The Observer Newspapers | Put the U.S. Auto Manufacturers Out on the Economic Sea

November 21 , 2008

Put the U.S. Auto Manufacturers Out on the Economic Sea

Bailouts are all the rage right now in Washington, D.C. First it was AIG, a financial services and insurance firm whose role had grown so large that the prospect of it failing spelled disaster for the entire American economy. What else was the federal government to do but put up $125 billion or more to take over AIG and stabilize the economy.

Oh, but that wasn't the end of it. Just a few weeks later, other financial sectors began to collapse, and again their influence over the broader economy was so widespread that to allow these companies and their investments to fail would spell disaster, not just for the United States but for the entire world.

After a brief, but intensely entertaining to watch, debate on Capitol Hill, a $700 billion dollar plan was reached to help stabilize the situation. Only a few weeks later, it turns out the $700 billion won't go as far as expected, nor will the plan be executed as it was originally drawn up. In fact, everything is different.

The AIG executives, however, were still able to squeeze in one more high-dollar vacation, all expenses paid, of course.

With all these bailouts up in the air and the prospect of others looming, this week in Congress the focus is on whether to bail out another industry that has been poorly managed, has been pushing inferior products and has been swamped by a lack of money to borrow and an extreme lack of customers: the U.S. auto industry.

There are a few statistics that bear reference here. The auto industry employs 240,000 people across the nation. It purchases about $150 billion in materials and parts from manufacturers and suppliers in the United States. Together, the "Big 3" automakers of Ford, General Motors and Chrysler make up a notable portion of the U.S. economy.

That doesn't mean they're too valuable to fail.

It's true that if each of the Big 3 were to go under all at once, the U.S. economy would feel a significant shock. But if I were Alan R. Mulally, the chief executive officer of Ford, I would be secretly hoping that GM stumbles, falters and ultimately fails. More market for Ford.

Ford is actually in the best shape of the group, largely because it ran into troubles earlier than GM and Chrysler and has spent the past 18 months reinventing itself for a new economy. The troubles of the global credit crisis have only complicated things for everyone, but Ford had a head start on bad luck.

American consumers are not at a loss when searching for cars to buy. This is an extremely competitive market, with foreign companies leading the competition in many sectors. The larger foreign manufacturers such as Honda, Toyota, Subaru and others have set up plants in the United States precisely because they wanted to be more competitive.

If Ford, GM and Chrysler were to fade out and be replaced by companies better able to adapt to a changing economic environment, the ultimate winner would be the consumer.

The huge bailout of the financial companies at the top of the U.S. economy was needed because of the severity of the mismanagement and the speed at which the economic situation was deteriorating.

GM reported to Congress this week that it was likely to run out of money in 2009 without some government loans. Chrysler said the same thing. At that rate, both companies have several months to begin scaling back and making those adjustments that are needed for the companies to stay afloat.

What Congress and the federal government should be more focused on is not trying to save every industry or company that for one reason or another comes to the doorstep with its hand out. Companies will rise and fall in the fluctuating economic times. Large companies will rise faster or fall farther than anyone thought possible.

Ultimately, what America needs most is support for those people who lose their jobs and have to be retrained for new industries or who must move to new areas to find new jobs and careers. What America needs is support for those small businesses who suffer in the short term to find new clients and new directions for success in the long term.

Let the auto manufacturers navigate the seas of the U.S. economy just like any other businesses, and let the federal government concentrate on the wellbeing of its citizens. Anything else is just folly.