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As the executives of the Big 3 in Detroit - General Motors, Ford, and Chrysler - fly in their private jets to Washington in order to ask for public funds, they should consider this: a bail-out may not be the best way to revive the auto industry! The problems being faced by the Big 3 are not only a result of hard economic times, but also an inevitable conclusion of poor business practices. There are a number of things the auto industry must do to get itself back on track, and a check for $25 billion isn’t one of them. Such a measure will only prolong the inevitable collapse.
First, the Big 3 must eliminate their huge disadvantage in costs relative to foreign brands. Essentially, they pay more and provide more benefits to their workers than competitors such as BMW, Nissan, Honda, and Toyota. Additionally, they must reduce retiree benefits so that the total burden per auto for domestic producers is not higher than those of foreign competitors. This extra burden has been estimated to be over $2,000. Essentially, a competing auto to a Big 3 product has about $2,000 more added into it, and therefore feels like the better product.
So why do Big 3 workers get provided with so much more than those of the foreign competition? The problem lies with the UAW (United Auto Workers). The Big 3 has folded in the past to their desires, and essentially paid UAW workers more and more for less and less work.
Since the management of the Big 3 has not addressed these issues, they continue to lose stockholders’ money at record amounts and in record times. The best way for things to change, therefore, is a change in management, which can get the Big 3 going back in the right direction by restructuring the entire industry with respect to new energy research and material sciences.
The federal government should oversee a managed bankruptcy of the Big 3, provide guarantees for post-bankruptcy financing and assure those who purchase the Big 3 autos that their warranties are not at risk. By restructuring the Big 3 while still retaining the faith of the buyers, the Big 3 can experience a revival. However, a $25 billion bail-out check may simply doom them for good.
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