Monday, December 8, 2008

When you bail out a sinking boat it's still sinking until you plug the hole

It seems all too obvious that the bailout for the Big 3 automakers is about to transpire. Somewhere on the order of $25 to $35 billion dollars will be made available with $25 billion already sent Detroit's way as of September for "retooling". That is, to make the auto megagiants more capable of creating green/hybrid cars. The current monies are meant to be a bridge loan, to get them through next spring. Then what? More monies, more bridges?

If Detroit's automakers weren't smart enough to foresee the need for smaller, more efficient cars on their own, why should we believe they have the good sense to make their companies leaner and more profitable? The phrase "throwing good money after bad" never had a more appropriate application than this travesty. Bloated, short-sighted and arrogant companies such as these burdened by poorly negotiated union contracts that make it nearly impossible to compete with foreign manufacturers need to be allowed to suffer the free market consequences of bad management.

This is the nature of capitalism and it has worked well when left to "the invisible hand". My very tiny company has made it through two previous recessions by making good judgements about costs, customer needs and service and there's not a single Ivy League MBA on the staff!

You can bet the Big 3 has tons of them.

Chart courtesy of

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