Bailing Out US Automobile Manufacturers
19. Nov, 2008 
6 Comments
Like anything in life, if you are not allowed to fail you can never truly succeed. My own successes in life are built on the many lessons I have learned and the understandings I have gleaned from the times I’ve failed. So true is this simple fact of life, that it translates to simple economics. If an individual business or industry is to succeed, they must be allowed to fail. Business entities and industries in a truly free marketplace use the lessons of failure to build a more competitive marketplace, product and services.
Free markets behave like the natural laws of physics. Take water for example, water always seeks the lowest level. The pull of gravity on a liquid is enormous and forever. Try to dam the river, the forces of gravity are so constant and strong that over time the dam will fail, always has and always will. Call it what ever you want, but trying to shore up, bail out, or subsidize ailing US auto manufacturers is like damming the river. The forces of inefficiency, government regulation, horrendous labor contracts with the United Auto Workers Union, and executive level management greed will be so great that over time they will fail. Subsidizing, propping up, and bailing out any business or industry almost certainly guarantees inefficiency, lower productivity, higher prices, shortages, reduced quality and sub par services.
So, with this I say let them fail or succeed on the basis of free market economics. Failure would allow them the reorganize under Chapter 11 of the US bankruptcy code. A bankruptcy filing allows them to restructure their debt, union contracts and executive compensation packages. I say this with the caveat that the US auto industry is not solely at fault here. Our US Congress and the EPA have single handedly continually changed and added new regulations that place an overwhelming burden and hurdles for these companies to overcome. As far as an Obama presidency, I can only see him maintaining and expanding these oppressive regulations. My hope is that in the future, the people of this country will elect a conservative congress that will see and understand the damage these oppressive regulations forced on these manufacturers and repeal or attempt to restrict them selves from further damaging this industry. With free market economics, the big three will emerge as lean, technology driven, productive manufactures of high quality, highly demanded US automobiles. Why, they may even emerge as the big two or even the big one!
Nice opinion Greg. I could not agree more. If the big three were able to build cars that were more desirable, they would not be in this situation in the first place. Check out Toyota, their financials are fine. If the big three were not strapped with unreasonable Union contracts, it would certainly help. What concerns me the most if the fact that the big 3 have not done anything to help themselves, making it impossible for me, a taxpayer, to want to help them. They all received bonuses in the upper millions, they all live in the most elite Michigan neighborhoods, and they all flew to the govt bail out meeting in their private jets!! Same as AIG and the big investment banks that just failed. Come on, how about using a domestic airlines and sit in a traditional coach seat like the rest of us paupers? I’m sorry, but I can not help or feel sorry pompous bastards like these executives. Unfortunately, it’s the people well below them that will suffer the most. If the bail out occurs, one condition should be to fire anyone that made over $150,000 last year. If you made over that amount, you obviously are a part of the problem, not the solution.
Greg, this is dead on. Bernanke and Paulson have got it wrong. A debt inflated bubble won’t be solved by more debt. It’s like giving a loan to your poor relative who squanders all their money. You’re just subsidizing your bad decisions.
Greg,
I agree with many of your points, other not. I feel a large part of the problem is the UAW driven cost strucuuuture that has evolved over the years. THE UAW would demand a pay raise of $10/hour and increase health care coverage. They would threaten a strike and get $5/hr increase and other benfits. Over time, this has made them non-competitive with the imports. I do feel that GM has done a lot to improve product with a number of good new cars out or coming out soon. They have also cut white collar pay and management but they can still do more-much more. Regardless of what they do though it will not be enough until they can get new contracts with the UAW. The only way to do that is to let them go down.
I find it interesting that we are contemplating the pros and cons of whether or not we should bail out the US Automakers. On the pro side, it is estimated that 2-3 millions jobs would dramatically be effected, moving us into a deeper spiral of recession and probably pushing us into a 21st century depression.
On the con side, you have to ask why we are even considering supporting a business model that has for decades, continued to pay workers 95% of their wages when they are not working! Why private dinning rooms and luxury jets are the norm for the top corporate leaders, pushing ridiculous costs on to the buying public. And we have people asking why are the big 3 losing so much market share, year after year? How do you think that this bad business model is going to pay back their $25 billion in loans? There is again no guarantee or agreement that they will not come back for more. It is inevitable that this unrealistic unionized business model will fail. It’s just a matter of when. When you have a poor model, poor performance, poor market intelligence of what the customer wants, poor recognition that the financial pay scale is out of hand, poor response to the oil shortage, poor initiative to do anything different – Oh,yes, ask the government for a loan to keep things the way they are.
There is no question that the United States should have tried something different – that would have been to give all the “bailout” moneys to each and every tax payer over 21 and let them spend, payoff debt, upgrade and buy new homes, and buy new and used cars. That’s what would have boosted the economy and when it is all said and done, poor businesses would ultimately go out of business or merge.
Well, this is not a good situation at all but they should find a honest way to come out of it.
Regards,
Rose.
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