As a Michigander living only a few miles away from Detroit, I can’t help but turn on the radio or television each day and hear further tragic news involving the automotive industry, particularly General Motors Corp. GM has been beaten down by the mallet of economic depression for 5 years now, and the effects are starting to light up like a Christmas tree.
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Economic Doom and Gloom
For those of you who don’t have time to keep tabs on Forbes reports, you may be surprised to learn that General Motor’s shares hit a new low today at $1.70, which hasn’t been seen since the Great Depression in the late 1930s.
During the past 5 years, GM has been forced to reduce 46,000 white collar jobs to only 26,000. Just recently, Channel 4 News (WDIV) announced that another 7,000 jobs would have to go by the end of the month. About 3,500 people took the buyout, and another 3,500 will have to be escorted out in due time.
Now GM sits in a position in which it could be forced to declare bankruptcy in a matter of weeks without federal aid. A government bailout is necessary for their continued survival, but of course the Senate isn’t so excited about forking over $25 billion toward the cause.
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To bailout or NOT to bailout?
So now it comes down to two popular opinions, which I will essentially paraphrase:
1. “Our country cannot risk the potential catastrophic events to an already weakened economy if the auto industry collapses. The chain effect of GM’s demise would ultimately results in the loss of 3-4 million American jobs. The government must lend a hand!”
2. “The bailout defies the principles of capitalism. If a company is forced to go under, it may yet resurface. If not, then it stays buried. Bailing GM out today and providing them with the funds to pay their expenses during the next several months will only prolong the inevitable. It will only apply a band-aid that is destined to burst. The government should deny GM’s requests for aid.”
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An Interesting Proposal
The other day, one of my family membes was talking about GM’s current situation and began explaining what he felt the government should do to help the company get back on track. As he went on, I thought to myself- “That’s actually an interesting proposal.”
He essentially stated that if the government planned to aid General Motor’s sinking ship, they should offer all American citizens a major discount on current automobiles; anywhere from $5,000 – $10,000 per new car. This savings opportunity should excite some people, despite the current economic hardships. As GM sales pick up, their revenue increases. As revenue increases and more cars are produced, the demand for jobs remains stable and could potentially increase in due time.
Is the idea feasible? Is it just another “band-aid”? Or could such a plan initiate a series of improvements for General Motors Corp?
At the very least, I thought the idea was quite interesting and it wouldn’t hurt to consider molding a plan that involved a direction of increasing monthly sales. Feel free to share your thoughts.
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– Ryan
RyzOceanside@yahoo.com
Bailing the automotive industry out will only provide a bandaid as you mentioned in quotes. Give them money today, and they’ll be forced to beg for more money tomorrow. I do think your proposal has some potential, but I’m not sure I’m convinced that enough American consumers would be interested in purchasing a brand new car with this nasty economic status. Even a 25% discount doesn’t help the people clinging to their jobs and savings accounts. Not a bad idea, but it’s a gamble just like every other proposal.
I don’t really agree. i’m really not sure the US can afford to lose the Big 3. An explosion in the job market will trigger even more desperation. If GM has to go, it has to go. but the effects at this time is really going to further throw the economy off balance especially now that Citibank is facing the can. Maybe it won’t matter in the long run but if the bailout provides them with a bandaid for 12 months the damages won’t be so severe if they go bellyup. I sure wouldn’t want to take any other risk. Give them their $25 bil, set some conditions and be done with it.
If it was that simple, I’d also say just go for it. But that government infused band-aid is going to come out of the taxpayer dollars. I’m not keen on the idea of tossing my hard earned money toward a broken cause.
The bailout is not going to permanently fix anything, and the temporary benefits may be so minor that it only causes further frustration among American business once the nation hears that GM is stuck right back in the same situation.
I don’t even tend to conform to the conservative way of thinking and I still have yet to understand how this government bailout can really improve our country’s situation on a long-term basis.
I’ll post what I said in a different GM-related blog earlier this week:
The House challenged CEO R. Wagoner and asked how GM’s situation would be any different 5 months from this period if $25 billion was given and GM monthly expenses were $5 – 6 bil per month. “How will you be any better off 5 months from now?” Wagoner didn’t have much to say.
Providing a bailout is just supplying band-aid. Do we really want to push some extra copper on taxpayers just to buy a little more time?
If the government is going to supply them with money, they need to develop a better plan.
It really didn’t help General Motor’s case much when they announced that all 3 executives showed up in their private jets and spent nearly 6 figures on luxury items during the entire month. Going the backhand approach, you could say. Not that I’m saying the big guys are the only ones who should be expected to make some simple sacrifices, but as company leaders they could stand to be a little more responsible.