Wednesday, November 12, 2008

What to do with GM, Ford, & Chrysler

If you have read any of my commentary over the past several months you will probably know the answer to this question. GM, Ford, & Chrysler have awful business models. Warren Buffet described them as huge annuity and healthcare companies supported by an auto manufacturing company. They are all huge bloated companies that have not reacted to the needs of the market. For this, they will be.... rewarded! By the federal government that believes they should make investments in green technology. With oil prices back to 2005 levels, maybe they should rethink that strategy.

If I were president, I would let them all fail. The scaremongers in the unions, manufacturers, and suppliers say there would be a loss of about 5 million jobs. That would only be true if no other automaker in the world thought there would be no potential in all the assets that these companies own. Foreign automakers would see these assets and buy them at ridiculously low prices, rehire people, and start production at a level that would be supported by the market at a price they would be willing to pay.

If I were in a decision making position of a foreign automaker looking to invest in these assets, I would be wary of the unions. These unions are pure evil. The UAW can be blamed about 30-50% for the failure of these companies, with the rest on management. Short term gain for the baby boomers has killed the potential for younger people to make decent money at a manufacturing company by bankrupting them.

If a bailout were to occur, where would the money go? To managers that do not know how to manage, engineers that build crappy cars, union workers that are lazy from their collective bargaining, and alternative energy companies that would not be able to survive without a government subsidy. Sounds like another case of rewarding poor behavior.

The US can support a manufacturing base with the right policies. We can retool and reallocate resources into technology and health sciences. This would happen naturally if the government would stop meddling in business and keep the playing field level instead of favoring huge corporations and their expensive lobbyists and lawyers.

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