If General Motors, Ford and Chrysler get the bailout from the US Government that their chief executives have asked for, you can kiss the American car industry goodbye. It won't go overnight, but its demise will be virtually guaranteed.

Without that bailout, Detroit will have to restructure itself drastically. With it, carmakers will stay the course - the suicidal course of declining market shares, insurmountable labour and pension burdens, technology atrophy, inferior products and never-ending job losses. Detroit needs a turnaround, not a cheque.

I love cars, American cars. I was born in Detroit, the son of an car company chief executive. In 1954 my dad, George Romney, was asked to run American Motors when its president died suddenly. The company was on life support - banks were threatening to deal it a death blow. The shares collapsed. I watched Dad work to turn it around, and years later at business school, they were still talking about it. From those lessons, and my own experiences, I have several prescriptions for the car industry

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labour agreements to align pay and benefits to match competitors such as BMW, Honda, Nissan and Toyota. Furthermore, pension costs must be reduced so that the total burden for each car is not higher than that of foreign producers.

That burden is estimated to be more than $2,000 per car. Think what that means: Ford must cut $2,000 worth of features and quality out of its Taurus to compete with the Toyota Avalon. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering cars. But if this penalty persists, any bailout will only delay the inevitable.

Secondly, management must go. New faces should be recruited from unrelated industries. The new management must work with union leaders to see that enmity between workers and management ends. This division is a hangover from the early years of the last century, when unions brought workers job security and better wages and benefits. But as Walter Reuther, the former head of the United Automobile Workers, told my father: “Getting more and more pay for less and less work is a dead-end street.”

Companies in the 21st century cannot perpetuate the destructive labour relations of the 20th. This will mean a new direction for the unions, profit-sharing or share schemes for all employees and a change in management culture. The need for collaboration will mean accepting sanity in salaries and perks.

At American Motors, my dad cut his pay and that of his executives, he bought shares in the company and went to factories to talk to workers directly. Get rid of aircraft, executive dining rooms and all the symbols that breed resentment among the hundreds of thousands who will also be making sacrifices to keep the companies afloat.

Investments must be made for the future. No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with share options. Invest in truly competitive products and innovative technologies, especially fuel-saving, that may not come for years. Starving research and development is like eating the seed corn.

Just as important to the future of US carmakers is the sales force. When sales are down, you don't want to lose the only people who can get them to grow. So don't fire the best dealers, and don't crush them with demands they can't meet.

It is not wrong to ask for government help, but the carmakers should come up with a win-win proposition. I believe that the Government should invest substantially more in basic research - on new energy sources, fuel-economy technology, materials science and so on - that will ultimately benefit the industry, along with many others. I also believe that Washington should raise energy research spending. The work could be done at universities, at research labs and through public-private collaboration. The US Government should also rectify the tax penalties that favour foreign carmakers. But don't ask Washington to give shareholders and bondholders a free pass - they bet on management and they lost.

The car industry is vital as an employer and as a hub for manufacturing. Managed bankruptcy may be the only path to the fundamental restructuring that it needs. It would permit the companies to shed excess labour, pension and real-estate costs. The US Government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

In a managed bankruptcy, the US Government would propel newly competitive and viable carmakers, rather than seal their fate with a bailout cheque.

Mitt Romney is a former Governor of Massachusetts, who sought the Republican nomination in the 2008 US presidential election

© 2008 The New York Times (Distributed by The New York Times Syndicate)

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