Bailing out Detroit

Leander McCormick-Goodhart looks at the perilous state of the US car market

Surely nobody would allow Detroit, the backbone of American industry, to go bankrupt?

In a last effort to prevent collapse of the US auto industry, Detroit is seeking a bailout. The CEOs of the big three automakers- GM, Ford and Chrysler- have appealed for a $25 billion package.

Detroit has come under scrutiny, with accusations of mismanagement and the fundamental inability to reform itself.

Spencer Bachus, a Republican representative from Alabama, argues that “a bailout is not a solution to the fundamental problems of the Big Three automakers” and that they will “have to become more efficient and competitive” if they want to survive.

Executives defended their corporations by citing a weak economy, one in which consumers cannot obtain credit to buy cars- not management failures- as the primary reason for their misfortune.

During September, sales at Ford and Chrysler fell by 34% and 33% respectively.

A Republican from Michigan, Fred Upton, believes that “the US auto industry created the middle class and turning our [congresses] backs would be a disaster for our economy.”

Detroit needs major surgery, not just a band-aid.

I think that a bailout of the auto industry would not solve the fundamental problems that it faces- issues of product inferiority, job losses and falling market shares will just be swept under the rug until a later date.

Without a bailout, Detroit will be forced to restructure itself.

I believe a managed bankruptcy is the best answer. With the government ensuring post-bankruptcy financing, a managed bankruptcy will allow Detroit to shed excess labour and pension costs. Detroit will restructure itself and rise again with refreshed, competitive automakers.