Car, Cheese Industries Get Government Bailout

So first we had banks bailed out. Then guys like Adolf Merckle wanted the personal bailout treatment (not that he got it of course). And now the third wave of bailouts is happening, with companies getting cash from the government to keep them going and not send job cuts spiralling out of control.

So we’ll see today if the car industry in America is getting $15bn, more specifically GM and Chrysler. GM alone was hoping for $12bn, but it’ll just have to make do. You might remember that GM and Chrysler’s bosses got told after their first plea to come back when they had some more viable plans for sustainable product. So come back they did, with some whizzo new green cars, to show that they weren’t just going to keep churning out the old gas-guzzling models but provide something that was efficient and clean.

Holman W. Jenkins Jr, writing in today’s Wall Street Journal, says that these new cars are doomed from the start though, thanks to American drivers wanting to carry on driving big unless gas prices get really crazy. He’s got a point, and small cars seemingly have to be pretty luxurious and/or statement-y before Americans start to buy them. But America needs a shift towards smaller vehicles, and perhaps this government enforcement will be the catalyst it needs. The real challenge is not getting GM to come up with some green car designs, but finding a way to make them efficiently, paying wages the unions are happy with while managing to keep prices down for smaller cars. In some ways, the stranglehold of the United Auto Workers union is keeping the Big Three from expanding its portfolio of models; it doesn’t have room to work out how to make the cheap, small cars America needs.

Anyway, enough of them for now, as there’s a much more delicious bailout happening this week, namely the Italian government chucking money at the parmesan industry. They’re buying up 100,000 wheels of parmigiano and 100,000 of Gran Padano in a bailout worth 50m euros, drawn from a fund to help feed needy people; they’re couching it as sending the cheese to charity. So if you’re homeless in Italy, expect some serious flavour atop your soup ration!

So it seems if your product is a totem or icon for the country you’re in, you can expect sentimentality to breed you a pot of bailout cash. If you’re trading in something totally unsexy like iron ore across countless different countries, then you announce 14,000 job cuts. Not that I’m advocating unnecessarily ruthless capitalism, but hopefully we’ll get some kind of continuous auditing in place for everyone receiving bailout cash, to prove they’re actually a viable business rather than something nice to keep around the place. Because at the moment, given their portfolio of cars, that’s all that GM really is.

Posted by Ben Beaumont-Thomas in Hot Money | December 10, 2008 1:48PM |