Money to Burn?

It appears there isn't the political stomach in D.C. for bailing out the automakers. That's unfortunately because the main problem with the bailout is perceptions... not reality. The main problem with te auto biz right now is that automobiles aren't selling. Period. No one is selling cars, not Honda, Toyota, BMW, Ford, or GM. The photo above is from NYTimes.com showing cars stacked up in port because no one is buying them. If you look closely you will see Toyota Priuses (Priusi?) lined up. So, if no one is buying, what good is a bailout? In my opinion, if the gov. were going to truly "bailout" the big three, it would start buying a lot of American cars and bury them in Texas somewhere.

Don't take this wrong, though, I'm for the government bailout of the domestic 3. But it's not a "bailout". It's not even a good loan. I see it as a stay of execution or priming the pump for a merger of two.

As evidence: GM is burning about $1.15 Billion in cash per month, giving them cash through Jan. (as of end of Oct.). So, if we give them another $20 Billion (over two-thirds the proposed bailout), that gives them about a year and a half to turn it around. They believe that with this cash, they can cut enough to survive until the economy turns a corner. To do so, though, they have to cut their monthly spending. How do you cut $1.15 billion in spending per month at a mammoth like GM (or Ford, or Chrysler)? You cut staff. You cut vehicle programs. You shutter plants. Bottom line, even with the "bailout", we would be seeing a lot more bad news before we see good news.

This would seem to say that congress killing the bailout is a good thing, right? And why is this marketing guy talking about all this anyway? Well, to answer the first question, the problem is GM, Ford, and Chrysler need cash and they need it now. Whether it comes from this bailout or some other loan program, the fact is our economy (even in good times) can't absorb the loss of one or two of them. There's just too much as stake.

And here's why a marketing guy is talking about this: there is enough ill-will towards the big 3 for perceptions that they have lazy UAW workers, years of crappy quality, and its lack of innovation (whether right or wrong, those are perceptions often spouted on talk shows these days), that if they receive the bailout and then cut staff, programs and staff (which they will HAVE to do), there would be a LOT of crying "foul!" Politicians are essentially hoping, that without the bailout, the big 3 can tap into other loan programs that won't have the appearance or political stigma of taxpayers throwing money down a blackhole, as bad news continues to roll out.

Of course, here's the rub: the money that is going to end up giving the big 3 a stay of execution is going to be the money that had been allocated (and they need) for new programs. So, your neighborhood plant may not close this time, but there won't be new product in the pipeline for it in the next few years.

THAT's why the bailout is needed and the talking heads should be looking at the reality, not perceptions.