The bailout of the auto industry

Lets first try and understand the logic. In this time of recession, if the auto industry, by which we just mean the big three are not bailed out they could actually go bust and the repercussions with all the suppliers is that hundreds of thousands of jobs would be lost. Lets not forget that the Japanese brands that manufacture in the US make more vehicles than the big three and are have not asked for help.

The package while helping to save jobs must have some purpose, as well as a potential upside to the government who is funding the bailout. Lets not forget that the government is the people. So along with the funds, an equity stake with a lot of upside potential is a must as is a restructuring that levels the playing fields. It is no secret that the Japanese automakers have been successful because they have not been hidebound by the very expensive benefits especially with regard to the health benefits of retirees that the big three have to pay out. The new companies did not have old retirees, which the current profits had to fund, neither did they get saddled with the most expensive healthcare plans. So this has to be reformed along with any bailout.

It is also very important that some synergy be instituted to ensure the industry is more productive, and produce recyclable and more energy efficient vehicles. If the government has an equity interest they will be able to more easily impose conditions that will be beneficial in the nation’s interest. It is important at the same vein to realize that they should not pander to the vote base by giving concession to the unions, which will then become counterproductive.

One must also be aware of being fair towards the companies that are efficient and which have not asked for help. So an agreement that will not upset them needs to be made, so discounting due to government subsidy does not become an issue.

It is important that a well considered plan be set up that not only covers the short term need for job retention but for the long term interests of achieving goals that are beneficial to all. There is no free lunch for the management or the unions, and so there will have to be a price paid for this help, which will accrue to the state. This will therefore ensure that the people at large feel this is no subsidy for inefficiency but an investment for the future.