Should the Big Three be put out of their misery?

by Jay McDonough

Should the government step in to save them or just let them die peacefully in their sleep?  Barack Obama and most of the Democratic caucus believes some government assistance, to the tune of $25B (remember when that seemed like a lot of dough?), will be required to keep the Big Three automakers afloat.

This comes just a few weeks after Washington provided another $25B the automakers claimed they needed to finance the conversion to building more fuel efficient cars.  (Of course, one could argue any management team with the smallest bit of competence would have directed the development of more fuel efficient cars long before now).

Henry Blodget argues let the Big Three die:

Ford, GM, and Chrysler are done for regardless, Obama. Bailing them out yet again won't fix them. It will just prolong the agony.

The companies' problems result from:

   -  Their inability to build cars (cars, not trucks) Americans love
   -  Their inability to restructure their way out of their pension and union obligations
   -  Their inability to compete on their own merits.

Throwing another $25 billion of taxpayer money down the rat hole won't do anything other than postpone the crisis. Just let the companies go bankrupt, Obama. That's what bankruptcy is for. Let the shareholders and debt holders take the hit. Not the American taxpayers.

The danger, of course, is that the companies never emerge from bankruptcy, and a significant number of folks are without jobs and pensions. 

It's likely Barack Obama and the Democrats will prevail here, and Detroit gets another $25B check from the government.  And just like banking and insurance, the American people will now have some "ownership" in American automobile manufacturers.  But how about setting up some new rules for American business:

  -  We're all about free enterprise.  But if a corporation is so poorly managed to require massive government assistance to stay afloat, that management should get the boot and the government (and, by extension, the taxpayers) get some oversight into the management of the bailed out company.            

  -  And about those companies that are too big to fail?  How about this; if a company is too big to fail, it's just flat out TOO BIG.

Comments

[Peter G.]

I read Blodget's piece and the only thing it convinces me off is that he hasn't a clue about the problems facing the the Big Three or what the solutions might be. The only thing he got right is the problem of wages,benefits and pensions. I run a small business and it is my pension. The next few years will determine whether or not I am ever able to retire. The idea that my tax dollars will be used to support the extraordinarily generous pensions of other people frankly makes me ill. If the Big Three want to survive domestically they'll have to sort that out with their workers. I have no problem with public money being used to help these manufacturers to bring new products to market with new technologies to improve productivity and make them competitive but if they are allowed to go down then all the stakeholders should pay the full price.

[anderson]

I doubt letting them die will be quite the disaster the Dems think. Their concern is primarily union-based. But other than possibly being a tremendous downer for the ego of the country that invented the automobile production line, other auto manufacturers (Toyota, Honda, etc) would gobble up the remnants and probably retool to new and more efficient specs.

The bigger hit will be felt by workers, of course, but the reality of the US auto industry is that the immovable reluctance within the political sphere to force higher CAFE standards, and to externalize onerous health care costs via a national health care program, was going to doom the industry one day or another. Any bailout should come with strict provisos of high -- much higher -- fuel efficiency, and a severe reduction of SUV and truck production. The market was forcing the mileage issue anyway, and the big three were too dumb and slow to respond. The health care issue appears insoluble so long as the interests of the health insurance lobby and the pharmaceutical industry override the health of other industries in this country.

Perhaps the crushing death of Big Auto by health care costs will wake people up to the enormous burden being placed on American business by the overly expensive, near useless, capricious and often dangerous health insurance "industry."

[Dave Schuler]

Nobody will go without pensions. At worst they're guaranteed by the PBGC. They might have smaller pensions than they expected. A bigger worry is that people without pensions will be paying for the retirements of people who do, which is manifestly unjust.

Unless you believe that we can make a go of a nationalized automobile industry either the auto companies will reform as required for today's circumstances or the jobs will be lost in any case. The question is when not whether.

[numbertwopencil]

Hmmmm, I think you are forgetting that a great deal of stability (ahem), profit (ahem), and generally fat in the system of the US auto manufacturers is defense/military related. In part, they can't fail because then no one would be left to make hummers and so on. Just like, oh, Eastman Kodak and Xerox, a huge part of all of the automakers work is defense/intelligence/government related. They support huge lobbying efforts to keep those programs going and they _depend_ on those projects to keep operating. Yes, they are too large to fail but I think they probably get more milage out of claiming that they can't fail _for national security reasons._ (It's worth noting that AIG also, apparently, made similar claims. They couldn't fail because they were so tangled up with national security operations, CIA fronts, intel gathering, etc. AIG _couldn't_ just fold up because the terrorists would win.)