When trying to ignite growth, car companies and the government have recently used a few strategies: the bailout strategy; or the research, development and adaptation strategy. Let me explain:
The bailout strategy:
The government first spent $19.4 billion to keep General Motors from collapsing; then they forked out another $30.1 billion to pay for GM's bankruptcy costs--grand total $49.5 billion (more details at usatoday.com). Chrysler also found it in their hearts to accept a generous $4 billion gift from the government, with $8 billion more to come after bankruptcy (get the details from finance.yahoo.com).
In other words, the government is spending twice as much to finance GM and Chrysler's bankruptcy costs then they paid to keep the companies from collapsing in the first place. According to that old graybeard Merriam-Webster, bankruptcy means "utter failure or impoverishment." That's what this is: a failure.
Whether GM and Chrysler ever return to profitability, this plan is a failure because all along there has been a better way.
The research, development and adaptation strategy:
Three years ago, Ford--without government handouts or prodding--rethought their operation methods. Ford chose to solve their financial problems the old fashioned way--on their own, by cutting costs and trimming excess. Take the time to read this cbsnews.com article explaining the adaptation. They are now the only Big Three automaker to not take bailout money--though they were offered it.
Now comes another twist on government financing of car companies: loaning money to fund research and development for startup car companies with fresh ideas. Tesla Motors and Fisker Automotive just recieved a total of $1 billion in low-rate loans from the government to help fund their research, development and production of hybrid and fully electric cars. (Tesla received $465 million and Fisker got $528 million.) Get all the details at time.com.
Instead of tossing money at a failing company (or companies), this encourages entrepreneurship, rewards forward thinking, and supports job creation. That's a stimulous without any downside.
--Jens
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