Automobile Industry Bailout

Published over 3 years ago

Today on CSPAN radio I caught a few snibbets and sound bytes about the government contemplating the next bailout - this time for the automotive industry.

I heard representatives from Ford and GM, as well as the United Automobile Workers Union (UAW), presented their arguments, saying that a failure or even bankruptcy at one of the "big three" automobile manufacturers (Chrysler, Ford or GM) would be disastrous for any of the following reasons (all paraphrased and drafted from memory):

• The supply chain for the automotive manufacturers is huge and the ripple effect through them from a large manufacturer's inability to pay its bills would be disastrous to our economy.
• One auto manufacturer failure might cause one or the other two auto manufacturers to fail.
• People won't buy cars from a manufacturer which has filed chapter 11 bankruptcy protection.
• The inability for an auto manufacturer to pay its debts would be disastrous to the financial system.

While I'm certainly not qualified to purport an educated interpretation of these claims, but I'll nevertheless share with you my humble opinion. It all stinks, and I don't think the taxpayers should go for it!

Don't get me wrong, I totally agree that the auto manufacturers need money, and their failure will be very problematic. I also admit that the layoffs will do terrible things to many honest working families. However, I don't think that bailing them out will solve anything. I suspect that even if they were given $1 trillion in loans, they wouldn't be able to pay it back, they would still need money down the line, and that they would still be at risk for failure. Why? Global competition of course!

Its difficult to compete when labor laws are so drastically different from one country to the next. If I recall correctly, it was only a few years ago that GM had to give up its pension plan to the pension guaranty company, as well as more recently set aside a huge chunk of change to fulfill their promise of health insurance to their employees. All the meanwhile, US auto innovation has slowed to a crawl while foreign competitors have latched onto the future with hybrid cars, high quality, low maintenance, and low cost. While I'm a big fan of American muscle cars, I learned my lesson about driving fast with too many speeding tickets, and now I drive a Toyota Corolla. Why? Its fuel efficient, cheap, and reliable.

So what does the future hold for the US automobile industry? My magic eight ball says that the future does not look good. Not only are the big three manufacturers suffering from low sales, tough competition, and a major credit crisis, but I can only imagine that the competition will get much more fierce, and I mean MUCH more fierce. With China and India rapidly revolutionizing their industrial capabilities, its only a matter of time before their are able to compete for auto sales on a global basis. Tata Motors is looking almost ready to have a go at the US market, and who knows what will roll off the assembly lines in China. One thing I do know, it will be inexpensive, and from what I can tell, Americans will want inexpensive items for the foreseeable future.

The only hope I can dream up for the US auto industry is innovation. Innovation for efficient and environmentally friendly fuel sources. Work in this area will have many benefits, like new jobs, new modern skills, a lower dependence on foreign oil, and a more sustainable economic model. The last point is important - how would this be more sustainable than the auto industry as it is today? Well, it may be just my opinion, but I believe that ingenuity and creativity are agents of change, which when fostered correctly, can keep bearing progress as long as our imagination can see.

What do you think? Comments are welcome!

Related:

• Financial Bailout
• http://www.washingtonpost.com/wp-dyn/content/article/2008/11/19/AR2008111903669.html

UPDATE: I'm pleased to learn that the auto industry bailout has apparently failed to pass legislature. Any guesses as to which company will fail first?