Again, we have another set of major players in the market that are coming, hat in hand, to the government asking for a handout. The Big Three American auto makers are to appear before congress to request a stimulus package and low interest bridge-loan to help them survive these rough economic times.

When the price of gas went up, sales of popular, but gas inefficient vehicles plummeted. SUV sales dropped, light-duty trucks dropped, and large sedan car sales dropped, hitting three of the formerly highest selling auto categories.

As sales continued to drop off, the car companies realized it was time to start becoming more  efficient. That meant less workers, better, more gas efficient vehicles, and cutting costs throughout. The only problem is that as huge burecracies, these companies aren’t what one would call ‘agile’. Making these sweeping changes takes time and money. Neither of which are in great supply any longer.

Originally, as gas hovered around $4.00 per gallon, they received a multi-billion dollar investment package from the government for the design and production of new gas-efficient cars. Now, the Big three are saying that  without additional on-going working capital, they can’t take full advantage of this seed money. This additional money is needed to carry them through the tough times while they re-tool, and modernize to produce the next generation of gas efficient vehicles.

In theory, that sounds good. And there are a number of compelling reasons to lean towards investing in the auto industry.

• Job Losses – Industry experts estimate that directly and indirectly there are around 3 million jobs related to the auto industry that are at risk.
• National Productivity – America has moved farther and farther from a manufacturing economy to a service economy. Some of our last major manufacturing capabilities reside in producing cars for the worldwide auto market. If we lose this manufacturing ability, we become even more dependent on outside sources for finished goods.
• Town and City Dependencies – Many locations where there are auto plants, a significant percentage of the town’s workers are employed at these plants. If there is a large-scale closure, some towns and cities could be financially crippled for years to come.

Now For the Minority Report

There is still a vocal opposition to giving the auto makers billions of dollars in assistance. These people say things like “The automakers have already been bailed out multiple times already, when is anything going to really change?” and “Why can’t they go into Chapter 11 Bankruptcy and simply re-organize?”

Two excellent points. In 1979 Chrysler received $1.5 Billion for a ‘re-structuring’ from the government. Chrysler came out of the restructuring, and flourished with new vehicles such as the K-Car, and the minivan. Clearly Chrysler was better for the government intervention in this case.

As to Chapter 11 Bankruptcy. Many of the opposition state that there is already a mechanism in place for allowing a large business to ’submerge’ from creditors and other outside influences while it reorganizes itself. Multi-national size businesses don’t just fold up overnight without causing a tsunami of financial damage, so the Chapter 11 Restructuring Bankruptcy was created. When a company goes into Chapter 11, they are protected from creditors collections, in the idea that they can solve many of their problems, “right the ship” as it were, and emerge from bankruptcy as a profitable business again. This is clearly in the interest of the creditors, who get full value for their investment (rather than whatever is ‘left’ after a Chapter 7 Liquidation Bankruptcy) and the company’s workers continue to work and receive salaries.

More than a few of the big airlines have gone through this process (some multiple times) to reconfigure, streamline, and re-launch the business. So why can’t the auto makers do the same thing? Auto company executives state that “The American buyer won’t buy from a company in Bankruptcy.” That may be true, but until it’s actually tested, it’s just speculation.

Either way, the big debate still reigns on whether to help them up, or let them fend for themselves.

So the question I’m asking;

Do you think the government should be helping out the automakers, or should they be left to fend for themselves?

Leave us a comment and let us know your opinion.