Tuesday, November 11, 2008

Give us some more money please

The Big 3 automakers are at it again, asking for more money from the US government. They've already been promised $25 billion (Obama proposes doubling it to $50 billion), earmarked to help them restructure and retool for the future. But insiders say that a quicker injection of funds is necessary just to help them meet current expenses and payroll.

It's difficult to understate just how dire the automakers' situation is. At a time of prohibitively expensive gasoline, their products are hopelessly obsolete compared to the competition. While Japanese and European manufacturers focused on capturing the compact and sedan markets, Ford, GM, and Chrysler preferred to focus on the gas-guzzling SUV and pickup truck market. And with the Bush administration opposed to any meaningful increase in CAFE fuel mileage standards, they were free to do so, thinking only for the short term, utterly ignorant of the coming crisis (last year the Bush administration finally signed a bill into law that increased standards, but too late to save the automakers from themselves).

If there was ever a business that deserved to fail, this is it. Here's John Cole:

This is not a damned surprise. They had years to re-tool and build vehicles that got better gas mileage, were more efficient, and used new technology, and instead they spent all their time building behemoths and paying lobbyists to fight higher CAFE standards. It was inevitable that once there was a gas crunch, they would get hammered. Why are we bailing out people who engaged in what was obviously bad business practices for years. Their focus on SUV’s was the business equivalent of malpractice, yet they did it anyway because that was where the quick bucks were.

The problem is that if they go under, they'll take millions of jobs with them. And that is certainly not what the US (or Canadian) economy needs right now.

Obama has smartly proposed tying federal aid to increased fuel efficiency standards. Tougher regulation seems to me to be the only way to go, as common sense has apparently been insufficient.

No comments: