So Why are the Big Two US Auto Makers on the Brink of Bankruptcy?

It’s almost unbelievable to see that both Ford and GM at the same time are scurrying for a bailout from bankruptcy as their stocks closed at about 2.5 and 4.5 respectively last week.  So what are the reasons behind such a catastrophic event?  Well the spin machines are out to pass the blame away from the companies themselves and on to exogenous factors.  But the real story mirrors the same problems that led to our recent economic demise.

The spin machines are claiming that the high cost of labor resulting from unions and health care costs are the real drivers for why the big 2 can’t compete in the global marketplace.  Reality is however that the big 2 focused largely on generating profits from becoming finance companies rather than innovative manufacturers of diverse quality products.   Producing ultra-large gas guzzlers and reaping the benefits of loans from buyers was a nice short term play, but eventually it would crumble and crumble it did. Additionally, these players cannibalized there own future growth by riding the ultimate consumption trend plaguing the US economy. 

By pushing the idea of having to trade up to the latest model every two years rather than adhering to the more traditional and stable model of new purchases every five years or so the market became flooded with lease turn-ins and pre-owned vehicles, and now US consumers are tapped out.  It’s the same old story…the plight for the highest short term gains no matter what, where more stable and sound growth models were thrown by the wayside.  So now it’s time for another multi-billion dollar bailout as a result of poor decision making.  When does it end...