Big Three Loan

Bailout – Yes or No?

I have found the controversy over this topic extremely interesting and for the sake of this blog, I am going to hop on my soapbox and share my opinion.

(As reported by CNN)
First off, Chrysler…really? “We need money so that we can stabilize our company and eventually join an alliance with one of the foreign auto makers.”

Just so I am clear, you want more American tax dollars so that you can make your company look more appealing to a foreign buyer. Ok, I’m not completely following but, ok.

Next – GM, who is looking at many ways to lighten the company’s heavy debt and sell or consolidate a number of their brands. Sell a few now, maybe a few more down the road. Is it the beginning of the end for GM?

Finally – Ford, the one of the three that I feel proposed the best approach to digging themselves out of the hole. “We are accelerating the development of hybrid and electric cars to compete stronger with other brands.” They also have proposed large pay cuts of at the executive level. But is it good enough for nine billion of the taxpayer’s dollars.

I have a hard time with this for one big reason: We live in a capitalistic economy where you have the freedom to succeed and profit from your hard work and good decisions, but you also have the freedom to fail. There is that risk, your actions today will effect tomorrow. These companies are witnessing this first hand. This storm started brewing long before the decisions made in 2008.

Don’t get me wrong, I am fully aware of the consequences of letting companies like GM and Ford fall, there is a good chance that if they fail, it will cost our economy much more than what the loan is for.

I like to look at business much like a house. For example, when you begin to realize that the ceiling is sagging and the walls are cracking, it’s time to make a change – it’s time to fix. You get a loan. You fix patch the wall and lift the ceiling. You’re good to go…right?

NOPE!

You never really fixed the problem. You merely masked it. The problem wasn’t in the walls, or the ceiling – it’s the foundation. So, now, all of the money that you spent to temporarily fix your house didn’t really fix anything, it’s a patch job. Not only are you going to have to fix it again later, there is a good chance it will cost more the next time.

My point…

…sometimes you’re better off letting the house fall, starting from scratch, pouring a new foundation and building a stronger, more stable house.