The Automaker Bailout Props Up a Dying Industry at Taxpayer Expense.

The automaker bailout injected billions of dollars into the dying US auto industry, in the attempt to prop up an industry that has brought itself to the brink of a permanent demise through irresponsible management.

After the government bailed out the failing financial sector, the auto industry was next in the begging line.

The global credit crisis had a deleterious effect on the car industry, which was dependent on credit to keep operations going.

When the credit markets froze, the auto industry was no longer able to extend their credit so the CEOs of the ”Big Three” automakers in the US – Ford, General Motors, and Chrysler – flew to Washington separately in private jets to beg Congress for a bailout package.

To say that both Congress and the American public were less than impressed with such an ostentatious entrance is an extreme understatement – for once the public and the government were united in that they were both livid.

The Big Three reported that they would be almost immediately bankrupt without government help, so they requested financial assistance to continue operations.

The thing is, there is a reason people stopped buying their cars: the public can’t get any credit either, and the cars these automakers manufacture are mainly non-economical gas guzzlers that the American public can’t afford to upkeep.

Throwing Money into an Abyss

Why prop up a failing business if there is no market for the products they are producing?

Car sales in 2008 plunged 18%, the lowest since 1992. General Motors’ US sales hit a 49-year low.

Clearly nobody is buying these cars because no one can afford them and because no one wants to invest in a fuel-inefficient car.

Therefore the automaker bailout will not solve the problem – it only throws money away.

The government hasn’t stopped at the initial $17 billion automaker bailout though – the Obama administration continues to offer the auto industry the golden carrot of a lifeline.

Automaker Bailout: Restructuring Desperately Needed

In order to stay afloat, the US auto industry desperately needs to be restructured.

The current restructuring is based on the speculation that someday soon car sales will magically go up – which is basing a business plan on false hope, ignoring the facts.

General Motors, Ford, and Chrysler mainly focused on manufacturing large SUVs and pick-ups, because these are the types of vehicles upon which they made the most profit (15-20% for an SUV versus 3% for a normal sized car). Their motives were purely profit driven.

SUVs and pick-up trucks are gas guzzlers. With rising gas prices rising to over $4 per gallon in 2008, people turned away from these large, fuel-inefficient vehicles and favored more practical alternatives.

The failure of the US Big Three is due to their poor business practices, because it’s worth pointing out that Asian car companies manufacturing in the US are not having these problems.

Automaker Bailout Rewards Failure

The government and auto industry justify the bailout because they claim that if these auto manufacturers go bust, a large chunk of the American economy will go down with it.

The GDP would lose 0.2 percentage points and $25 billion would be removed from the US economy.

Nearly 3 million jobs would be lost and the fearmongers warn that with a current unemployment rate of already 8%, America would sink into a Depression.

However, continuing to pump money into a failed system is akin to repeatedly applying resuscitation paddles on a body that has flatlined. Such efforts are futile and only serve to perpetuate the problem.

If the US automakers go bust, foreign companies will open plants in the States and hire workers, making up for the job loss.

If the American auto industry is to continue, they must be held accountable for their mistakes and they must be forced to change the way they run their businesses.