Should we give GM and Chrysler another chance? "Bailout billions" could be much more effective with less public risk, expert advises

Published on Forbes.com, March 03, 2009

"No matter how much money you throw at the automakers, that won't solve the problem. It will actually make things worse" says Viraf Baliwalla, a consumer advocate for car buyers and founder of Automall Network (www.automallnetwork.com) a professional vehicle buying service. "But there is a less risky solution".

He compares the auto industry crisis to that of a patient in desperate need of a blood transfusion. "If you don't cauterize the wound, the patient will lose all of their own blood plus any new blood administered" he says.

Baliwalla believes that giving the automakers more money without fixing the root of the problem is like extending their life support in the hopes that they will heal themselves over time.

"It is only extending their lifeline so they can cut expenses and staff while shifting the payroll burden off their books to the taxpayers' unemployment benefits tab. You can only cut costs so far. If nobody is buying, no matter how much you cut, you'll still operate at a loss and eventually go bankrupt. Ultimately, the cost will be a lot higher for all involved" he says.

North American car and truck production has plummeted 40% just in the first 7 weeks of 2009 versus the same period in 2008, from 2,157,688 units down to 886,614. Therein lies the root of the problem - consumers are not buying. Consumer confidence is at an all-time low and with the impending doom and gloom stories, who would want to risk their hard earned money to buy a GM or Chrysler product? Get people buying again and you solve the problem by increasing sales which creates profit and jobs.

"If this is basic business common sense, then why are we throwing good public money at companies that have no plan on how to increase sales, only plans on how to cut costs" he asks.

Baliwalla suggests a multi-pronged approach to stabilize the problem where efforts come from all sides:

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