Show from the Big Three from Detroit

When the executives of the three big auto companies - GM, Ford and Chrysler went to congress asking for some sort of bailout last time they weren't prepared at all.

They had no plan to show how the money they were asking would help their companies. Moreover they flew in their corporate jets to beg for taxpayers’ money. Great shows from the CEOs, the master of the big auto industries!

The Congress asked them to come back with a plan and hinted their extravagant expenses in the form of using corporate jets. This time around when the big three brothers from Detroit went to the congress they were well prepared. At least Ford's and GM's CEO used hybrid cars to drive up to Washington to show their pledge to make fuel efficient cars in the future. Points earned on that but how the bail out is going to help the big three?

The simple answer is it is not going to help at all.

What caused the trouble?

To understand why let's see what caused the trouble auto makers are facing today? They don't have toxic assets sitting on their balance sheets. They haven't used their leverage excessively to bet on sub prime mortgages. Then what caused the mess?

American consumers have cut back on buying the cars from the big three. All three - Ford, GM & Chrysler never cared for fuel efficient vehicles and always bet on bigger and bigger SUVs and trucks. But considering the recent fuel prices (above $4 per gallon) and sagging economy people have decided to go for more fuel efficient cars. Even though the gas price has fallen but people's choices haven't reversed yet.

Also over expenditure and mismanagement without any vision and direction from the three companies are to be blamed for the woes they are in right now. Why don't Toyota and Honda need a bail out plan? Well maybe they are well managed and maybe they know where the future will go.

Why bailing out non banking companies?

First of all no company should be bailed out for their mismanagement, lack of vision and unjustified expenses. The big three from Detroit suffer from all of these.

Why didn’t even one tech company get bail out package from the Congress during dot com bust?

Will Oracle or Microsoft get a bailout package if they fail because of their lack of vision and bad choices of CEOs who couldn't manage the companies? Probably not.

Then why even think of bailing out the automakers?

It is a scare game the big three are playing saying that the country would go into depression if they are not bailed out. Do they make the backbone of US economy? We can't let banks go bankrupt and now we can't let auto makers go bankrupt. What's next?

I think people in the Congress have no courage to deny these companies the taxpayers' money and tread through the aftereffects. Everyone likes slow poisoning rather than a big jolt. Congress can not keep on rescuing companies one after the other. Why didn't it rescue Airlines industry in the past? It's the scare game played by the companies and political motives of the leaders in the congress that we don't see any strong rejection of such bail out. For them "bankruptcy of automaker is out of question". How so?

Final Verdict

Bailing out the big three from Detroit will only give them some cash to survive for a few months. The cash burning rate for these companies are very high. They will soon be in front of the Congress asking for more money.

These companies won't survive at all unless they are ready to change people's perception about them. They must brand themselves as economic and reliable car manufacturers who care about going green and reverse their previous image of the makers of gas guzzlers without any worries for mileage per gallon standards.

Message to the big three of Detroit - get your acts together, create futuristic cars (Electric, Hybrid etc.) and not yet another bigger SUV. Unless you do it you are doomed.