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It looks like there will be an auto bailout for the US’s big three auto makers, GM, Ford and Chrysler.  I’ve read and heard many people argue for and against this bailout.  Let’s assume that the bailout is going to happen, and if it does, I think there are conditions and stipulations that need to be put in place to make it successful.  Unfortunately a simple infusion of cash without major changes will only provide a temporary solution to a permanent problem. 

First of all, the biggest problem facing the Big 3 is the fact that they are building cars consumers do not want to buy.  Any auto manufacturer looking for Government assistance must present a plan to produce a vehicle consumers want to buy.  For example, the Ford Fusion is a great car but VERY bland.  Ford needs to jazz-up the interior of this car and then they would have a real winner.  Other positive changes would be improved fuel efficiency, alternative fuel vehicles along with some real innovation; Ford’s SYNC is one example.  What about a joint venture between a Government agency like the Pentagon with an auto manufacturer to create a super-high fuel efficient vehicle who’s eventual production and sale would help repay the loan.  Imagine a full sized SUV hitting the market in a couple of years that has the ability to get 60+MPG.  It should be possible and that vehicle would sell!      

Additionally, any auto maker needs to come to the table with union concessions that allow for a lowering of their overhead.  Right now, when you factor in wages, pension and other negotiated liabilities you have overhead costs that are a major problem for the Big 3 auto makers.   This needs to be done and might require Government assistance to accomplish.  This is the equivalent of a bankruptcy restructuring without the ugly name. 

Finally, they need to create a plan that allows them to lower their variable overhead dramatically.  For example, GM might consider closing Pontiac, GMC, Hummer and Buick while folding Saturn, Cadillac and Saab along with Chevy into one super-store.  Again, this would require significant assistance from the Government.  When GM closed their Oldsmobile franchise it cost them $2 billion dollars in legal fees because some dealerships sued the company.  Now when they close the four brands you obviously take the 1 or 2 attractive vehicles from each brand and merge them into one of the 4 remaining shingles.  Ford needs to eliminate Mercury and create only Ford/Lincoln dealerships.  And there is no reason for there to be both a Chrysler and Dodge, you don’t have enough quality vehicles for one brand much less two!  This consolidation would greatly reduce management and marketing costs while eliminating the number of dealerships allowing the remaining ones to stay viable.  With this plan we could see any of the Big 3 become profitable again.