Let's examine the proposal: a $25 billion government capital infusion into the "Big Three", presumably with some sort of government over-sight and government ownership stake. It looks like the government is seriously contemplating an active role in the management of these companies. According to automakers, about 3 million jobs are at stake and supposedly $150 billion annually in personal income will disappear if GM is allowed to go bye-bye. Seems like the stakes are big. Now for some opinions:
I went and did some digging. According to Department of Transportation statistics (chart 1-16) the number of domestically produced cars sold in the US was about 5.4 million in each of 2004, 2005 and 2006. No later data is provided. This is a total of about 16.5 million vehicles over the period. Assuming that the number of domestic cars sold last year is roughly the same, the requested $25 billion bailout is equal to a taxpayer subsidy of about $1500 for every domestic vehicle sold over the past 3 years!
The so called "Big Three" have been losing money for years. Readers may not remember or know this, but it was the Carter administration who had to bail-out Chrysler back in 1979. At the time, Congress "merely" guaranteed loans by the company. Now we are talking an outright cash infusion. Is it impossible to make money in this industry? Hell, no. Toyota and Honda seem to be doing very well, thank you. So why would we be thinking of throwing away a perfectly good $25 billion of tax payer money into a company like GM who burned through $7 billion in cash in the last quarter alone?
I do not underestimate the possible macro-economic implications of a failure of these behemoths. Clearly, an uncontrolled implosion of such large organizations would have a devastating effect on the economies of Michigan and surrounding states, and I am not advocating that the government allow such an uncontrolled implosion. However, the clear path to a successful resolution of this fiasco goes through bankruptcy court.
If GM cannot continue to fund its operations, it should file for bankruptcy protection. In such a case, a bankruptcy judge could release the company from the ridiculous constraints of its UAW union contracts, could sell off the company's assets to interested buyers who could continue to operate the factories and even take over some of GM's more popular brands. The company could try to raise new private capital and re-organize its operations. GM may or may not be able to make it out of bankruptcy court, but that is none of the taxpayers' business.
As a society, we should care for the "Big Three's" employees, by offering them extended unemployment benefits, retraining services and actively encourage more capable owners to take over the operations of these companies. However, we have no obligation to guarantee that perennially inefficient and money losing operations continue to exist.
In fact, by allowing these zombies to continue their half-life existence, we are delaying the recovery of the entire auto industry, as healthy and well run auto companies are forced to face hail-Mary, market destroying moves from dying companies. How can we honestly say that we have a free market if we bail-out these companies at the expense of their competitors and, more importantly, at the expense of the taxpayers?
There is one more charge that I need to answer. I have previously argued in favor of a bail-out for the financial industry. Why do I oppose this one? Is my position inconsistent? I believe that my position is completely consistent. In the case of the financial sector, we were facing a classic case of market failure. The market was simply not functioning. People were not lending or trading simply because they had lost confidence. Moreover, the financial industry was in such shambles that the very basis of the capitalist system was being threatened. In this case, the situation is completely the reverse. In the case of the "Big Three" the market has spoken. It is not that all car companies are facing bankruptcy, it is that those big, lumbering, inefficient ones whose products the consumer no longer wishes to purchase that are facing failure. Others car companies, while suffering from the economic downturn, are still profitable and are doing fine.
I am not quite sure if this was the reaction that the "Big Three" PR person was seeking to provoke from me, but there you have it. I am firmly against a government bail-out of the "Big Three", and my opinion appears to be diametrically opposed to that of the President Elect. I call this mistake one for Obama, but we shall see...