Friday, November 14, 2008

Don't bail out the car companies

Rich Lowry wrote in New York Post reported US consumers have long been voting against US automakers. Now, they'll be asked to put their tax dollars at risk to preserve the very companies from which they don't want cars.
Why protect and industry whose products Americans will not buy.
The bailout would be of the United Auto Workers as much as of the automakers. It's the UAW that saddled the Big Three with unsustainable labor costs and obligations to retirees. Detroit has desperately been trying to get out from under this burden, but Ford still lost $1,467 per vehicle in 2007, while GM lost $729 and Chrysler lost $412.
Let one of them go into Chapter 11, breaking the union contracts, and the union will be a lot more willing to renegotiate the other two.
Where the UAW doesn't reign, the industry thrives. Toyota and others profitably manufacture almost 4 million cars in nonunionized states in the South.

Betsy Newmark blogged We should not be rewarding the Big Three's shoddy management. If we continue down this road, where will we stop? Are we going to be bailing out every large company that makes bad decisions and then goes under? Is Circuit City next? Will the only companies that we don't bail out be the small mom and pop businesses that are small enough to fail?

I hope Bush resists the pressure to sign onto some auto bailout now. And perhaps the Democrats can push it through after January 20, but the Republicans should resist as much as possible. As Lowry said, why should taxpayers be on the hook for cars they decided they have decided that they don't want to buy?

Stephen Bainbridge has a good analysis of the problems plaguing GM the other American auto companies and concludes that bankruptcy would be the best outcome for them to restructure themselves.

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