Are we effecting a recovery…

…or postponing the inevitable?

The February 18, 2009 Wall Street Journal headline says “GM Plans to Slash 47,000 jobs; Chrysler Mentions Bankruptcy Option for First Time.”  This news hit on the heels of a speaker telling those of us in the audience that we can’t afford to let the automakers fail.  Is that true?

Let’s bring this question down to a manageable size.  I’m sure that each of you has thought “I can’t afford to lose this customer (employee, vendor, job, friend, etc).”  That mindset causes you to make concessions that you wouldn’t otherwise make, to overlook inappropriate behaviors, to tolerate arrogance and poor performance longer than you should.  Indeed, your actions give the person reason to think that they are more important than they are, triggering even greater arrogance and more demands on you.

When you made those concessions, what did they buy you?  Did the relationship improve or did it decline?  Did you finally get to a point where you said “no mas” and walked away from that relationship poorer, but wiser for the experience?

It’s counter-intuitive, but any time that we feel that we “can’t afford to lose” something we set ourselves up for a costly lesson – one that we could have avoided by simply walking away from the untenable situation. 

In the case of the automotive industry, what has the $17+ billion in bailout money provided to GM and Chrysler in December 2008 and January 2009 gotten us.  GM is planning on cutting 47,000 jobs, shutting 14 plants and thousands of dealerships.  Wouldn’t that have happened anyway if GM had been allowed to go into bankruptcy?

If that weren’t bad enough, we’re rewarding the poor performers (GM and Chrysler) while Ford continues to exercise fiscal responsibility without taxpayer aid.  Do we really want to reward bad strategy and poor execution? 

As you can tell, I believe that the automotive bailout is not in our best interests.  As long as we continue to provide taxpayer assistance there won’t be any urgency on the part of GM, Chrysler, the unions, suppliers, bondholders, stockholders and others who have a vested interest in GM and Chrysler’s success to act quickly and decisively. 

If we’re going to experience the economic pain of more layoffs, plant closings and dealership closings, let’s do it now.  It will be a shock to the economy, but it will minimize our both short-term and long-term losses.  It will also quicken the recovery.  Once uncertainty is removed from the market, buyers will come back into the market.  They’ll be served by the surviving automakers who will purchase, through the bankruptcy courts, the plants that have been closed, reopen them and rehire those automotive workers who were laid off.  This recovery in the automotive industry will happen more quickly if GM and Chrysler are allowed to fail.

Please share your thoughts with Invaluable Leader readers by posting a comment.  If there are issues you’d like me to address, send me a note at dale@furtwengler.com.

Tags: abundance, best practices, counter-intuitive thinking, economy, Finance, scarcity

This entry was posted on Monday, February 23rd, 2009 at 6:51 am and is filed under Finance, Leadership, Strategy. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.