The Delicacy of Detroit’s Big 3

We see plenty of analysts and critics on either side of the decision for Congress to lend tax dollars to keep GM, Chrysler and Ford afloat. Both sides have great points, too.

Give ‘Em the Cash, and Keep Americans Employed.

• Falling to help the Big 3 won’t only affect the board of directors in the situation, but it will trickle throughout their partners. Entire companies have formed to provide parts, service and support for these companies. Not helping the Big 3 will put entire industries out of business.
• Paying for the bailout will be expensive, but paying unemployment to millions of workers over the next three years will be even more expensive. The federal government stands to lose billions in tax revenues in the next five years. With the bailout, we could get that money back. With the Big 3 closing, we won’t get any of it back.

Let Them Learn from Their Mistakes, and Don’t Spend Americans’ Tax Money.

• The Big 3 are seeing this situation because of their stubbornness and refusal to adapt to consumer preferences. Their business model began failing a decade ago, and they never changed. By passing along the money, we won’t see any change; we’ll simply allow them to hold their head above water a bit longer. The bailout is a life jacket, not a rescue boat. And in this situation, they should no longer be in the water anyway.
• The Big 3 are giving us a hefty dose of black-and-white reasoning. If we give them the money, they claim their industry will see short-term changes and return the companies to the glory days of black budgets and rewarding pensions. If we don’t give them the money, they claim the entire industry will fail, millions of people will lose jobs, and America’s economy will never recover. Both situations are extreme, and analysts cannot exactly pinpoint which view is closer to reality.

Regardless of the decision, Americans will pay with taxes: either through the bailout or to cover the loss of tax revenues. While analysts and politicians will continue to bicker over the financing, modern executives should be wondering exactly what will Detroit have to become to return to the glory days. Is it anything like Better Place, where Hawaii just joined to become a test state for the system of electric cars?

The American automotive industry needs to reinvent their business model, not just their automobiles. The terrifying part about dreaming up new business models is that they may realize that they have to change more than they can to stay in the black. Even worse, they may realize that the industry has changed, and following a new business model in the global automotive industry may almost make them irrelevant.