The 7 worst ways to rescue Detroit

By U.S. News & World Report

Commence Kabuki. With the Detroit automakers in the late stages of supplication, a predictable ritual will now take place.

The CEOs of General Motors (GM, news, msgs), Ford Motor (F, news, msgs) and Chrysler will do as instructed: travel like common men from Detroit to Washington to present the government with new-and-improved restructuring plans showing that this time, they really are serious about slaughtering sacred cows and right-sizing their businesses.

Members of Congress will deliver a few lashings about overpaid CEOs and over-entitled union workers.

Then, in the end, the feds will pony up at least $25 billion -- and maybe $50 billion or more, eventually -- to help stave off automotive Armageddon.

• Tell us: What if GM and Ford fail?

There are many routes to a Detroit bailout, however, and some go straight through Follyville. Here are seven ways the feds could mishandle the automaker rescue package:

1. Treat the Big Three all the same

They're not alike, and an up-or-down vote on GM, Ford and Chrysler as one monolith would be a clumsy way to spend taxpayer dollars.

Chrysler, the smallest of Detroit's Big Three, appears to be in the worst financial shape, with a thin margin of cash to see it through the rest of the year. It also has the weakest lineup of cars and few announced future products -- signs that management is hunkering down and preparing for some kind of merger or even liquidation.

In other words, Chrysler isn't cutting it as a stand-alone automaker. "Chrysler is the only one of the three that could go out of business without having a huge domino effect," says analyst David Silver of the research firm Wall Street Strategies. It's also owned by the private-equity firm Cerberus Capital Management, run by billionaire Stephen Feinberg.

GM and Ford are both public companies committed to long-range plans, but their needs are different. GM is desperate for cash and says it needs help now. Ford is further along in its turnaround plan, and CEO Alan Mulally says the company doesn't need any federal loans at the moment.

An across-the-board bailout of all three would commit taxpayer money to at least one company, Ford, which might do OK without it. And it would represent another unprecedented move: the bailout of a private-equity firm, whose principals earn way more than an overpaid CEO.

Better: Establish standardized ground rules that treat each automaker according to its business prospects, not its political connections or some dubious place in American lore. If it turns out that GM is a good risk but Chrysler isn't, then let Chrysler go. The government may have to pick winners and losers.

2. Force them to build 'green' vehicles

There's already a strong incentive for automakers to build hybrids and other high-mileage cars: People buy them. If the government has to "incentivize" a company to build the kinds of products customers want, maybe it should incentivize the top executives to get lost.

Besides, Detroit isn't as backward as the lampoonery suggests. There are already a few domestic hybrids, with more on the way. Detroit's Big Three sell economy cars, too. They're just not as good as Honda Civics or Toyota Corollas. But all three U.S. automakers say better models are on the way -- because their survival depends on it. If that's the case, let them prove it.

Better: In exchange for government largesse, simply set tough payback terms and deadlines that require the companies to become profitable, fast. But don't dictate the products they should sell.

Continued: Appoint a car czar?

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