut its profit forecasts for the year to $5.6 Billion.  They aren’t doing nearly as well as they were, but that is still a lot of money.  GM on the other hand is estimated to lose about $10 Billion. This is a picture of one company that is struggling because of a bad economy, and another company being crushed by it because of their own failures.

America as a country needs to stop rewarding failure. From the banks, to the insurance companies, and finally now to the automakers, we have been rewarding failure. This has to stop. These companies need to take responsibility for their actions. They need to accept the consequences of not performing just like you and I do. If I stop doing my job, I will have to pay for it.  They stopped doing their jobs, it’s time for them to accept the consequences associated with that.

  1. Glenn
    November 11th, 2008 at 10:20 | #1

    “Why are their stockholders protected at the expense of the taxpayer?”

    Actually, bailout or no, GM’s stockholders are completely, totally, do-not-pass-Go-proceed-directly-to screwed. (If you don’t believe me, then by all means avail yourself of the “bargain” that is GM’s current share price.)

    And it’s “Toyota”.

    Agreed on your main point, though. To be honest, GM (and Ford after it) have been teetering since the demise of the Canyonero-style SUV, and are really just collateral damage of the credit crisis.

  2. November 11th, 2008 at 15:20 | #2

    I mostly meant AIG’s shareholders. They have already gotten a bailout. I feel like their stock should be at $0. I won’t be purchasing any stock in the above mentioned companies though.

  3. Kenzi
    November 11th, 2008 at 18:46 | #3

    Thank you. Seriously, we need some capitalists in Washington. My company, in an effort to remain profitable and fiscally responsible, is cutting our perks, not asking for handouts. I try to be a gracious person, but I think extending grace and enabling are too different things with vastly different results.

  4. December 3rd, 2008 at 17:23 | #4

    I disagree with a government bailout, and I also disagree with bankruptcy. It’s an answer, but not the best answer. So what is the best answer? I think Bush should ask … persuade … force … the oil companies to lend the money. They have tens of billions of dollars in cash on hand just sitting there … more than the $34 billion the auto titans say they need. Big Oil should be the natural ally of the Big Three … the two industries depend on each other. Private enterprise should bail out private enterprise. The oil companies undoubtedly would insist on needed reforms as conditions for loaning to their auto brethren … and might even make some money on the deal. Simple as that. Sometimes the simplest, most obvious answer is the best answer.

  5. December 3rd, 2008 at 22:04 | #5

    While I may agree in spirit Gerry that idea just flies in the face of the free market. Just because the oil companies make a lot of money is no reason to penalize them. If everyone refused to buy oil at the price point they set then they would have to lower their price point. Now, I suspect there may be some collusion in the pricing going on in the oil industry and THAT should be investigated and dealt with if there is any truth to it. However, your plan is little different than welfare… What you propose is definitely something I would call “redistribution of wealth” and I just don’t think that is a viable plan. Companies with failing / bad business plans deserve to fail.