Rick Wagoner, Chairman and CEO of General Motors, has given his opinion on why GM and the other three major US automakers should be bailed out. The gist of it is that GM is too big to fail. That is, the consequences of GM failing would be disastrous for the nation, not just the auto industry, and so the government should step in and give it just this tiny boost that it needs to make it a few more months until some great things the automakers are doing can kick into gear.
I know this routine all too well, because I’ve been in Rick’s shoes. I run a business. I was bailed out several times by banks, friends, and family. Oh, there were always good reasons for the bailouts. Most of them had to do with how my business was on the brink of a major breakthrough, and we just needed to make it a little further and then everything would be ok. But the truth was harder for me to swallow. I was living in a fantasy world and wasn’t facing reality. GM and the other automakers were my neighbors but unlike me, haven’t packed up and moved yet.
What changed things for me? The bailouts stopped. When they did, I was forced to confront reality, and I like to think I rose to the occasion. After several years of going further and further into debt and making virtually no progress, everything turned around within a few months. My company became profitable almost overnight. After four years of going without a paycheck, I started paying myself. I started paying off major amounts of debt. In the last year and a half things have gone amazingly well, including cleaning up the messes of my fantasy days.
It’s not as though it were easy or fun. I had to make choices that were difficult and painful. I had to shut down an office. I turned my full time employees who were needed and willing into contractors and let the rest go. I became very particular about what companies I would take on as clients and started turning away a majority of the leads I got (anyone who has been an entrepreneur knows it’s hard to turn away someone with money in their hand). I trimmed our service offerings from 20 to just 3. It wasn’t easy to do, but once it was done, it because obvious I had made the right decisions.
What about my employees? They found other jobs, arguably better ones. My clients are better off too. The pain didn’t last long for anyone, and 18 months later things are much, much better. And all because there was an end to the bailouts. Now, looking back, I only wish the bailouts had never been there in the first place. They allowed me to hide my mistakes and continue making them.
Sure, the auto industry is bigger but I don’t think it’s all that different of a situation. Chances are if the Big Three automakers have to go through bankruptcy that won’t they just disappear. They might reappear as leaner, restructured companies that have shed baggage they can only shed through bankruptcy. They might be acquired by other companies. The workers might still keep their jobs. They might get jobs with other auto makers. They might change careers. It could be difficult temporarily, to be sure, but those that are proactive and motivated will most likely find themselves better off within a short time period. Customers will be better off too, as efforts are dedicated towards building cars people want to buy instead of the Pontiac Aztec, which nobody would buy except under duress and which is an affront to Native Americans.
Auto sales will not go down, and I doubt sales of American-made autos will go down. Honda, Toyota, Mazda, BMW, and other foreign brands that are manufactured in the USA will step in and sell more cars if the big three can’t. If they sell more cars, that means they’ll need to build more plants and hire more workers–the same workers that were let go from the big three. The economy will adjust, and within not too long of a period everyone will be ok, and likely better off than they were before, without any bailout.
If the auto companies are like me, then an end to bailouts is the best thing that could ever happen to them. They might not like the process when they’re in the thick of it, but looking back they’ll see it was the right thing.
Not only would letting the big three fail be good for the economy in a direct way, but it would send a powerful message to the rest of the country that the government does have limits, that at some point you’re on your own, and I believe that’s when Americans are at their best.