The Big 3 On Life Support

With GM’s stock at its lowest levels since World War II and Chrysler and Ford with stock prices at their lowest levels in memory, it is evident that these companies will struggle to stay alive until the end of the year.

Some analysts have slashed their target prices to zero while current debtholders will see pennies on the dollar. The Big 3 automakers are lobbying the federal government for aid to the tune of $25 billion. The amount unfortunately is a band-aid solution to keep them going for another 6 months or so.

The companies were struggling well before this economic decline and this recession just put the finishing touches on an already bad situation. The federal government has to weigh the contribution that these companies are making in terms of employment and spin-off jobs as there will be a spike in jobless claims when they go down along with reduced tax revenues so the government has a different framework to measure if it should bail them out.

All three companies should go through bankruptcy protection, potentially merge and re-emerge with stronger balance sheets, lower health care costs to retirees and reduced pension obligations. Any way you slice it, it isnt a pretty situation. Keeping the status quo doesnt make sense and the Big 3 wont be able to compete going forward as they havent been able to in the past.

I think I saw this movie before here in Canada. It was called Air Canada 1 and Air Canada II. What are your thoughts? Should the Federal Government bail out the Big 3 automakers?

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4 Responses

  1. Honestly I would back this bailout much faster than I would have with AIG. With AIG there were other smaller insurance companies who wrote their policies separately of AIG that would have picked up a large amount of additional business and would have had to increase their work force to handle the influx. With the big three, there would be a huge backlash throughout the entire industry as the big three make up over 90% of us auto sales and any other money would promptly be going overseas.

  2. You ask should the Federal Government bail out the Big 3 automakers? I think it surely should, otherwise we gonna have big troubles.

  3. Sacramento Website Design> Honestly I would back this bailout much faster than I would have with AIG.

    Agree.

    • Not bailing out AIG would have had immeasurable reprecussions that would have affected financial institutions and economies around the world.

      I agree that the auto industry should get a bailout package as the cost to the US economy would be at least as large as the bailout itself. That being said, I believe it is prudent for the US government to demand a restructuring plan that will allow the Big 3 to survive after the funds are provided.

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