Seeking Alpha has an excellent article on why bailing out Detroit is a terrible idea. From the article:
When it comes to bailouts, the real discussions are not centered in Washington but rather in Beijing, Tokyo, and Riyadh. With no money of our own, our ability to bailout our own citizens is completely dependent on the world’s willingness to foot the bill. While I am sure that Bush and Paulson are doing their best to convince the world that open ended financing of the United States is in the global interest, my guess is that, unlike Congress, our foreign creditors will see through the self-serving nature of our plea.
I’ve become fairly convinced that the thing to do with detroit is to use any bailout to break them up. “deintegrate” them vertically, which will allow entrepreneurs to get more involved. Let tesla sell to the huge dealership networks, etc. It’s a part of the reason there’s so much innovation in electronics and computers, the supply chain is entirely broken into bite sized peices.