Sunday, November 16, 2008

Bailout for GM?

There is an article on New York Time today on Bailout for crisis hit Automakers. It is not surprising to see these protectionist voice once the economy is in problem but US Govt. should be very careful in taking these steps. Any subsidy or bailout tend to make people less cautious and careless going ahead. And after-all US Govt. cannot spend tax payers money to bail out the corporates in all sectors.

I see everything bad in the bail-out and for various reasons. Let me list down few.

1. Where does the money come from? Increasing Tax?
Govt. is after-all just a institution, a massive organization with both investors and clients as the people of the country. They hardly have any external source of Income apart from Tax Income. And if they go on bailing out the problematic firms, they will have no options but to increase tax for the General Public.
Bad for government stability. Bad for the Citizens.

2. Bailout can help cure the symptoms but not the disease.
There was something wrong with any company that collapse, or in verge of collapse. How will bail out help ensure that the root causes are addressed. The reasons for GM's financial condition is its poor cars, they are neither good looking like the Europeans nor are fuel efficient like the Asians. GM has one of the poorest distribution channel in India (don't know about US), and the worst amongst all automakers in terms of the after-sales service. You will find a Maruti, Mahindra, Tata or Hundai service center in the most rural areas also. There are Toyota Service Centers in all smaller towns and every corner of big cities. Searching a GM service center will be a real pain anywhere.

More to this, is the increasing expenditure of the US Companies. Asians have build their firms in very cost effective manner while the Americans and Europeans have inherited the high spending culture once gained by political power. This is the root of all cause.

Can bailout address these issues? NO.

My suggestions to the US Govt. and GM would be to work in their own areas. Do not interfere, and don't cry for help. GM's Board should get together sell few unprofitable units to finance their operations and for obvious reasons search a Executive from IBM and replace the CEO.

If GM needs to do anything good in future, they will have to learn from IBM. IBM is one American Company which has mastered lowering cost of operations and is still leading the Software Services area by far margin.

Good cars and competitive GM is better for the Americans and the World. Nothing else is.

Good Follow up by Deep Serchan.

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