General Motors needs money…lots of it. The fatigued automaker is seeking some $10 billion in cash from the U.S. government to help facilitate a merger with the third largest U.S. automaker Chrysler. The money they seek would be above and beyond the $25 billion in loans already promised to the auto industry to retool their product lines for greener more and marketable product. The merger would put GM in control of Chrysler and would give them an 11% share of the U.S. market surpassing Toyota for control of domestic auto shares.
All good, right? Just what is needed for the crippled auto company to turn around? Well, not exactly. The U.S. auto industry is hurting due in large part to the industry’s reliance on large trucks and SUV’s and a struggling line of smaller, fuel-efficient vehicles that has had trouble competing with their foreign counterparts. With sales down 12.5% this year (Chrysler’s sales down double this figure)and GM alone having lost $18 billion dollars so far , the U.S. automakers desperately need to become more competitive in a rapidly changing automobile market. The problem is it takes time to change and it is becoming clear that the domestic auto makers don’t have the capital to make it through to the next innovation and GM’s next generation of greener vehicles isn’t slated to hit the market until 2010. Keith Naughton of Newsweek suggests this dearth of cash is the real reason GM is seeking this merger. Sure the merger would increase GM’s market share but more importantly it would give GM access to Chrysler’s $11.1 billion dollar cash reserve, possibly enough for GM to hold on until 2010.
But does this mean that the U.S. government should provide the capital to GM allow this merger to go through? The answer in my opinion is no. If GM as a company is insolvent on its own, what assurance can be provided that, with the introduction of another struggling company with a non-complimentary product line, the new company would reap financial gain? This is an especially relevant question when you consider that private investors consulted by GM and Chrysler had little interest in investment in the merger without government backing. If this merger is too risky for private investment, what makes it a good idea for the American taxpayer.
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In the case of the auto industry bailout, I agree with your article completely. If you look beyond the CEO's lack of responsibility for their actions and the way they are pretty much demanding to be assisted, and if you look beyond the public's backlash to their travel methods to D.C., you will see that at the core of the auto industry's justification for a bailout, there is little that makes financial sense to America. The bottom line is that the comapnies are just not equipped to deal with their foreign competitors and it would not be in our best interest to finance their continued production of outdated and inefficient vehicles as it will only be a temporary fix unless they can completely revamp their model to compete with comapnies like Toyota and Hyundai. I think that although the average American wants to see the bigwigs at GM and Ford sweat a little and sing for their supper, they should seriously consider backing an industry that has turned its back on the American People a long time ago and even in the face of complete meltdown, remains defiant. Our taxes represent our peoples collective hard work and i don't think we should give it away without seeing the people who are getting it provide us with a good plan before doing so.
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