Brand Mix

The heads of the big three U.S. auto manufacturers are in Washington this week trying to secure a bailout to keep their companies in business and, so far, it doesn't look like they are going to get it. But, apart from the humiliation, why are the companies so dead set against following the airline route and reorganizing under bankruptcy protection? Wouldn't this give them the chance to renegotiate some of the dealer and employee contracts that they can no longer afford?

When asked by Fox Business News, Rick Wagoner from GM replied. “What is left out in that is it assumes people will keep buying your cars, and unlike airlines–(where people) pay $300 for a ticket and use it three days from now–it’s quite a bit different than paying $25,000 and paying on getting service and support for the car you just purchased for the next five or 10 years." He says he has research to back up the argument but I'm not sure I buy it.

Meanwhile, some are arguing that it would be better just to let the car companies fail altogether. In an article in the Wall Street Journal: Just say No to Detroit, David Yermack estimates that the aggregate capital investment in GM and Ford since 1980 has let to a net reduction in capital of $465 billion. As he points out: "One can only imagine how the $465 billion could have been used better -- for instance, GM and Ford could have closed their own facilities and acquired all of the shares of Honda, Toyota, Nissan and Volkswagen."

Or, they could have just about have afforded to buy everyone in the States a round-the-world ticket on one of those once-bankrupt airlines.