Friday, December 12, 2008

Psychology of the Auto Bailout (or lack thereof)

A few thoughts about the auto industry bailout failure:

As Congress is considering this decision, there is so much baggage from past consdierations (prior bailouts, anger about SUVs and "sabotaged" electric cars, union pay and benefits, etc...). The emotional baggage is getting in the way of rationality.

Psychological research shows that facts and numbers are needed to make the best decision in such a situation. Grandstanding over ideology is what happens when no one has come up with clear numerical projections. Numbers such as: 1) how many people will become unemployed and their families will draw federal and state benefits? 2) what are the consequences of bankrupcy reorganization to employees, suppliers, and others? 3) What are the realistic future strategies of the companies? 4) Who are the creditors who will be hurt by bankruptcy?

These are useful questions, but under stress and uncertainty the human mind will latch onto emotional images without such numbers, often making worse overall decisions as a result.


1 comment:

Ethan Bloch said...

You definitely bring up some valid points in regards to psychology/emotions and how they affect decision making. Furthermore your spot on to suggest it is important to pay attention to the data and ignore the emotions.

However in this case the data overwhelming states that these are overloaded, poorly ran businesses with way to many obligations. These companies are in dire need of restructuring and a renegotiating of all obligations.

The 3 million jobs supported by this industry are not going to dispear overnight. Americans still need cars and if they don't buy them from the big 3 they will buy them from the foreigners who employ hundreds of thousands of Americans and will only employ more to meet the additional demand vacum created by a big 3 failure.

That is of course to suggest the big 3 won't be producing anymore cards at all, an outcome I find highly unlikely.

I imagine at minimum be one or a two slimmed down, buffed up companies re-emerging from the ashes, able and willing to fight another day.

Just my thoughts.


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