GM: Proving That Bailouts Don't Work

I like GM, I really do. But, they're brilliantly proving the case that bailouts simply don't work, and should never be done.

General Motors and Chrysler on Tuesday asked the Treasury Department to approve up to $18.6 billion more in federal loans to stay alive...

GM is asking for $22.5 billion (of which it has already received $13.4 billion) and perhaps up to $30 billion, if car sales worsen further. By 2013 or 2014, GM said it could require additional funding if its once-fully funded pension plan doesn't bounce back with the stock market. Separately, GM estimates it will receive $6 billion by 2010 from the governments of Canada, Germany, the United Kingdom, Sweden, and Thailand to support its operations in those countries.

Chrysler, which has received $4 billion of the $7 billion it originally requested, is now seeking $2 billion more, for a total request of $9 billion.

But as of the Tuesday deadline to prove their long-term viability, there were some big items under the terms of the government loans that were still unresolved. None of the three automakers has yet to reach agreement with the UAW to reduce their enormous health-care obligations to retirees.

[Chrysler] said Tuesday it plans to cut 3,000 more jobs this year, reduce fixed costs by another $700 million, reduce debt by $5 billion and cut 100,000 additional units of production capacity. It also plans to eliminate three models: the Dodge Durango, Chrysler Aspen and Chrysler PT Cruiser.

GM said it will either sell Hummer by March 31 or begin phasing out the brand. It is trying to sell Saab, and has asked the Swedish government to support the brand in the interim, with the intention that GM will cap its financial support for Saab this year. The automaker also suggested Saturn's days are numbered, unless it can sell or spin off the dealership network before the brand's current products reach the end of their life cycle in 2011.

GM also plans to continue reducing its dealership ranks, from 6,246 last year to 4,700 by 2012, and to 4,100 by 2014.

So, let's review... GM and Chrysler made poor deals with the unions that hyper-inflated their own cost structure, forcing their cars to be priced higher and of lower quality. They get taxpayer money to keep them alive until they can pay off their debts, though critics say that until they totally revamp their agreement with the unions, they'll be right back before Congress asking for more money. They didn't modify that agreement, so now we see that...they're right back before Congress, asking for more money.

The core problem here is the business practices and contracts these companies have made. Until they get out of them, they'll never become viable. If they've been incompetent with their own money, do we really expect them to suddenly become competent with ours? Hardly. This is like having a fat man who weighs 400 pounds go get liposuction. Sure, they suck out the excess fat on that particular day, but if he continues to eat 6,000 calories a day, he's going to end up weighing 400 pounds again in no time, right?

This is why bailouts should not be done with taxpayer dollars. The behavior is what needs to change, but a bailout prevents any behavior modification from being made.

There's my two cents.