Detroit Bailout: Many Questions Remain, Says Finance Expert

As the Big Three automakers defend their restructuring plans before Congress this week, finance professor Ray Hill of Emory's Goizueta Business School points out that many Americans remain skeptical that a Detroit bailout is anything more than rewarding a failed status quo.

The automakers are promising that with federal loan help, "they will have gotten out of their health care obligations to retirees, and that they will be able to realize compensation costs savings from new hires," says Hill. "But if you look at their data, it's not clear that, three years from now, they still won't be paying their workers more than the international auto companies operating in the U.S."

"The first question is a question of equity: Why are taxpayers being asked to fund the Big Three autoworkers and not other autoworkers in the U.S.?" asks Hill.

The Big Three project that with government help, "in four or five years they could make cars more or less competitively with other companies that make cars in the United States," says Hill. "The question is why should taxpayers finance four or five years of inefficiency, higher wages and benefits for one segment of the population? Carmakers can project future viability on paper, but is anyone going to want to buy those cars four or five years from now?"

Hill questions the efficacy of GM's proposal to eliminate some lines of business. "When they eliminated Oldsmobile, because of state franchise laws, they had huge financial obligations to franchisees when they tried to exit that line of production. Are we actually going to be putting up money to pay car dealers so that the Big Three can meet their obligations under an antiquated system of selling cars?"

Hill also is critical of the two-fleet system, in which American automakers are not allowed to import into the United States the more fuel-efficient cars they make overseas to help meet current U.S. fuel economy standards. "Are we going to continue to have a two-fleet rule, which makes U.S. auto companies unable to make their fuel economy standards, but does help preserve UAW jobs?"

Hill, who is assistant professor in the practice of finance, is a former investment banker who teaches managerial economics and finance.

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Big Three Auto Makers Compared To Toyota and Honda by ProCon.org on New Research Website

/PRNewswire/ -- ProCon.org, a nonpartisan 501c3 nonprofit research organization, created the new website bigthreeauto.procon.org to explore the question "Should the Big Three auto makers be bailed out by the US government?"

Pro and con statements addressing this question come from President-Elect Barack Obama, former Massachusetts Governor Mitt Romney, Nobel Prize winning economists Paul Krugman and Gary Becker, General Motors CEO Rick Wagoner, former US Energy Secretary and US Senator Spencer Abraham, and several others.

Also included on the site are:
-- Chapter 11 bankruptcy laws explained,
-- Contracts between the Big Three and the United Auto Workers,
-- Analysis of "legacy" employees and their impact on profits, and
-- 144-point chart comparing GM, Ford, Chrysler, Big Three combined,
Toyota, and Honda.


Some interesting points from this chart comparison include:


* General Motors, Ford, and Chrysler had a combined US market share of 51.8% in December 2007. As of Oct. 2008, their market share declined by 5.1% to 46.5%. Toyota and Honda, during that same nine-month period, increased their US market shares by 3.1% to a combined 28.4%.

* In 2007, the Big Three sold 18 million autos for $387.5 billion. In 2007, Toyota and Honda sold 12.2 millions cars for $304 billion.

* In the US, the Big Three directly employ 242,000 people and an estimated 2.5 to 3 million indirectly.

* Ford received a $1.29 billion tax refund in 2007 while General Motors paid $37.16 billion in 2007 taxes.

ProCon.org made its Big Three research publicly available for free and without advertising on the website bigthreeauto.procon.org.

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