U.S. Car makers bailed out – U.K. next?

So, President Bush has decided to use a chunk of the funds allocated for banking bailouts to US car makers, principally Chrysler and GM. I suppose it was inevitable. After all, what has Bush got to lose? If it turns out to be a bad move it’s hardly going to tarnish the image of the lame-duck President, but if it works, and it’s a big if, he could leave office and look forward to a golden halo in the future as the man who saved the US auto industry.

I suppose there is a chance that this will work, but it’s slim. Sure, it will save jobs in the short term, but unless GM and Chrysler get their acts together then this is just delaying the inevitable. It feels like it could be a re-run of British Leyland. Unions dictating the agenda; shoddy goods,  poorly made; a range of out-dated cars and no cohesive future.

Chrysler and GM Bailed out. But what's the future?

There are of course bright spots. Vauxhall/Opel has a very strong range in Europe which could be used as the launch pad for a range of quality Euro-based cars for the domestic US market. And Chrysler has some good product too. But both companies are massively over-staffed, which is never going to allow them to become competitive. They need to address the stranglehold the unions have on the industry, or it’s all going to end in tears.

And what of the UK? Well, it is a completely different kettle of fish. It makes sense to offer loan guarantees to UK car makers, but not tip piles of tax payers money in. The UK industry went through the pain of modernising in the ’80s, and isn’t hamstrung with outdated practices and unsellable cars. But all businesses need to invest, and in times like this loan guarantees are the best way to go.

But the only way this whole sorry mess is going to get sorted is if the banking system is forced to act in the interests of the economy as a whole. They have been bailed out to an incredible degree by governments throughout the world, but instead of controlling the banks and ensuring proper business, central governments seemd to be allowing banks to re-build their books at the expense of the economy.

Not until lending returns to normal can the housing markets, the auto industry and the economy in general return to some semblance of normality.