Too Big To Succeed

There is quite a bit of talk about the proposed “bailout” of the auto industry. Like many Americans, I have very strong reservations about some of the proposals being considered. Our nation's leaders are spending our money without enough thought in regards to what we will get in return for that spending. Let's think about this. GM and Ford are both publicly traded companies that that had billions of dollars of investor's monies available for them to operate their companies and they have not been able to develop a fiscal contingency plan to weather these tough times.

One of my favorite sayings is in a little book of wisdom by Texas “Bix” Bender entitled, Don't Squat With Yer Spurs On! A Cowboy's Guide to Life. In his little book of philosophical musings, Mr. Binder offers this bit of advice, “The first thing to do when you find yourself in a hole is to stop digging.” My question is, will the automakers stop if we give them the resources to keep digging?

I also like to use this little nautical analogy to describe the term “bailout.” Think of a person with a cup feverishly scooping water out of a boat to keep it from sinking. Well, that works if it is a little rowboat and there is a small, slow leak. Yet when the Titanic hit that iceberg, do you think a bailout plan would have helped keep that behemoth from sinking?

The pundits who support this bailout are using fear tactics to scare the public in believing this is an absolute necessity for our economy to survive. A common phrase thrown out is “too big to fail.” They like to scare us of the prospect of all the lost jobs and the local economies that will be crushed by the collapse of the US auto big three. As someone who owned a business that was directly across the street from a General Motors plant that closed in 1993, I will say that life goes on. My younger brother still owns that same business and he is thriving. The town is not a ghost town by any means and has been growing as new and different industries eventually resurrected the community. Of course there were some difficult times for some people, but the reality of life is that we have not discovered Utopia yet and there will always be difficult times for some people.

If our auto industry collapses, obviously, thousands of people will lose their jobs. Some will find other employment and some will need government assistance. Yet, as a taxpayer, I would like to know that $25 billion is available for these people to put food on their table and keep their homes while they seek new employment opportunities. Those of use with some semblance of intelligence know that if the $25 billion goes to the auto industry, only some of that money will trickle down to the employees and quite a bit of it will be spent foolishly, as they will continue making the same mistakes they have been making over the past few years.

GM had $178,199 million dollars in sales in 2007. Their cost of sales was $166,259 million dollars. That is a gross profit of $11,940 million dollars. Is there anybody but me who doesn't recognize the gross incompetence of not being able to operate a company profitably that has $11,940 million in gross profit? GM lost $4,390 million from operations on those sales. By the way, during that same period, the top 5 executives of GM who oversaw this debacle took $20.7 million in 2007 compensation (this does not include stock awards and option awards). For an executive to have the audacity to get paid $4 million dollars/year and request government assistance so they can continue operating chills my heart. Hey Congress, I will run GM for a year at a $100,000 annual salary. And I provide the guarantee that I will do better than have $4,390 million in losses (heck, I just saved $3.9 million to the bottom line with just one proposal, imagine what I could do with a little bit of time to sort out some of their other wastes of operating capital).

To me, our automakers are not too big to fail, they are too big to succeed. Yes, the automakers are faced with a changing economy with fuel costs rising, green initiatives taking hold and numerous other factors. Still, they are too big to respond quickly to these market changes. And what is the incentive to change course when those at the helm have no recourse if they do not react to market changes?

Small business owners do not get the luxury of government bailouts. When they are headed for disaster, the successful small business owners will change course. Of course, sometimes the situation is insurmountable and even a change in direction cannot avert disaster. Still, if their boat is sinking, they jump ship, swim to safety and then look for the opportunity to build a new and better boat to set sail in the dangerous ocean called the marketplace. Sometimes the new boats fail, as well, but the successful entrepreneurs always find a way to eventually build better boats as they navigate the marketplace. They are quick to respond to changes and dangers out of necessity.

That is what happens in a free market society. There are no guarantees for safe passage. Yet we do not develop great captains by rewarding them for navigating their ships into trouble. They must either learn from their mistakes or from the more experienced captains who have already survived such challenges.

I say let the auto industry get themselves out of this jam. Necessity will require them to find a better way to operate or they will fail. Even if they fail, eventually, some wise entrepreneurs will find some value in the infrastructure that remains and rebuild better companies that provide vehicles to get our great population across this great nation. These vehicles will be innovative and profitable. That is what the market demands and that is what the wise entrepreneur will develop.

I would like to conclude by saying that we are not in a great economic crisis. There is an old Chinese proverb that states, "A crisis is an opportunity riding the dangerous wind." We are in dangerous times, but opportunity abounds for those who can ride the winds of innovation.