Will a bailout help US Automakers ?

 

Since past few weeks, the Detroit’s Big 3 are pleading with congress for a bailout . But will a bailout really help an ailing automotive industry? The US govt. is skeptical. With falling sales month on month, and with the US economy in recession for almost a year now, US automotive industry is going through a tough time.

 

Where did the US automakers fail? There seems to be several reasons. First and foremost GM, Ford and Chrysler did huge investment in producing SUV and likes, which consumes fuel in larger quantities. When the oil prices shot up, naturally the demand for SUV’s were down. Consumers started buying more and more fuel efficient vehicles, and the Big 3 failed to respond to this. Meanwhile Japanese and German automakers entered the market with compact fuel efficient cars and US automakers failed to compete. Also US automakers couldn’t match the quality of Japanese and German cars, and this further led the consumers drift away from the domestic carmakers.

 

Another important factor is labour cost. US automakers have their plant located in places where labour costs are pretty high as compared to their foreign counterparts. And on top of it GM still pays for the health care costs of its retired workers, which is bigger than its current workforce. Coupled with it the strict labor laws are definite drawbacks. All these started eating into the profits of GM.

 

Will a bailout solve the problem? Looking at the above factors, a bailout will only give a temporary solution. It can only delay the fall. So the best option would be to file for bankruptcy, restructure and invest more in producing fuel efficient cars. Listen to the market and invest more in producing electric, hybrid cars.

 

Photo courtesy : news.bbc.co.uk