Imagine that you own a house in a cold place at a cold time of year, such as Washington, D.C., in the middle of December. Now imagine that all the windows in the house are broken, so that it is costing you an extra $100 a day to heat the house.
You wouldn’t say, “Oh, all the holidays are coming up. I’ll wait till the end of January to fix the windows.” As long as the windows are broken, you would be burning through $100 a day without doing anything, and in financial terms, that’s a disaster. You wouldn’t go to the family dinner in this situation. Instead, you would ask all your family members, “Please come over to my house and help me fix my broken windows.”
One of the unfortunate effects of the dot-com boom of 1999 is that it persuaded people that “cash burn” was a normal, acceptable part of business life. It really isn’t any better than the phrase suggests. I have never seen anyone shoveling dollar bills into a furnace and burning them up. That would be insane. Yet businesses do equivalent things and treat them as if it is perfectly normal.
And this is why the Detroit Bailout will probably not pass Congress in its current form. The Big 3 automakers are burning through not $100 a day, but around $200 million. Their cash burn might be more than $100 a day per worker. This is in an industry where many workers are paid around $100 a day. It’s a situation that they ought to be treating like a disaster, and working overtime to correct as fast as they can.
But the bailout legislation currently being considered essentially pays the Big 3 to procrastinate, to put off the fixes they need until late in January. By then, between them, they might have lost another $10 billion. And when we say “lost,” it’s not just an accounting word. It really means “lost,” as in, “no chance of ever getting it back.”
The bailout should require immediate restructuring as a precondition. It should require Detroit to treat its situation as the emergency it is. After all, no bailout from Washington could ever be large enough to save the U.S. auto industry. The only thing that can save the industry is restructuring, so that it is spending its money on the right things. If the companies postpone this restructuring because they are getting government money, that decreases their chances of surviving in the longer term. It will be hard to find 50 senators who would vote for that.
