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Is there a bailout strategy?
Filed in archive strategy by leon on December 3, 2008
Is there a bailout strategy?


The automakers want more taxpayers' money. Now they're asking for $38 billion, not $25 billion and have presented plans, detailed by Forbes, with GM cutting its stable of brands from eight to four - getting rid of Saturn, Saab and Hummer, and paring back Pontiac and focusing on a few niche models. Oh yeah, and FM chief executive Richard Wagoner is going to reduce his salary to $1 a year.

Will Congress buy it? And are their solutions radical enough?

Pat Murphy at Community Solutions has come up with some fairly revolutionary ideas.

"We are in an emergency situation now and car companies should be required to operate as if this is the case. One way to hunker down is to stop building new models every year. A lesson we might adopt from the airplane industry is that there is no more need for model years. When a new airplane design becomes available every five years or so, the aerospace companies then build it. Even today, Detroit does not design and build a new engine or new transmission each year for every model. Most of a new "model" consists of cosmetic body changes - unnecessary except for styling. If we replace 20 mpg SUVs with 45 mpg Toyota prius' and Honda Insights we will use far less material and labor. We will therefore need fewer production plants. Twice the number of cars would come out of the factories using half the workers and selling at half the price of the big behemoths we would stop making."

An even more radical solution comes from Ted Gage at SeekingAlpha. He suggests nationalising the automakers. "If everyone is talking about bailing out US automakers because they're a 'can't fail,' we're already talking about virtual nationalization. We're looking at an outdated, uncompetitive industry with high costs and an unbelievably slow to market response time. So if the US were to provide billions to the auto industry to prop it up, what new value proposition would we actually have? The same old companies, doing the same old thing, and when all is said and done, they would still not be able to muster a cost-effective, high quality alternative to their competitors."

Desperate times, desperate solutions.



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