As much as independent spectators to the current turmoil might consider the likelihood of any American carmaker’s bankruptcy as just comeuppance for rampant overproduction and profligate spending, the truth of the matter is that the 2.5m Americans that work directly or indirectly in the industry do not deserve to be put out of work for the mistakes of the few.
While car companies might have been guilty of conducting bad business, they are not singularly to blame for their own collective predicament. All companies are suffering due to the lack of financial liquidity brought on by banks tightening purse strings as a direct result of their own mismanagement. Should credit markets be functioning as they were less than a year ago, it’s doubtful that any carmaker would have been in the position to need any form of government loan assistance.
Be that as it may, markets are not willing to support businesses and, compounded by the fall in consumer confidence (and the same limitations on personal credit from companies like GMAC), refinancing will have to fall to the American government.
In fact, the whole debacle could easily be blamed on the American government, which, had it not allowed the financial markets to run on a purely laissez-faire basis (as in the markets will look after themselves), it could have neatly avoided this whole crisis. Ipso facto, the government should be required to provide financial assistance to the carmakers.
To avoid a flood of similarly pressured businesses coming forward for handouts, outgoing president George W Bush is quite adamant that he will not set a precedent by signing specific legislation to bail out stricken carmakers. On the other hand, President-elect Barack Obama is in favour of such a move – the question is, will GM and others survive until Obama’s inauguration on January 20 to take advantage of any federally mandated breathing room afforded by the new administration?
At the current rate of loss (net $2.5 billion, Q3 2008), and with a share price that continues to take a battering ($2.92 as of November 11, 2008, a 65-year low), GM could potentially run out of money by Christmas. Yet the question remains, why prop up the banks that created that mess in favour of the companies that are collapsing as a direct result of the banking debacle?
The world will be watching to see if the American government decides to do the right thing, stepping into the fray with a bold solution – none more intently than the 2.5m Americans who stand to lose everything as a result of stubborn inaction.