Bailout? Goverment Should Lead Takeover of "Big 3"

Andrew Burger

They’re baaack…The “Big 3” automakers are back lobbying Washington D.C. lawmakers to expropriate billions of dollars to guarantee some $50 billion in loans they say they need to carry out restructuring plans. Better idea: Why doesn’t government, along with any private sector investors big and brave enough, just get it over with, take them over, boot out management, restructure and re-privatize them?

The “Big 3” U.S. automakers made headlines again this week as, hat in hand, they once again appeal to Washington D.C. lawmakers to bail them out.

Big changes are required for the US Big 3 Automakers

For a government that champions free markets and open competition as official policy around the world, this not only reeks of hypocrisy, it sends another signal—remember the government-led bailout of Bear Stearns earlier this year?-- to large, moribund and poorly performing multinational giants and entrenched managements that U.S. government leaders are willing to step in and save their bacon at taxpayers’ expense. Maybe there’s a better way?

Hat in hand

News broke last week that GM, Ford and Chrysler want Congress to appropriate some $3.75 billion to back an initially approved $25-billion of government-backed loans and tack on appropriations for another $25-billion over subsequent years so that they can carry out plans to develop and build more fuel-efficient vehicles.

Thing is they also want more flexibility and leeway to determine for themselves how these funds are spent. “Auto-industry lobbyists want Congress to set rules that will allow the initial $25 billion to pay the full cost of upgrading assembly plants, parts production or engineering to improve fuel efficiency, said the people, who didn't want to be identified because the plans are still being developed. The current rules limit loans to 30 percent of the cost,” according to a Bloomberg business news report.

What’s wrong with this picture?

More fuel-efficient vehicles? Come on, these are the guys who’ve been completely blindsided by fuel and energy price rises and whose sole strategy over the past decade has been to build bigger, more expensive gas guzzlers.

These giant companies are a mess. GM and Ford lost $24.1 billion in this year’s second quarter, as foreign competitors, the Japanese of course at the top of the list, again ate their lunch while executives continue to enrich themselves to ever greater degrees.

Let’s face it, the “Big 3” are more like poster children and business school case studies for how not to manage a multinational corporation in a key manufacturing sector. The U.S. government stepped in and bailed out Chrysler in the eighties. A generation later, and it’s not only Chrysler, but all three demanding U.S. taxpayers bail them out again.

Why is it that Japanese, German, even Korean vehicle manufacturers seem to be able operate in the U.S. better than our homegrown industry pioneers? Even with them shutting down manufacturing plants here at home and re-opening others, and sending jobs, down to Mexico and other countries? Hell, the Chinese'll be here and doing better than they are soon enough.

“Our plans, which require significant investments, are at risk because of limited access to capital’’ Greg Martin, a spokesman for Detroit-based GM, was quoted as saying in a Bloomberg business report.

He declined to comment on whether GM is seeking more than the original $25 billion.

“This program will open capital that is necessary to make sure our transformational plans continue at full speed and give us the best chance to succeed.”

Best chance to succeed? We need taxpayer money to back us up? What’s wrong with this picture? Why not nationalize them, temporarily at least, boot out management and start over by restructuring and privatizing them?

Saving jobs, taxpayers’ funds

Saving Bear Stearns, and again pumping liquidity into an already overheated money supply engine, was bad enough but at least a consortium of private sector bank competitors stepped in and spared the federal government, and U.S. taxpayers, from bearing the entire cost of the salvage operation.

“This is a horrible idea, another transfer of funds to failed ventures,” David Littmann, senior economist for the Mackinac Center for Public Policy in Midland, Michigan, told Bloomberg. “If this were a good idea, the market would price the debt accordingly and give them the money.”

Where are all those huge hedge and private equity funds when you need them? We’ve been hearing all about they’re huge appetites for risk for a couple or few years now. Apparently, none of them are willing to step up and provide the capital the automakers say they need to see their “strategic” plans through to fruition.

Given “Big 3” managements’ track records, who can blame them? If they’re so desperate for funding and capital, better that the government should be a more demanding “investor” and in so doing provide at least some real justification to coming to their aid.

How about letting the “Big 3” fail and/or taking them over outright? A public-private consortium could be formed to carry out a restructuring in line with long-term plans to transition to flexi-fuel and electric vehicles with taxpayers as shareholders. Once things are well under way and some real progress can be shown, auction and/or sell of the public stake and make a distribution to shareholders.

If the U.S. government, in the name of its citizens, continues to shore up such poor performers they should take a page from T. Boone Pickens' and other aggressive investors' books and demand a more active role, stake and say in how these companies are managed.

Tags: big+3+automakers, automaker+bailout, automaker+renewable+energy, alternative+fuel+vehicle


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