Rescuing the automakers: A good thing or a waste of money?

Great Debates
1

The American auto companies want 25 billion for emergency loans. Some say this is vital to keeping our economy afloat. Others say it is a total waste of money and the companies deserve to go out of business if they can’t compete.
"Hardline opponents of an auto industry bailout branded the industry a “dinosaur” whose “day of reckoning” is near, while Democrats pledged Sunday to do their best to get Detroit a slice of the $700 billion Wall Street rescue in this week’s lame-duck session of Congress.

The companies are seeking $25 billion from the financial industry bailout for emergency loans, though supporters of the aid for General Motors Corp., Ford Motor Co. and Chrysler LLC have offered to reduce the size of the rescue to win backing in Congress…

Sens. Richard Shelby of Alabama and Jon Kyl of Arizona said it would be a mistake to use any of the Wall Street rescue money to prop up the automakers because a bailout would only postpone the industry’s demise.

“Companies fail everyday and others take their place. I think this is a road we should not go down,” said Shelby, the senior Republican on the Senate Banking, Housing and Urban Affairs Committee. “They’re not building the right products,” he said. “They’ve got good workers but I don’t believe they’ve got good management. They don’t innovate. They’re a dinosaur in a sense.”

Added Kyl, the Senate’s second-ranking Republican: “Just giving them $25 billion doesn’t change anything. It just puts off for six months or so the day of reckoning.”

House Speaker Nancy Pelosi, D-Calif., said over the weekend the House would aid the ailing industry, though she did not put a price on her plan. “The House is ready to do it,” said Democratic Rep. Barney Frank of Massachusetts, chairman of the House Financial Services Committee. “There’s no downside to trying.”

…
“If you start that, where do you stop?” he asked. “There’s a line of companies of industries waiting at Treasury just to see if they can get their hands on those $700 billion.”
http://www.google.com/hostednews/ap/article/ALeqM5gA2mr12dJLiWM1QN59MYfpM9OQfwD94G7G8G0

I’ve got to say I usually agree with the Democrats, but I think they are wrong on this issue. Businesses that can’t compete deserve to go out of business.

2

Waste of money, let them go. The UAW has setup terms so that US auto companies cannot be profitable, and the UAW won’t budge. If we have to let go of GM and Ford to break the trust that is the UAW, then so be it.

3

I agree with mswas. :eek:

As far as I am concerned, we shouldn’t bail out the banks either. The investors in both industries can pound sand.

But we should still spend the $700 billion to assist the real victims of this mess: the workers who will be displaced, through no fault of their own. Spend a trillion dollars to retrain workers and create jobs rebuilding America’s infrastructure. Get that money out into the real economy, where it will buy food, and heating oil, and health care, and housing, and higher education, and all the rest of the things people need to live. That will jump start the new economy, sans the dinosaurs of industry that screwed up the last time around.

Just as we must cut taxes to stimulate the economy, we must increase federal spending for the same reason. Consumers are not spending any more; neither is industry. That leaves government, and if the feds stop spending, then where will we be? It will require running up the national debt and another trillion or three, but that is the only way out. Our children will thank us, even as they labor to pay higher taxes to retire the debt we incur in their name. The alternative is the Greater Depression, without end.

4

If there’s to be a bailout, the only way it should be done is if it comes with a major restructuring plan that includes scaling back UAW salaries. But there’s no way the Democrats will push for that.

Therefore, there should be no bailout. Let them go bankrupt. This will not end the U.S. auto industry. GM, Ford, and Chrysler are sitting on very valuable assets. More likely, the lack of a bailout would result in bankruptcy, followed by consolidation and the formation of a new auto company or two out of the ashes, with the UAW contracts ripped up and new negotiations that might allow these companies to start off on a competitive footing.

Auto manufacture in the U.S. wouldn’t end anyway - All the other auto makers have U.S. plants as well, and the big three outsource a lot of their manufacturing to Canada, Mexico, and other countries.

Bailing out a company that isn’t competitive because it has a grossly overpaid workforce is nothing more than welfare for rich people. The average UAW employee makes well over double the U.S. average income. Why should taxpayers protect their featherbedded lifestyles?

The Democrats will support a bailout anyway, because the Democrats are in the pocket of big labor.

5

The unemployment increase would be huge. Since in America our jobs are our health insurance, the uninsured would increase. Foreclosures would go up. If you are not aware ,that is all of our problem. Suppliers and support industries would go under. The effect would be about 8 times more than just the auto workers.
The auto industry is huge in technological advancement and inventions It employs many college professionals. Many opportunities for college students would disappear.
I bet the people saying screw them are the same ones saying, don’t help the people in foreclosure. It is short sighted and selfish. It will impact you too.

6

GM and Chrysler and Ford are in trouble because they make crap cars that get poor gas mileage, that no one really wants to buy, and this is, somehow, the fault of the UAW?

Bad management, more than anything else, is the reason for this mess. And that bad management includes making foolish deals with the UAW - like the gravy train was going to run forever.

But by all means, blame the guys on the line. Don’t blame the morons that made the decisions.

7

If Frank really said that (and assuming there isn’t some missing context) that is an ignorant thing to say. How about a downside of wasting taxpayer money?

8

No actually we’re saying that if a company can’t be profitable we can’t be bailing them out every year or two. If we bailed them out now, what about in 2010? What do you suggest then? That we are equally callous to the plight of the auto-workers? If they cannot come to terms with the reality staring them in the face, then they need to fall too. All of that infrastructure will be bought up by other companies and those auto-workers can go back to work at a reduced salary. Why should we let the UAW hold us all over a barrel just because it will impact us all?

9

This may be an ignorant question, so forgive me. Are there any small American auto companies that would get screwed by this bail-out? I know the foreign companies, particularly those with factories here, might feel some resentment. But are all American cars produced by the Big Three?

10

In order to render your auto companies even remotely profitable there are going to have to be massive compulsory redundancies and a breaking of the corrupt trade unions. Foreclosures will go up, and some portion of the satellite industries uniquely dependant on the American (versus foreign producers in the US) Big 3 will hurt.

With an injection of cash or not. Thinking anything is magical dreaming.

A bailout of that industry is a waste of cash unless accompanied by massive restructuring, populist “but what about the little guy” complaining notwithstanding. Unfortunately, you did not elect a Thatcher, so one suspects your trade union will continue to throttle off its own industry, while blaming everything on the foreigners.

11

It’s a waste of money because there’s no Iacocca or K-car to save the American auto industry.

As a die-hard American car guy it kills me that the industry is at this point.

12

It’s not the wages that are killing Detroit, it is the health care. Foreign car makers don’t have that burden, because all the other industrialized nations have socialized medicine. How can Ford and GM compete with free health care? If America had socialized medicine, American car makers would be competitive.

13

Iacocca? What was it he saved, actually?

14

Ford’s quality is above average for the auto industry. GM’s new vehicles are also above average.

As for interior quality and features and all that, the reason the big three haven’t been able to compete is because their labor costs are too high. Each car GM sells has to pay for $1500 in health care costs for its workers. Each car Toyota sells, costs $200. And these are from factories that are both in the United States, employing American workers. Why the difference? Because GM is supporting 460,000 retired workers who have extremely generous retirement packages which include gold-plated health care coverage - far better than almost any other workers in the country.

And the current workers make more money too - average compensation, including benefits, works out to $73/hr for GM American employees, vs $48 for Toyota’s American employees. That’s a huge gap.

The bottom line is that GM cannot afford to sell a car with the same features as a Toyota for the same money. In the past, GM tried to do this by employing bean counters to shave costs everywhere they could, resulting in crappy cars. Now, GM builds nice cars - and takes a loss on each one.

GM’s business model is simply unsustainable. Some things aren’ the fault of the workers - GM has too many divisions and too many similar vehicles. It needs to pare its product line down by half. But it also needs to restructure its employee compensation or it will remain uncompetitive.

15

In the long run, you do no favors to anyone by keeping hundreds of thousands of people employed in jobs in which they are not competitive. Better to lay them off and let the money that would have been spent bailing them out be used on things Americans are competitive at.

But you overestimate the damage. Would some jobs be lost? I’m sure. Jobs are being lost now. All three companies have been downsizing. But the most likely result of bankruptcy would be a takeover by another auto company, or a consolidation of the big three, and the cars would go on being made. And if they weren’t, and those companies completely collapsed, the gap would be filled by new factories from Toyota, Nissan, and the others - most of which are being built in the U.S. anyway.

Another important reason to NOT bail them out is to send a signal to industry that it can no longer play fast and loose with its business models, secure in the knowledge that they are ‘too big to fail’. This is a moral hazard - let the government absorb the risk, and you’ll get more risk-taking behavior. That’s the lesson of Fannie Mae and Freddie Mac, too. Too bad all the people who profited from those excess risks are getting bailed out.

You can’t be free to make a profit if you’re not also free to fail if you don’t. By socializing risk and privatizing profit, you get the worst of both worlds.

16

Is there any way to not bail them out, but to slow the collapse? The US has a hell of an economy and can adjust to about anything, but shocks are hell to ride out. I’d support using tax money not to save them, but to help them go quietly into that dark night.

17

This is true. But since the clock can’t be turned back, we have to deal with the world as it is now.

Large American corporations, and American agriculture, have been sucking on the public tit for decades, in the form of protectionist policies and subsidies and other forms of corporate welfare. Can the broken system suddenly be fixed by allowing massive failures? Perhaps that will work, in the long run. But in the short run it’s going to be dreadful.

The other thing is the cost of 2 wars. Are Americans going to suffer job losses and the destruction of their security for the sake of maintaining those wars?

18

The grossly overpaid work force in the big 3 and its support industries have dropped about 1/3 of their wages in the last 5 years or so. Have other industries followed suit?
The aging retirees will do all you a favor and die in the next few years. The retiree problem will solve itself.
Have other companies in America eliminated their health coverage?

19

Toyota and Nissan and other auto manufacturers with U.S. plants are doing fine. And GM’s plants in Canada, where there is socialized medicine, are still having trouble. The big difference is that the ‘big three’ are all completely unionized, whereas Toyota only has three unionized factories out of the 12 it has in the U.S.

Health care is just part of it (albeit a large part). There’s also the retirement benefits those 460,000 workers get - much better than average retirement benefits. And wages of the current workforce, including benefits, are still higher than other non-unionized auto companies.

20

I don’t know the details, but bailing them out would violate some international trade agreements and leave them open for increased tariffs abroad. GM is actually doing OK outside the US, so this could have some negative financial impacts.

Besides, it’s a terrible idea to bail these guys out. Let them go bankrupt-- someone will buy the assets, get rid of the management and run the company better.