Automaker bailout… an extremely dangerous trend!

With talk of a bailout of GM (General Motors) looming, I figured I had to make some kind of comment. In the past, I have commented several times in this blog about the poor management decisions of GM and other automakers. I noted that just about any person off the street would have seen the trends coming that have put these companies in crisis. Heck, I’ll hire myself out as a consultant to them for cheap! I can’t do a worse job than the current top management of these companies.

This bailout, though, shows just how bad that management has been, and is a very troubling development. Yes, the sudden downturn in the economy means that an already fragile auto industry needs help. The repercussions of not doing so would be catastrophic to the USA if not the world. That said, how we got here is very troubling. What overly greedy investment tactics and sub-prime mortgage failure have to do with falling profits of automakers? I think this is a good question. If you have some answer, I’d love to hear it.

What we have here, is an extremely mismanaged industry, the failure of which would have too severe of repercussions to ignore. At the same time, the failure of which is to be expected. Now all us tax-payers have to foot the bill. This is absolutely unfair, but unfortunately, a likely reality.

The trend here that is so extremely dangerous, is that huge companies can be mismanaged, with such extreme waste… and then expect to be bailed out because of their critical importance to the national and global economy. Why even worry about the long term when running such an organization? Take the maximum money you can extract and waste… worry only about the shareholders…. if everything falls apart, the tax-payers will just bail us out.

I think we’re going to have to implement some kind of check and balance on any company that gets this critical to national and global economy. This means either breaking them up, or some other kind of external oversight to be sure they don’t get into this kind of mess. I’ve see this coming for a long time with GM. I’m sure others have as well. Yet, they just blindly fumbled down a path of destruction for many years now.

So, who will be the next industry to cash in on government bailout? It’s easy money if you are a big and important industry. We can hardly let them fail. Yet, they don’t seem to care about anything but feeding internal and external greed… not even enough to do any planning for the future.

Mark my words on this… if we do not fundamentally change the way companies are run, and how investors invest in them… we WILL NOT get out of the economic crisis we are currently in. If we do temporarily because of bailouts and governments manipulating the economy, it will only be covering up the the real problem. The current history-breaking swings of the stock markets show the investors don’t have a clue about the nature of the problem. Companies like GM are prime examples of the cluelessness on a corporate level as well. Can we fix the problem without letting it all come crashing down? I think the answer is yes, but it will take fundamental changes in thinking about investing and business. Unfortunately, I’m not sure this will happen without a complete collapse.