Having been somewhat involved with the industry (mostly on the Japanese side) as a consultant, things already weren't going that well when I finished my last project in Detroit last month. The current situation has made it a lot worse (I guess I should be relieved that I chose to get out before the SHTF -- then again, my next project is in oil/gas
). Given that many of my former clients are now those dependent on the future of the bailout, it does make things personal -- but I am still torn. My start in the industry was with Toyota in college, so I am certainly aware of how Detroit got into the mess it is in today.
I do definitely believe the mistakes Detroit made in the past should not be rewarded or sheltered. For example, cheap gasoline fed the demand for large trucks and SUVs, but it also shifted R&D $$$ away from small cars. When fuel prices shot up this year, the Big 3 were caught with their pants down, losing the major share of their profit streams.
To play devil's advocate, Toyota and Nissan obviously planned and designed large pickups and SUVs as well -- and they were also hurt. But they built out a solid full lineup, including fuel-efficient small vehicles, so the damage was mitigated to an extent. Toyota lost money on Tundras, but cushioned the blow with profitable Corolla and Yaris sales. And Toyota is the Dr. Evil of PR -- they took a niche product that was designed specifically for the anti-diesel Japanese domestic market (the Prius) -- and turned it into their calling card as an "environmentally-friendly" car company (indeed, going by average fuel economy ratings -- Honda is actually more "green"). GM had the same opportunity with the EV1 earlier, but floundered with it.
Now, that's not to say Detroit had no small cars -- they have products like the Cobalt and Focus. But even then, many of Detroit's small cars weren't even profitable -- instead, their role was more a buffer to balance out truck sales in CAFE ratings. So when you can't sell trucks, and your smaller cars don't make much money (even though they are selling more now) -- the result is not so good.
But while Detroit has had its fair share of missteps, that's not to say there isn't any potential. I do think the quality gap actually is shrinking (and this is supported by Consumer Reports, JD Power, etc.). Toyota and Honda are still up there on quality, but they've also grown rapidly and are still ironing out some of those kinks. Nissan and Toyota's current CEOs are also known for rampant cost-cutting, in the name of growing market share (as opposed to the more organic growth they've had before). The UAW in contrast, has made some concessions with the Big 3 when it comes to plant overhaul and other aspects on the manufacturing side that will make Detroit as productive and efficient. The Japanese are still ahead when it comes to flexible manufacturing, but the American companies are competitive. And in the end, there are several American models that do indeed meet or exceed the Japanese on quality and refinement. The issue that Detroit faces now is changing perception (which takes sustained quality and time -- not just a one-trick pony), and also the intangibles (like interior quality and ergonomics -- which are changing as well).
So things have been changing to an extent before, but the pace was glacial. That was the first problem. The second was that the credit crisis basically put a stop to any further improvements. I can name at least a few different car programs (models that actually had me excited as to what was going to come out of Detroit in the future) that got canned because GM and Ford knew they wouldn't be able to fund them once the crisis hit. Ultimately, those bright spots that could actually start to turnaround the Big 3 faded away. And so to an extent, that's the dilemma that Detroit is in now -- they do know they need to make changes, but now they apparently can't (without the bailout, at least).
The problem I see with bankruptcy is not only the difficult of obtaining exit-financing, but also the perception. Studies have shown that consumers are significantly less likely to purchase a car from a bankrupt company versus other scenarios, such as airlines. With automobiles being a durable good, the perception issues of servicing and resale also come into play. For the Chapter 11 option, it would probably have to be orchestrated very well to give the general public an impression of a restructuring rather than an actual bankruptcy.
If it can be done with loans (and not a bailout, per se) -- part of me thinks it could work. The predecent with the Chrysler loan guarantee in the early 1980s is positive, as Chrysler AFAIK paid off the loan early and the interest collected by the government was a handsome amount. But Chrysler at that time had several hits (the K-car, minivans, etc.) and great timing. And how much will $25 billion help? IIRC, GM is burning through billions
per month, so will we simply see them come back next year and ask for more?
So with all that said, I abstain from finalizing an opinion.