Fool Poll: Should We Bail Out the Big Three?

Detroit's Big Three automakers are in big trouble.

That's not really debatable. The credit crisis and poor operational performance have investors fearing bankruptcy. A share of GM (NYSE: GM  ) and a share of Ford (NYSE: F  ) put together may buy you a $5 foot-long at Subway, depending on when you check; Chrysler's minority shareholder, Daimler, has gone a step further and written down its stake to zero.  

What is debatable is whether the government should bail them out. The government's bailout plans have grown past Fannie Mae (NYSE: FNM  ) and Freddie Mac. And past banks -- even if loosely defined to include new bank holding companies Goldman Sachs (NYSE: GS  ) and Morgan Stanley (NYSE: MS  ) . Indeed, the government's bailout plans have grown to include an insurance company (AIG (NYSE: AIG  ) ) and a credit card company (American Express (NYSE: AXP  ) ).

Should the Big Three be next in line? Let's view both sides before we vote.

Supporters argue:

  • GM and Ford employ half a million people alone. That's before you add in Chrysler, suppliers, and ancillary industries. And before you factor in all the pensioners. The American auto industry is thus too critical to our economy to fail.
  • If Wall Street, which doesn't produce anything tangible, can get bailed out, why not companies that produce real goods?
  • The current problems are temporary and will be remedied once the credit crisis abates.

Opponents argue:

  • The banking industry differs from the auto industry because the health of the entire economy relies on the banking industry. Not so for the autos.
  • Bailing out Detroit is another blow to capitalism.
  • The current problems aren't temporary (as they are in the banking industry) and are a result of mismanagement and competitive disadvantages.

Where do you stand? Should we bail out the Big Three? Vote below and then leave your two cents in the comments section, if you're so inclined.

Anand Chokkavelu thinks Michigan's second biggest problem is Ohio State in a couple weeks. Go Buckeyes! He doesn't own shares of any company mentioned. American Express is a Motley Fool Inside Value recommendation and The Fool owns shares of it. The Fool has a disclosure policy.


Read/Post Comments (21) | Recommend This Article (17)

Comments from our Foolish Readers

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  • Report this Comment On November 12, 2008, at 3:35 PM, pondee619 wrote:

    If the Big Three do go bankrupt, will the supply of cars fall so dramatically that no one could afford the surviving ones? If Ford, GM and Chrysler no longer produce cars, what will the world buy to fill its transportation needs? Won't someone/something stand in to fill that void? Won't the employees of the bankrupt companies find work at the new car maker? OR is NO ONE buying Ford, GM or Chrysler cars?

    Won't the suppliers to the Big Three supply to the survivors? Or will the number the cars bought drop?

    People who bought, or would have bought, Big Three cars will still need their car. Someone will have to make it.

  • Report this Comment On November 12, 2008, at 4:06 PM, fmotley2 wrote:

    Sure we should bail them out...however...we should have government oversight people on their boards of directors to make sure that they are using our money wisely and any profits go first to pay back their loan from the American people. What were they thinking making huge SUV's and ignoring the writing on the wall. Fire CEO's and replace with some smart kids right out of college! It's their future we're screwing up!

  • Report this Comment On November 12, 2008, at 4:21 PM, Coconutwater wrote:

    while i voted for Barack, I am a survivalist... of the fittest. The "big three" were so slow to foresee or even consider eco-trends. The Toyota executives even at the US plants dine in the employee cafeterias, "big 3" executives have lofty executive VIP clubs... $$$

    I have already shelled out my tax $ that is not going to health care preventative programs, to infrastructure repair, to a new airline traffic control, to national parks...

    but to bail out unregulated greed, and now we bail out 3 companies that are making sub-quality cars ???

    If they were already making eco cars, maybe... i know they make small cars for latin america and europe- i have seen them. But the workers there are of course working for less $$ and happy.

    Here are two facts... We are all going to be driving a lot less as individuals. We cant all have a car. We are going have to be more efficient in our habits ( translated- lower our exalted entitlement, eat at the table with our brothers and sisters) It is not such a bad thing...

    I know there are a lot of jobs at stake... we are going to have to adapt.. this is a valuable survival skill and should be practiced before it is forced on you. Survive by merging to a market determinng size, get lean, and agree to create an innovative, quality, product that the world needs... but please don't ask me to pay for the fat, lazy, inefficiency that has evolved enough.

    cheers,

    L

  • Report this Comment On November 12, 2008, at 4:25 PM, RobertfromCT wrote:

    Oh my gosh, are you kidding? Really? They want to bail out the big 3 carmakers? They are giving them $25,000,000,000 to develope fuel effecient cars? Where have they been for the past 35 years? I still remember the gas crunch from the 70's. If they get bailed out they will just keep producing more well pensioned retirees with great health benefits! Actually, maybe they should give them some taxpayer dollars... I heard there are some auto executives who need a 2nd swimming pool in their 3rd vacation home! Better yet, they could go on a teambuilding retreat at an expensive resort like AIG does with bailout money.

  • Report this Comment On November 12, 2008, at 4:33 PM, pstoneki wrote:

    As much as it pains me I do believe we should bail out the 'Detroit Three'. The impact of even 1 going bankrupt would have ripple effects unlike this country has ever seen. That being said, I would make sure they use the money to develop and market the green cars of the future, such as plug-in hybrids. Critics state that no one wants these cars. I say that is right, if they only offer what is currently on the market. Why can't I buy the equivalent of a Subaru Legacy or Volvo XC with the same hybrid system found in the Prius? Why not a Saturn Sky? I really like the Prius and try to get one every time I rent a car. However, for my every day car I need something a little different. The current choice of hybrids is too small and doesn't reflect the US auto market in it's diversity. How hard can it be to build a hybrid platform upon which a variety of body styles could be implemented? Maybe a little controlled infusion of capital will make this happen.

  • Report this Comment On November 12, 2008, at 4:40 PM, paultaut wrote:

    Will any of them stop designing/building efficient cars just because one of them goes into bankruptcy? Besides, GM dug this particular hole with the help of its Unions. Did people stop flying on United through all of its bankruptcies? Let GM go into Chapter 11, and work its way out like everyone else has had to do.

  • Report this Comment On November 12, 2008, at 5:09 PM, Erlymorn wrote:

    No accountability + no consequences = no change.

  • Report this Comment On November 12, 2008, at 5:47 PM, Autolover wrote:

    First, IT IS NOT A BAILOUT, but rather a low interest loan!!! LIke the Chrysler deal cited, it will have to be paid back. Ford has some great selling, fuel efficient vehicles that are being sold in Europe right now. Mullaly says they have enough cash to survive until they can get these care over here and some plants retooled to build them. The "Loan" being requested will provide a little cushion in case this recession lasts longer than expected. Also, Ford is building high quality cars now that are statistically equal to what Honda and Toyota are building but people have long memories and still want to liken what is being built today to what was being build in the 70's and 80's. As they say, "we've come a long way baby" and this is true of American quality, especially Ford. The American consumer just needs to try these new vehicles and they will be surprised and delighted at the quality.

    I know that everyone is enchanted with Toyota but they tried to capitalize on America’s love of SUV's with their Sequoia, Land Cruiser and Tundra and are now losing sales just like the "big three". Toyota stock is down 50% or more this year also. I don't buy that American car companies don't build what Americans want to buy. Americans bought plenty of pick-up trucks and SUV and the demand was high. That's why Toyota invested in this market.........they didn't want to miss out on that share of the pie. Well, gas prices suddenly went sky high and granted the US car makers were "caught" without an arsenal of fuel efficient small cars. But they are coming and these companies deserve a chance to succeed. The unions need to recognize this also and make more concessions to keep the US makers on a level playing field. Their refusal to do this will lead to bankruptcy filings by all or some of the "big three". What the union leaders need to remember is that 100% of nothing is still nothing. So concessions are in order for survival.

    In the meantime, give them the loans to ramp up and produce the fuel efficient cars Americans want and let's sustain some industrial might and capacity in this country. Remember too that failure of our auto industry does not affect just auto workers (blue and white collar) but also all related industries like rubber, glass, plastics, electronics, leather, steel, etc. as well as all of the retail auto locations. When you consider the impact, it could put 20 million people out of work. Now you're talking about irreversible damage to the US economy from which we might never recover. The implications of a "let 'em fail, this is capitalism" mentality are disastrous.

    Government regulations have severely damaged the competitive position of the US makes...........also unfair trade policies that let importers send as many vehicles here as they desire but restrict (Japan and Korea especially) the number of US vehicles that can be exported into their countries. Let's remember folks, while import makers pay salaries to American workers who build cars in the US, all the PROFITS they make in the sale of those vehicles goes back to their home countries. This accounts for a significant transfer of wealth from our country to theirs. The yen/dollar valuation also puts US companies at a competitive disadvantage.

    I hope Americans will support the US industry in the long run...........and the products they allegedly want (small, high-quality, fuel-efficient cars) will be here soon!! I, for one, want to support the American auto companies because I believe they are the core of America's industrial might and we dare not lose it.

  • Report this Comment On November 12, 2008, at 6:57 PM, MrMBB wrote:

    If they give these greedy companies taxpayer monies so they can maintain a life of luxury like AIG and the rest......I'm certain that as we speak, the executives of GM, Ford and Chrysler are printing their 6 digit paychecks for the week, and as said earlier dining at the finest restaurants because they are far to superior to dare dine with a hard working employee/taxpayer!

    Let em go......welcome to the real world boys!! Party is OVER..

  • Report this Comment On November 12, 2008, at 10:49 PM, freelivin91 wrote:

    Perhaps this is a little nostalgic, but the Big Three don't just represent a business or economic interest, they are an indelible part of Americana. Economically I think the bailouts need to end. As a HUGE "car-guy"... well, let's just say my emotions towards the Mopar's, lead-sleds, and pony cars might just outweigh my sense here.

  • Report this Comment On November 12, 2008, at 11:53 PM, Estrogen wrote:

    Let em fail. When rewards are privatized and risk is socialized, the consequences to the system are potentially lethal. Trust in the system vanishes.

    Bailouts only prolong the pain. It is like a parent giving money to their drug addict kids, because they "love" them. Failure is part of America. If you are over 40 and lived a life worth living, you've failed yourself. I have many times, and have learned more from my failures than successes.

    In the early part of last century, a high percentage of jobs were lost in farming due to advances in farm equipment. It was tough, but we rebounded. It is too bad for auto workers and the spoiled rotten CEO's, but if they couldn't see this coming for years, they had blinders on.

  • Report this Comment On November 13, 2008, at 8:59 AM, pstoneki wrote:

    I would be all for letting the Detroit Three fail if I thought it wouldn't drag our economy into a depression. Which I firmly believe it would. On the short to mid term there is no way that other car or manufacturing companies (let alone engineering companies) could absorb the MILLIONS of workers that would be unemployed if these companies (and their suppliers, lending agents, dealers, etc.) went out of business. The unemployment insurance that would need to be paid by Michigan and Ohio would bankrupt their unemployment funds, pushing that burden on the US government. The pension plans for these companies would also fail, again pushing the responsibility to the US government due to a variety of agreements. And, given the concentration of the auto industry in the US midwest and east, a significant part of our geographic economy would collapse. It would impact a lot of other industries as well as the auto industry has a long tail. Without the auto business a lot of companies who only do a percentage of their business in the automotive sector would not be able to survive or would survive in a reduced state. The other auto manufacturers (such as Nissan, Toyota, BMW, Mercedes Benz, and Honda) that manufacture cars here may then be forced to buy more parts outside of the US as their parts manufacturers may not be viable without GM, Ford, or Chrysler. And we haven't even considered the resulting housing and car load defaults, dried up consumer spending, increases in medical costs, etc.

    In my mind Wall Street could have failed. AIG could have failed. The banks would have had an impact if they had failed. However, the Detroit Three cannot fail. We cannot afford to let it happen.

  • Report this Comment On November 13, 2008, at 9:27 AM, 357starwars wrote:

    Let's not forget, there are thousands of other non executive employees who are working for these 3 big companies. What will happen to these employees? What will happen to their family members? What will happen to their young children? what will happen to the older employees that are not able to gain employment again? What will happen to the other businesses that depended on these 3 companies? What will happen to the employees of the these companies that depended on the salary of these workers who have lost their jobs in the big 3? Can you imagine 10 years from now, US will no longer possess any technology or know how in the automotive industry and are 100% reliant on Japan and China made cars? More engineers will be moving to Japan, India and China. US will lose potential technology know how that can be transferred to the other industries that can propel the country to a higher level? what will happen to you? what will happen to US?

  • Report this Comment On November 13, 2008, at 11:15 AM, Tombstone1954 wrote:

    God knows no one wants a Depression,or even whats going on now,The fact remains,Detroit,along with the UAW, have brought this on themselves.Granting this money now would just prolong the agony.And asking the Govt to place watchdogs in each,to make sure the loan money is spent wisely,is like turning the keys to the chickenhouse,over to the Fox.Never happen.AIG is a prime example.

    I say let them go under,re-organize,& come back swinging @ Toyota,& Honda,IF-they want to do it ,in a proper,cost -cutting manner,following a strict budget,& never forgetting that Oil is running out...soon.......

  • Report this Comment On November 13, 2008, at 1:07 PM, catoismymotor wrote:

    Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it. – Ronald Reagan (1986)

    When you subsidize poverty and failure, you get more of both. – James Dale Davidson, National Taxpayers Union

    It is time to let these companies crumble under their own weight. They brought this upon themselves. I do not want one dime of our money to go to any of these pathetic companies. Them them all bankrupt. Let them reorganize. Let them cast off the stupid agreements management reached with the unions. The most expensive part of your GM car or truck is the retirement and healthcare benefits for the unions. That is the $5,000 that drops off the price of the car once your tires roll onto the street!

  • Report this Comment On November 13, 2008, at 3:12 PM, pstoneki wrote:

    Unfortunately it is highly unlikely that they would be able to reorganize under bankruptcy protection. The number of lending organizations that finance bankruptcy reorganizations has dropped from around 20 a year ago to less than 5 today. The ones that remain are very picky and would never risk their cash on an auto company. Even if they did, it is very likely that the reorganization would fail anyway. Auto analysts have stated that it is very unlikely that consumers would purchase a new car from a bankrupt auto company even if very strong warranty safeguards are put in place. Resale value for those cars will plumment. Case in point is the closing down of Oldsmobile and Plymouth. Cars with these nameplates, even compared with their clones in Chevy / Pontiac and Dodge/Chrysler , are worth significantly less in resale. No one will buy new GM/Ford/Chrysler cars if they go bankrupt.

  • Report this Comment On November 13, 2008, at 5:58 PM, rellimnitsuj wrote:

    Sorry GM, but you no longer produce automobiles that Americans want to buy. Throwing more money at you isn't going to solve this problem. We fools know that government bailouts are a slippery slope, and you don't look like a wise risk to us. It seems you should have thought twice before killing the electric car.

  • Report this Comment On November 15, 2008, at 3:02 PM, kaboom123 wrote:

    When am I going to get a bailout? I have a mortgage, car payment and many other bills. Where's my bailout? You have to come to terms with this is an industry which dragged it's feet and is now suffering the consequences. We have to let them go and adapt to the changing world. I'm sure some other business people will step in and start up a company to cater to what the American people need. Stop with the bailouts. We don't want to hear that word anymore.

  • Report this Comment On November 18, 2008, at 1:34 AM, goldenpiggy wrote:

    I work for a major automotive supplier that provides electronics to the Big 3 and foreign car companies. I've worked with Ford engineers for nearly a decade. I've also worked with Honda, so I am familiar with both sides. I can tell you that American engineering is second to none. GM and Ford cars these days are as engineered as well as and probably better than the Japanese. Alas, good engineering alone won't sell cars. Where the problem lies with the Big 3 are in these areas:

    1) UAW. There. Simple as that. Their labor costs are just astronomical. Big 3s have to cut costs in places like interior materials to make up for the huge labor difference. And it shows. If the Big 3 are to survive, the UAW has got to go. Any government bailout should hinge on this condition.

    2) Craftsmanship. American cars are wonderfully engineered and very durable, but fall short of the Japanese (and now Korean) when it comes to fit and finish and overall craftsmanship. The gap is getting closer. To win back the American consumers, the Big 3 products need to show that "Made in USA" is the best in the world. It used to be that way. It's not that we got worse, it's just that everyone else got much better. It used to be that I would not hesitate to buy "Made in USA." I still don't, but now I also would not hesitate to buy Japanese or Korean or German. I want to blame UAW and labor cost again, because attention to detail costs money, so you have give up something.

    3) Supplier relationship. Big difference between Japanese and US automakers. Japanese think of suppliers as lifelong partners. They help nourish the suppliers. US automakers treat suppliers like dirt and squeeze out every penny possible. IN the golden days the Big 3 all had their own in-house suppliers. These days, the success or failure hinge on the suppliers.

    This makes it all the more difficult for me to argue for or against a Washington bailout of the Big 3. Deep down in my heart, yes, I want to see Congress help them, as they did back in the 80's. I don't know if you all remember that Chrysler came back from oblivion with government assistance. Ford was on the verge of collapse and came roaring back. GM was never in such precarious situation. Can these guys compete with the likes of Honda, Toyota, VW, etc.? You bet. The talent is there. The drive is there. Just need new conductors and new thinking.

    But alas, as a taxpayer, I feel the government is approaching things the wrong way. Instead of $700 billion to the banks, credit card companies, and insurance companies (who are buying up small banks just to get in on the game), for Pete's sakes, help the homeowners directly. Give them REAL assistance like rewriting loans into interest-free or low-interest loans and forgive past-due interests.

    This same thinking goes for the Big 3. Don't give them anymore money to lose. Let the market force them to reorganize. Treat them the same as with the airline industry after 9/11. Help the fine employees weather the storm by giving them monetary assistance, new job training, and help them keep their homes. I don't want anyone to lose their jobs, but giving the Big 3 money is not going to prevent the inevitable unless there's real change in the way they do business.

  • Report this Comment On November 18, 2008, at 6:49 PM, BailoutisBS wrote:

    Anyone watch the C-SPAN with the 3 CEO's? What a joke....I say no to the bailout. When will I get the bailout?? I travel all week, work no less than 70 hours/week, use my own vehicle, make less then $45,000 year (I'm the lucky one I HAVE A JOB) with a family of 4. On weekends when I should be spending time with my family.....I am working a part-time job on Saturday and Sunday to make ends meet. I get home Sunday in enough time to get some sleep and travel again. These companies who have these CEO's that make soooooo muchhhhh moneyyyy........then ask for a bailout???? Sounds to me like mismanagement!! NO MORE BAILOUTS!!!!

  • Report this Comment On November 21, 2008, at 10:08 PM, GMblaine wrote:

    Please people give your heads a shake. GM's demise has little to do with the quality or attractiveness of their products and more to do with the numbers of vehicles they have produced in recent years. I'm an Engineer. The Engineering in most GM cars is well above most of their competitors. The quality has been tightened considerably in recent years. GM's ineffective marketing coupled with general consumer ignorance has resulted in significant drops in sales and market share. The loss of GM will stifle auto industry ingenuity and innovation for years. Ask the average Toyota or Honda owner if they know about GM's onstar, on-board remote sending diagnostics, traction control systems, etc. They know nothing. Only people willing to do the research are well enough informed to make "value" purchases. Ask them to test drive the GM competitor before they make their foreign car purchases. I routinely test drive automobiles competing in similar classes. GM vehicles are, for the most part, better drives. Go on test drive a GM vehicle today. It may be the last and wisest choice you'll ever make in your automobile purchasing life!

    I recently bought two new GM vehicles hoping they'll last me to retirement. I'm still driving my last GM purchased in 1994!

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