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GM will fail and the longer it goes on the worse it is going to be. If you need proof of this look no further than their latest television ad promoting the Cadillac Escalade Hybrid. It compares their vehicle to a Mini Cooper and they brag about getting 20 mpg for their hybrid versus 19mpg for the Mini Cooper. Even after the gas crisis that arose last year they just don’t seem to understand that 20 mpg isn’t something to be proud of.  Why would you spend your advertising dollars promoting a car which gets such poor MPG when you know consumers are looking for fuel efficiency, especially with the economy the way it is?

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As you have undoubtedly heard President Bush announced today that the Auto Industry will be receiving it’s bailout after all.  A $13.4 Billion dollar bailout to be exact.  The plan leaves out Ford but GM receives $9.3 Billion and Chrysler will receive $4 Billion to keep it’s operations going.

All of that money does come with one major caveat.  The companies that accept the money have to show that they are “viable” by March 31st of next year or they have to repay the loans in 30 days.  A repayment schedule like that is akin to a death sentence to virtually any company, let alone GM or Chrysler.  It is also important to note that this bailout package does not appoint a “Car Czar”.  The responsibility for determining “viability” falls on a designee that Obama will appoint.

There in lies the problem.  President Bush has shuffled along this mess for just enough time to allow himself to get out of office.  In the process he has left a time bomb for Barack Obama.  The President-Elect now has really only two poor options.  If he certifies that the companies are “viable” then it is all on his administration if they fail.  If he decides that they are not “viable” then the companies will be gone in 30 days because there is no way they can pay back that much money so quickly.

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When you take a look at the “American” Auto Industry most people focus on GM, Chrysler, and Ford. What seems to be overlooked are the thousands of non-union autoworkers in this country turning out cars for companies like Honda and Toyota. This isn’t about Union bashing. Unions serve an important roll in this country but in this case they have gotten out of control.

Total compensation averages around $73/hour at the Big Three. At Toyota here in the US is works out to about $48/hour. That is a difference of $25/hour that the Big Three need to make up somewhere.

So where do they try to come up with that kind of money? Well they reduce spending on research & development for starters. This is why we saw the Japanese out perform their American counterparts in terms of fuel economy during the past two decades or so.

Where else can you cut costs? You cut quality. You use materials that are cheaper. Over time your cars develop a reputation for having an inferior quality.

The Big Three couldn’t stop competing based on price. There they had to be competitive or people wouldn’t buy their cars. In the mean time the other half of the “American” Auto Industry, the non-union automakers (Mostly Foreign) began investing their savings in improving production techniques & processes, modernizing equipment, and expanding their market share.

A bailout of the Big Three is a slap in the face to those hard working Americans who work for Toyota, Honda and others. Why are we supporting the UAW half of the industry and not the other?

This is yet another reason why any talk of the bailout should be nixed. Allow the Big Three to go into bankruptcy and then reorganize themselves. Allow them to opt out of their union contracts which have been dragging them down over the years. That is the only way they are going to be competitive again.