Does Detroit Deserve a Bailout?

A Big Three collapse could cripple many small businesses with ties to the automotive industry. We asked several Inc. 500|5000 CEOs for their opinions about a possible bailout and how it may affect their companies.

Auto industry executives came to Capitol Hill last week asking for a bailout, only to leave empty-handed. Leading Senate Democrats call for part of the $700 billion already approved for the financial industry opened up to American automakers and parts suppliers. Republicans and the White House oppose such a measure. Now, after a pair of hearings during which they came under heavy fire from lawmakers, the CEOs of General Motors, Ford, and Chrysler must come up with specific explanations of how the $25 billion emergency loan would help them. But aid for Detroit seems unlikely to come until January when the new Congress convenes -- which may be too late for at least one of the Big Three.

General Motors says that without federal assistance, it could be out of cash by the summer of 2009. If that happens, the company faces bankruptcy: either Chapter 11, which would allow reorganization and a chance at survival, or Chapter 7, meaning complete liquidation. Execs from Ford and Chrysler joined GM CEO Richard Wagoner in his appeal to Congress for help, saying they also face possible insolvency.

Many U.S. businesses have ties to the automotive industry -- from auto parts suppliers to car wash owners to consulting groups. The consequences of a Big Three collapse are uncertain, but would be far-reaching. To get a better sense of the impact of a meltdown in Detroit on America’s automotive industry, we asked several Inc. 500|5000 company executives what they think of the possible bailout.

What do you think of the idea of a bailout?

Greg Chaney, Manager, Chacon Autos, Dallas-based owners of eight automotive dealerships: I believe that the U.S. auto industry needs some sort of help. There are quite a few things that have come together to create a perfect storm that could put them out of business. If there is to be a bailout, I think there should certainly be strings attached, as the status quo is not working. They must present some sort of business plan to a board created by the government prior to any money being lent. We should limit what the money could be used for. It should not be used for increased dividends, executive bonuses, stock buy-backs, and only used to acquire another company if approved by the board. I think a heavy emphasis should be put on new alternate fuel vehicles or high fuel efficiency vehicles. And they should improve the quality of their fleet of passenger cars.

Ken Murer, Co-founder, APC Direct, a Chesterfield, Mo.-based advertising firm that creates direct-mail campaigns for car dealerships: With the exceedingly expensive costs of unionized labor, it’s impossible to compete with the import companies from Europe and Asia, whose employee costs are significantly lower. The auto industry is crucial to the economy because of all the independent mom and pop suppliers and dealerships that depend on it. They need to consider what they can do to change labor costs so that the bailout can work.

Andre Gist, CEO, Manufacturer’s Industrial Group, manufacturers of welded assemblies and fabricated metals for the auto and construction industries based in Lexington, Tenn.: As much as I don't think it's fair, I think it's needed to help the entire industry. We're tied together and bankruptcy would destroy a lot of suppliers that are not at fault. They have to make cost saving internally the same as suppliers. Too much pressure to control cost is pushed down to suppliers. There should not be any raises or bonuses until the loan is paid back. Everything launched after 2012 should make 40 mpg at a minimum.

Roger Layne, CEO, East Tech Company, a Chattanooga, Tenn.-based maker of high-tech machinery for the automotive and construction industries: I agree with the bailout. I don't think there is another option.

Jeff Probst, CEO, Blue Sun Energy, a Golden, Colo.-based integrated agricultural-energy company that makes biodiesel: It is important that the automakers are not given a bailout, but rather a loan that needs to be repaid. When the banking system is not there with credit, the government may have to be the lender. Tough loan terms will motivate the Big Three to do what they must to repay the loan.

Geoff McCollom, Co-owner, Dutch Valley Auto Works, a collision-repair shop in Lancaster, Pa.: Generally speaking, I’m in favor of the free market taking its course. So if some have to declare bankruptcy, so be it. Someone will fill that gap, whether a leaner and meaner GM or Ford or their competitors. If there are cars that want to be bought, someone will get that sale. A Toyota or Honda or Nissan would expand their operations if factory space suddenly became available. But it would be painful either way -- restructuring, shrinking, and cutting jobs would hurt.

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