In order to help survive poor business decisions made over the last 40 years, the big auto makers are seeking a federal bailout to the tune of $25 billion. I simply don't believe that it is the place of government to bail out failing companies. If a failing company is to survive, it is the job of that company to adapt to their market, or simply die.
I understand the implications of allowing these companies to fail.
The parts makers would have to tighten up their operations, or file for protection themselves. The workers would be forced to see what the UAW and their strong arm tactics have led to. The already terrible economy in Detroit would likely collapse, and the resulting unrest could lead to some nasty, unforeseen chaos.
There are lots of reasons these companies are failing of course. From the terrible decision by all three to allow the UAW to enslave them, to the ever changing needs of their customers. The skyrocketing price of fuel and the continued uncertainty in that market (the price is perfectly reasonable now, but I'll leave that for another post) have led consumers to conserve, and to buy cars that have better fuel efficiency. Some even argue that Detroit has made great cars over the last 20 years and their customers don't feel the need to upgrade. Ok, whatever.
Now for the solution. If you follow the path, the failure of Detroit can really be linked to the escalating costs of fuel and the public's general distain and contempt for big oil. Therefore, I think the big oil companies should step up to the plate and take responsibility for their mess.
Last quarter, Exxon-Mobile had a net profit of $14.83 billion. Royal Dutch Shell had a net profit of $8.44 billion, and BP's was $8.04 billion. Combined, those three alone had profits of $31.31 billion – in ONE QUARTER.
What are the market caps of GM and Ford? GM's market cap was $1.89 billion, and Ford's was $4.01 billion, as of this post. That means that any one of those companies could outright buy an auto maker (or both for that matter) with a single quarter's profits. Think about that for a second.
In summary, those three oil companies, just a few of those responsible for the chaos in Detroit, could bail out the US auto industry with a single quarter's profits.
Thanks to Mike Malloy for planting the seed for this post.