let bad companies fail

I’ve been watching the story about GM, Ford and Chrysler closely for the past few weeks. All three automobile companies are experiencing some serious financial problems, and as such, are trying to convince the U.S. congress to bail them out. It looks like the companies are indeed going to receive some kind of help, though as I write this, the actual bail out plan is still quite fluid and it’s not clear how it will pan out.

As a regular American citizen, I’ve been trying to make sense of it all while trying to figure out where I stand. Based on everything I know to date, I say “no” to a bail out. And the reason I say this is simple: I haven’t yet heard a good reason to do so.

There are a lot of people sharing their opinions on this: UAW, congressmen, lawyers, economists, reporters. And there are two key reasons for a bailout that keep cropping up:

  1. Jobs: According to most reports, if the three auto makers fail, it will affect anywhere between 2.4 million and 3 million American jobs. This of course includes employees of the companies as well as suppliers and many other businesses who depend on the auto industry for their livelihood.
  2. Wall Street: Many people say that we’re giving $700 billion to Wall Street, why not give $30 billion to the auto makers.

The above two reasons, while they may be accurate, are certainly not reasons that our government should invest in these companies. Here’s the way I look it at. Let’s boil this down to a simple concept. Why does anyone invest money in any company? Again, it’s simple. Because that company has a good track record. Because that company has a good leadership team that makes smart decisions. Because when you compare that company to their competitors, they look good; they are more successful, they have a good business plan, and they have good prospects for earning a profit. Because that company knows their customers well and makes products that are in demand. Because they’ve got a good history.

But no one, not one single person I’ve heard from or read about, is talking about any of these reasons. Not a single one of them. They’re all focusing on saving jobs. If saving jobs is the only reason you have to invest in a company, you’d better not count on your investment paying off.

This is definitely one of those issues I’m watching closely. I’ll find out how my own congressmen vote on this one, and it’ll make a difference the next time I hit the polls.