Galt Global Review

The companies’ financial positions are perilous, no doubt. GM’s share closed at its lowest since June 22, 1949, and current shareholders are facing a ‘lose-lose’ situation. According to Chris Isidore of CNNMoney: “Either lose your equity position when the government bailout dilutes shareholders’ holdings, or face being wiped out if the government lets the companies fail.”

Of course, this isn't’t the first time the US auto industry has asked for government assistance.

The reality is that over the years $25 billion has been allocated to the US Auto Industry for the specific purpose of defraying the costs of new environmentally friendly vehicle development.

The solution seems straightforward: Build cars that people will want to buy. This is what will lead the industry worldwide, and is in keeping with what every other employer in the USA and Canada is required to do: Align your business with the market forces and draw your profits or losses accordingly.

It would be a shame to deprive the auto industry from the opportunity to show the world that it has the necessary expertise and gumption to properly manage their affairs. However, if the auto industry does not have the essential expertise and talent required for leadership, then how is a flow of billions of dollars going to resolve this?

What people fail to perceive is that the bank bailouts (whose coat-tails the auto industry seems to be conveniently tagging along to) does not bail out shareholders at banks, it bails out homeowners at risk of losing their homes.

A number of limited moves are available to the industry, and are presently being discussed. Among these include a possible merger between GM & Chrysler (now too late); a loan to fund health care trust funds of retirees and their families, thereby removing these costs from automaker’s balance sheets; and a request by automakers for a low-interest loan to convert production lines to making more fuel-efficient vehicles in the face of consumer demand and new federal rules.

The US political leadership supports such a move with the argument that “it is essential that [the US] preserves its manufacturing and technology base in this country”, said Pelosi in a prepared statement. How, then, does the auto industry explain their plants in Mexico and the 3rd world outsourcing of American auto industry jobs?

Lost in the debate is the loss of competitiveness by US automakers to their Japanese, German and Korean counterparts. No amount of government assistance, loans or mega-mergers can replace the capability for taking the long view. In fact, all just may exacerbate the reasons for the failure of the US auto leadership to do so.

What we do know is that if the US auto industry cannot make the leap to present global market forces toward green technology, there surely is a company that can. Why not, then, give the 25 billion US dollars to them?

Dr. Morgan Gould recently joined Galt Western to launch G8, a high-end consultancy offering business solutions to improve corporate performance. Dr. Gould has broad experience in the private sector, government reform, and large international organizations, and has an extensive consulting as well as academic background. He recently relocated here from Switzerland.