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Bailout or Bankruptcy?

GM and Ford will not fail. IMO, they are just too big to fail. The automotive industry is huge, and the global economy largely depends on it because a car is a necessity for many people. If GM and Ford fail, it will create a total disaster for the global economy. Millions of jobs will be lost and thousands of suppliers will be put out of business. Also, many other businesses might be affected as well.

The entire US economy is built on the foundation of Ford, and this is where industrial massive production comes from. Now, the auto makers are basically begging for government's help because without it, bankruptcy is a sure thing (at least for GM). When GM fails, Ford and Chrysler will follow, and the US economy might collapse.

Even though I believe the US government will bail them out, there are still lots of problems associated with both GM and Ford. In order to remain competitive, both GM and Ford should do something about it, and quick!

The main issues are the labour and production costs of making an American car. IMO, the auto workers are earning way too much money because they are unionized with UAW. Being unionized is one of the major reasons why GM and Ford fail. Unions benefit the workers but not the employer nor the public as a whole. Many workers get paid like around $70 per hour and more with benefits. All these Japanese auto makers such as Toyota and Honda are doing OK even in this looming economy because their workers are paid about 40% less than their American counterparts, yet they still managed to build reliable and fuel-efficient vehicles. GM and Ford needs to get rid of the UAW union completely as soon as contracts of current unionized workers expire. If they want to change for the better, they need to make all new hires non-unionized and get rid of UAW.

The price of oil directly affects GM and Ford's core business. When everyone talks about fuel efficiency, GM and Ford continue to make cars that consume a lot of gas. In some ways, they are very stubborn with the concept of fuel-efficiency. When everyone wants smaller cheap fuel-efficient cars, American auto makers respond by building big expensive and gas-consuming vehicles. When the oil prices skyrocketed in summer 2007, no one wants to buy American cars anymore. Since now that the gasoline prices have come down to a reasonable level, I think it is a good time for GM and Ford to change their business philosophy completely to avoid a possible bankruptcy.

If the government bails them out, they can use the money to first start paying the massive debts. In the mean time, they will need to get rid of all the energy-hogging automobiles and start thinking "green" and consider building alternative energy vehicles. Once that is done, GM and Ford should undergo a massive restructuring of unionized workers. They need to wait until current contracts expire, then fire unionized workers and rehire new ones. With the remaining money, they can reinvest it into researching new technologies in hopes of building better and more cost-effective automobiles.