Quest Means Business   « Back to Blog Main
February 18, 2009
Posted: 1222 GMT

The news that GM and Chrysler need more government cash is not a surprise. Everyone said they would. The changes that are being made to their businesses are deep and structural. Plants closed, jobs lost, models discontinued.

And there is no guarantee of success. All of this wouldn't be of much interest outside the United States, if other governments hadn't jumped on the bailout bandwagon and doled out dosh to their car companies too.

The Brits (or at least the foreign owners of British cars plants, the Italians, the French... all have in some shape or form attempted to level an uneven field.

No doubt the Japanese and Germans will have to follow suit otherwise their car companies will cry "foul."

But enough is enough. The chairman of luxury car brand Daimler told me on this week that he hoped there would be an end to this bailing out of car companies because it distorts competition. He also refused to say "no" to whether he ruled out asking for German government cash.

It seems once the bailout cash starts flowing, it is never ending.

Car companies have economic tentacles that few other industries experience. From raw materials, to manufactuer to distribution to credit facilities and the retail end. They stretch the length and breadth of the global economy. That is why we bail them out

Last night on our show many of your Twittered me on the subject. There was a clear majority in favor of NO more bailouts... it was throwing good money after bad.

So do you agree ? Is it time to let the car companies go to the wall (with all the possible consequences ? )

Bailout or bust - Your thoughts?

Posted by: ,
Filed under: Business •Quest Means Business

Share this on:
c.ferrell   February 18th, 2009 1:20 pm ET

No More Bailout Money for Auto-industry

Ramsi Hashash   February 18th, 2009 1:23 pm ET

One thing I learned in the past is, that if one company goes bust another will pick up the pieces and business goes on.

So does it mean that if some car companies go broke we will not be able to buy cars anymore? Obviously the answer is no, someone will come and build cars again.

At the same time what does filing for bankruptcy actually mean? Looking at Mr. Trump, he is a perfect example that the US bailout system is a joke. The companies he owns or runs file for bankruptcy but he always turns out to still keep all his money and goes back to build a big business.

Same with the car industry the file bankruptcy and the subcontractors and supplier are the once which will suffer. The car company will get back to business asp and they have learned nothing.

Richard it is simple, if I cannot pay back my loans or my monthly fixed costs I go to jail or the least I might end up like a homeless. The top executives get nothing a slap on the hand that is all.

Enron was not bailed out, Lehman brothers was not bailed out etc. So in the pure free market economy those companies who cannot pay or have no money go down the drain. Still in a free market economy if the price is low enough you will find someone who will by the company and start business again.

I know I am simplifying things, but why complicate them? People will suffer, but at the end they will turn around and find something to get back up. This is what most human beings do or am I wrong?

Ricardo Acosta   February 18th, 2009 3:20 pm ET

This world DOES NOT need the amount of brands of cars that exist today or either too many models. We don´t need to change our car every 2-3 years, and the future is small, dependent, reliable, ecological vehicles that can last 20 years. There is no need to make "facelifts" or change the aspect of the car just to have a "new model" every few years. The companies that are going to survive are the ones who adapt. This is a "Darwinian" must-be rule. Pumping money into big, unefficient and lust companies is going against our survival, because of the global warming.

If our political leaders worldwide were brave, wise and intelligent, this economic chaos can be the big opportunity of our century, shifting all the workers in the auto industry and related companies into ecological jobs. Sustentable, good jobs.

But this is just a dream. For humankind, the next year is more important no matter what consequences for the future, for our children. We have -as a species- demostrated only short sightedness.

Thomas   February 18th, 2009 3:24 pm ET

Ramsi, I like what you said!

They should never have been bailed out in the first place. It is a business. They took risks, they followed a business plan that did not work. It is their responsibility, not the tax payers. It is as if I had a child that said "Daddy, I have a great business that is in trouble, please help me with a loan". And the child just keeps coming back for more and you just keep giving because you do not want to hurt its feelings and see it cry. Well the car guys are big boys that can deal with whatever mess they got themselves into on their own. Its time for tough love!! Let them sink or swim on their own.

Michael C. Mchugh   February 18th, 2009 3:27 pm ET

I have long thought that the employees should get the chance to buy these bankrupt companies on very easy terms. They would have a strong interest in saving their own jobs, and they could not possibly do worse than the management that has run these companies into bankruptcy over the last 30 years. Of course, even if they do buy it, they will have Uncle Sam as a partner for a long time. I see no way around that, unless we just want to give up all these jobs forever.

For all the complaints about labor unions, the fact is that the American labor movement is flat on its back and lost its dynamism years ago. It has lost millions of jobs and has been giving back all the gains it has made since the 1930s. Personally, I regret this, and I doubt if we can have a real democracy in America without any organized labor movement. I have no idea how to revive it, though.
Maybe if the workers could also become owners, in partnership with the government, that might do something to restore the balance.

It would probably be good if Opel and the other GM subsidiaries overseas were also nationalized. In Germany, the workers get a much better deal than their US counterparts, and they might be able to keep Opel alive.

Haraldur Baldursson   February 18th, 2009 4:42 pm ET

Dear Richard,

the other side to these bailouts is also the steps being taken by individual coutries in guarding their markets. Border are being built and the danger of shutting off international trade is great and the effects are of much greater magnitude than of seeing car manufacturers close their factories.

Should parts of this money rather be spent in developing electrically driven cars, phneumaticcaly driven ones or some other propulsion, itmight turn out to beneficial.

Ramsi Hashash   February 18th, 2009 7:35 pm ET

How about this I am willing to buy GM for one US dollar bring in my management team. We will turn GM around we will change the way US citizens drive cars and we expect the government just to cover the current debts GM has. We will need 6 month before the turnaround will show first improvements. For the first 2 years we will expect the government to pay the benefits for all employees and retirees. Meaning the government will pay the health and retirement plans and on top GM will not pay any taxes for the next 3 years.

The Unions have to give in big time for the good of being able to keep up 90% of the work force. Meaning if people reach retirement age their position will be eliminated where needed.

This is it in a nutshell I actually have a 30 page document which clearly describes how this process will work.

The new management team will get a basic pay and no bonuses for the first 3 years even if things turn around sooner.

Who am I? Well just a guy who knows he will make it happen if given a chance. So how about it will you join the management team?

Harriet Schutsch   February 18th, 2009 8:40 pm ET

I am in Germany and have watched all the speaches and episodes of cnn with regard to the GM bailout. You incorrectly stated that Germany would consider helping GM and that Sweden would not help. The part about Sweden is true. but the statement about Germany is completely false. Germany will not nationalize Opel unless GM will consider releasing the company to Germany. And considering they are the only division that actually makes money is it little suprise that GM would give false information regarding the situation here. Germany will not give bailout money to GM that at this point is simple fact.

stephen   February 19th, 2009 2:41 am ET

Why not nationalized the big three, tell their management to take a hike. The government takes over revamp then sell the to NEW private sectors.

People might say government made lousy management, but look at where we are now... no thanks to the "bright" private sectors.... so it can't be any worse.

Since GM and Chrysler wanted to cut more jobs, why not start the layoff from the top?

And while we are at it, demand these people return the bonuses they received from illusion profits of the past. Why illusion? Because if these companies are earning before then where are the monies now.

Leblanc J-M   February 19th, 2009 6:30 am ET

Let'em go bust !

We should help start new companies who have eyes on the future.... small innovative and green means of locomotion

Forget the dinosaur car builders , they have failed !

Thomas   February 19th, 2009 2:39 pm ET

I just have to add one more thing. The car buying public in the United States is as much to blame for the mess in the Auto industry as is the management, if not more. After all, the companies were only supplying what the public wanted. They continuously bought the huge gas guzzling machines, fueling their egos, and laying waste to the environment without a care in the world. And the Auto companies gladly supplied what they bought. What incentive did they have to change their business model? If the auto buying public had demanded more fuel efficient autos then they would have produced them. And now the public blames the management for bringing down the house. Shame on you. Take a look at what is in your driveway and ask yourself, what have I done??

Steve Mierzejewski   February 20th, 2009 7:40 am ET

The speculation bubble has been replaced by the bailout bubble and, as in all bubbles, those within it cannot see it for what it is. When the bailouts fail and debts accumulate beyond all reason, we will be faced with a reality that few now want to confront.

hitesh   February 20th, 2009 3:25 pm ET

With all the money proposed for bail out, why not form a new company which will focus on sustainable eco friendly small cars. Deserving employees & vendors of existing auto companies could be given the first right to get an opportunity with these new companies. That way, shareholders pay for the risks viz. lose money and only deserving employees/vendors survive. Government can disinvest out of these "new" companies when things stabilize. As a tax payer , if my money is at stake, i would rather start something all over new than trying to make a something that has a remote chance of working.

Jeetu   February 20th, 2009 4:34 pm ET

I dont think these companies gotto be helped any further, it would only mean that you pay them now and after sometime, you gotto help them out wtih the cash. With the current market condition, it would be more difficult to survive and even come out in flying colors. The company would have lost alot of money on the current assets that they hold as well. Public would also lose faith in the company and may not support as in the past.

The company better go bust than to be helped. You cannot afford to throw the public's money to these companies who if once helped, will always come and ask for more. Public's money should in turn if needed, come in to rescue the public.

Reduce tax or pay back to the public in some way, so that their burden is reduced in todays time.

John B   February 20th, 2009 10:04 pm ET

Bust or employee buy out.

What happened to free market forces.

IF the companies are viable then a bank or investment group will back an employee takeover.
IF NOT viable enough to attract an investor, then there is no way these companies can be saved – let them go, their product is far inferior to the competition.

William   February 21st, 2009 4:52 am ET

To blame the customer for GM's woes is rediculous, as is blaming GM for making products that sell. However, the underlying issue is what matters. The company for decades bemoaned the Japanese copying their cars, but did nothing about copying the Japanese (so go figure). They should have followed Toyota's constant attention to cost control, quality and innovation. Instead, they let the Union push them into work arrangements which were uncompetitive (slowing introduction of robots, little discipline of workers not doing their job properly (poor quality assembly) and wages and benefits out of control). As a result, their cost structure forced them to exit the small car business as being uneconomic (Toyota manages to build small cars in the US) and focus only on a narrower and narrower segment of the market. Further, the companies squandered their past profits buying unprofitable foreign brands. All this has left a NA car companies that were on their last legs before the market crashed. Basically, they were nearly dead and now should be allowed to fail, ending the process that has been going on for 30 years and not something brought on by the "financial Tsunami".

Simon Purser   February 21st, 2009 11:20 am ET

If a business is not viable, bailing it out merely delays the inevitable. In the US especially they have had decades to evolve cars which match the fuel economy and low emission targets proposed. They have lobbied hard to lower those targets and avoided the evolution which would have justified their survival. People will still need to get around, used cars won't last forever. Sometime in the future those factories will be retooled by someone with vision. It just won't be GM or Chrysler doing it.

o2miller   February 21st, 2009 10:31 pm ET

As an expat living in Brazil, I drive a 1985 Chevy 4-door sedan. Automatic transmission, A/C, all the perks. A true All-American huge gas guzzler. But it came off the assembly line burning alcohol, not gasoline. GM has done some amazing things in this market, as it must have done all over the world, except for the US. Sure, the car buyers are to blame, so are management and the unions. Maybe to split the multinational into separate national companies is a solution.

I also believe that the car companies are businesses like any other and should not receive any more help from DC. They already got a handout and it didn't do the trick. Fool me once, and all that...

Lauro Silva - Brazil   February 22nd, 2009 2:48 pm ET

you gotta do what gotta do but bailout. To trust greedy CEOs they will recover the corporations on bailouts, amidst a deep mess, it´s a dead duck. A very likely attempt is the employees taking over, with less and also simpler and cheaper models, not leaving laidoffs out of financial assistance by the government.

Lauro Silva - Brazil   February 22nd, 2009 3:44 pm ET

No doubt the public is much more to blame for the mess than the automakers themselves. For many and many years, still now, everyone, ourselves included, was spending much more money than they could afford, only to show their neighbors their new and more expensive and sophisticated cars until the neighbors revenged. It stands to reason that all this relying on bank loans.The greedy automakers and bankers took advantages of it, for sure. That and the like are the cause of the collapse. We can´t undo what´s done and keep crying over the spilled milk is not the right thing to be done.Let´s roll up the sleeves and get to a fresh start.

Jacob Hausman   February 22nd, 2009 7:58 pm ET

There should be no bailout. The economy is harshly impartial to people lower in the rung, it can afford the same treatment to those at the top – after all, it is windy at the top. There is no room for everyone, some have to fall on the wayside. It happens to civilizations, cultures,'s just how things are.
The demise of these companies could spawn the people that will get us to the next level, almost like evolution, but by bailing out these companies we deny ourselves the chance to expose new talent.

What we need to do is cast aside fear and rest assured that there are sufficiently qualified, resourceful and innovative people who can readily respond to the current and future situations better than the current ones, they have served a purpose, I'm sure there are generations grateful to them, but now it's time to get a fresh hand out the deck, put out bets down and play the good game.

Clive Taylor-Haasz   February 23rd, 2009 8:24 am ET

It is pure economics, when a company carries so much debt, with the market shrinking, there is no way it can work its self out of it. Let's stop dreaming, let them go to the wall, get rid of the dros, start a fresh. No point in wasting any more time, talk or tax payers money. Its reality that's needed, when you have a cancer like this, treat it.

Lauro Silva - Brazil   February 23rd, 2009 4:24 pm ET

Richard, compliments on your post, it hit the spot. The most important step for the time being is the government recovering the people confidence, getting closer and closer to them and farther from financial institutions, automakers and the like. The people are the most liable ones to fix the mess. Laidoffs and home-losers  should be provided with  money into their hands to pay off their debts. There are many ways to accomplish that and more than anything, being cheaper, more effective, free from bribes, grafts and easier to supervise. This procedure,besides start recovering immediately their confidence would provoke, as well, new jobs coming up. The economy would gradually start getting back to the rails. Politicians always despise the people thoughts and only petty.profitable for them, politics is their target.  Politicians, bankers, managers, CEOs are terribly weath today by dint of the ordinary people and nothing more fairer than they had  their tax return rate increased for a good five years at least. As to the institutions themselves. no more stimuli, bailouts, whatsoever,  About time new institutions with new brains were created. leaving the old ones to pull their own chestnuts out of the fire by themselves.

Craig Eyles   February 26th, 2009 11:46 am ET

I'd say bust. To take another perspective, if car makers A, B, & C went bust, & I had car D of the same year, I'd guess that makes my car worth more compared to today.
Therefore, if some went bust, it would be good for us car owners.

Andres   February 27th, 2009 10:23 am ET

Well, at least we aren't in the phase of bailing out countries...but seems a matter of time..

Karen Cillie   February 27th, 2009 7:59 pm ET

Dear Mr. Quest

How much money has been given in the world until now for bad dept?
We are 6 bil. people in the world, it looks o me that it will be cheaper to just divid al that money between the inhabitants of the world and get rid of world poverty and greedy bankers.

I know it sounds stupid but taking that pension after so bad a job done is even worst.

gary roseaman   March 11th, 2009 9:05 pm ET

I have worked in the Automotive industry for 26 years from leaving school. I have for the past 16 years been working on installing machines that reduce labour or make vehicles faster.
We can now build cars we dont need very fast and with minimal labour. These are the 2 things we dont need automated factories building what we dont need.
I have watched adverts showing vehiles that were shown last year with additions only of Eco-badges or logos feeding some eco-bull they think we want to here.
Before this all can be fixed we need to know where we want to go.
I truly believe before it can all be saved we need the government to lead this means EVERY government owned vehicle must be replaced with a super-efficient eco friendly alternative. A competition to award this contract will determine the supplier survival and all done in 12 months. This should shake it up at least and you could even call it Eco-Factor.
When the government contract is complete then im sure us joe public will want one.
Re-tooling the UK factories well they did it for the war so why not for survival. Forget the 500 million to re-tool.
Thats enough tree hugging for me tonight.

mhlongo   March 20th, 2009 3:07 pm ET

Hi there Richard i just wonder why in the midst of all this global economic turmoil you have ignored South Africa.We are one of,if not the best,performing economy at present.Our National Credit Act of 2006 has shielded us from making loans we cannot afford,the employment rate has not fallen to my knowledge,no major industries have closed down,etc.I believe we deserve to be mentioned,don't you?

Comments have been closed for this article

Powered by VIP