Should We Bale Out The Auto Industry?
November 18, 2008 – 5:57 am
Although the people who know me may argue about this point, I like to think of myself as a normal, hard working American. As such, I think I am pretty much in touch with the opinions of most other hard working folks when it comes to the issue of government bale outs of corporations.
I have to admit that, on an emotional level, the use of tax payer money to bale out mismanaged corporations just does not set well with me. Fortunately, I have learned over the years that decisions that are made based on emotions do not usually yield good results.
This week, Congress will meet to decide whether to provide immediate relief to U.S. automakers. As much as it pains me on an emotional level, I have come to the conclusion that the cost of not propping up auto industry may well exceed the cost of the proposed relief package. In other words, the bale out makes good business and economic sense.
Here are some of the facts that have caused me to look beyond my emotional reaction and approach this issue more pragmatically. Research from the Center for Automotive Research and the Automotive Trade Policy Council has determined that one out of every 10 people in America is employed in a service that is related to the U.S. auto industry. In addition, more than 239,000 Americans are directly employed by the big three automakers. Many of these workers live in the “rust belt”, an area that has already been hit hard by unemployment and other economic issues.
If just General Motors were to discontinue operations, the cost to local, state, and federal governments could reach $156.4 billion over three years in lost taxes, and unemployment and health care assistance. The folks that will be impacted are real people who had nothing to do with any mismanagement that may have contributed to current situation.
That being said, I think both the auto executives and employee should be prepared to make some sacrifices in order to qualify for bale out funds. Although, I come from a strong union area, the auto workers union must be prepared to make concessions. As for the executives, the perks that they currently take for granted such as bonuses, stock options etc. are perks that only executives at successful corporations should enjoy. Any corporation that is the recipient of a government bale out program is not a successful corporation. So in other words, this money should come with a lot of strings attached and a heavy dose of oversight.
I realize that there are probably as many reasons for not providing relief to the U.S. auto industry as there are for doing so. You can check out the General Motors position at http://gmfactsandfiction.com/learn-more/. The site offers comprehensive information about the current crisis as well as ways to get involved and share your opinions.
I welcome comments about this article, both pro and con. Simply click on the Comment link below to tell me what you think about this critical economic issue.
3 Responses to “Should We Bale Out The Auto Industry?”
Yes. But the $25 billion bailout does not guarantee that GM will continue operations indefinitely – or even for the near-term future.
Furthermore, I don’t think it’s a good idea to make decisions based on speculation on future tax revenue. If any government intervention, no matter how expensive or egregious, is justified based on increasing tax revenue, then we’ve opened the doors to totalitarian government. Wasn’t that the whole point behind Kelo vs. New London, where a woman lost her home through eminent domain because of the tax revenue some real estate interest could theoretically generate?
The best thing for the big three is to go into bankruptcy and reorganize. Bankruptcy itself is a sort of “bailout”, where the normal rules are suspended and creditors held at bay while a company retools itself to be competitive if possible – and if GM simply can’t be competitive, what will $25 billion help?
But it’s real people who would be paying for the bailout. It’s always real people who suffer when the government seeks to maximize its revenues, one way or another. I don’t see the point of prolonging people’s dependence on an enterprise that is fundamentally unproductive.
But, of course, all these arguments apply equally to the financial industry bailout, and the best argument in favor of the auto bailout is fairness. To everybody but the taxpayer, that is.
Rich’s Response: Good points. It is a hell of a mess where there is no simple solution.
By Non-Criminal Justice Professional on Nov 18, 2008
the heads of these companies and the UAW should have realized the the well would run dry some day. No company can pay workers to sit and do nothing. the union must wake up and take less and work or get it all and have nothing.
By J Eschen on Dec 12, 2008
As a tax payer, I do not think paying money to some management teams that have track record of failurs is a good idea. The management teams of either auto industry or financial industry should go. Tax payers’s representative – the government, or who ever, should make some money, by buying the bankrupt auto or financial enterprises (Government should buy as a bottom line to keep everybody’s job stable), then sale the restructured company to the capital market gradually. Doing so is the most cost effective way of saving everybody’s job, if the government really cares about everybody’s job, and economy stability. Otherwise it would end up small group of people get most of the tax payer’s money (look at the financial industry after getting 800 billion dollars, people still do not get loan, and executives still get millions), and GM tommorrow is the same as GM today. The investors of these enterprises should pay what a investor should pay for allowing poor management. The government should govern the interest of the majority which in turn keeps the economy healthy.
By tinyfish on Feb 19, 2009