airline industry bankruptcy
Bailout Versus Bankruptcy
Late last year, as the presidential campaign rhetoric was still fresh in the background, there was talk from various financial corners of the nation regarding the American automobile industry’s looming financial crisis. Though there were numerous, seemingly differing views proposed, the reality of the situation divided the argument into two primary camps – those that favored some form of government backed financial bailout, and those who wished for the more familiar capitalist mechanism, bankruptcy.
Those in favor of the latter made numerous comparisons to the various occasions in recent history when the airlines were forced to file for bankruptcy protection. On the surface, the comparison might seem like a sound one. After all, both the airlines and auto manufacturers are multi-billion dollar industries related to transportation that employee many thousands of Americans in a multitude of jobs both in the primary and secondary markets.
However, there is one large fundamental difference – the automobile industry’s primary focus is on manufacturing, where the airlines are a service-based industry. This means that while the various airlines were each declaring bankruptcy, they were still able to continue with their publically visible side of the business – they could keep flying. Their air fleets were already bought and paid for, and their employees incomes were protected by the bankruptcy filing. While things might have seemed like largely business-as-usual to those of us flying, the airlines were largely left to coast. They couldn’t buy new airplanes, couldn’t expand their routes, couldn’t do any innovation while they were technically bankrupt. They were essentially shrinking, one piece at a time, as things ran out.
The automobile industry, on the other hand, is based on growth through the continual production and sales of cars and trucks. Bankruptcy would stop production, forcing the entire industry to a halt while the filing automaker performs a system-wide restructuring, the kind necessary to rise out of bankruptcy. That is, if the automaker does actually come out of bankruptcy, something that is not guaranteed.
The general lack of guarantees is what would hurt the automakers the most. After all, the purchase of a car is not a task most people enter into lightly. A car is a relationship forged between the consumer and the auto manufacturer. The consumer is investing quite a bit of money, and in return expects to have a vehicle that lasts for several years, and for which replacement parts are available. It’s an everyday relationship, and it’s one that’s defined Americans since the dawn of the automobile age.
The loss of trust due to bankruptcy would spell doom for automakers. Few potential customers would be willing to purchase a car without the guarantee that the manufacturer would uphold their end of the bargain. The inability to sell the cars currently on the lot would only exacerbate the situation.
A bailout, on the other hand is not an easy solution. The automobile industry as a whole has some very large changes to make, and it’s a process that’s going to take care and time. But, it’s a necessary change. The money from the bailout allows that change to take place, while maintaining the sense of trust that allows millions of Americans to get to work every day.
About the Author
Scott Conklin is the president of Conklin Cars, a leading provider of new and used Kansas Honda,
Kansas City Cadillac
, and
Wichita Cars
. Conklin Cars can be found online at: http://www.conklincars.com .
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