Saturday, November 15, 2008

The Automaker Bailout

The discussion is really heating up about this topic. Congress is going to take it up on Monday. Should we or shouldn't we give them the money? It seems there are many people who are undecided about this matter. Here are a number of reasons why bailing the automakers out does not make sense.

1. Management is inept:

They were the ones who totally misread the desires of the buying public. It is true the historic economic crash was not foreseen by anyone. However, the Big Three were getting their clocks cleaned by the Japanese for years. This economy is just the final nail.

They hung their future on big cars. It is identical from the events of the 1970s. The Japanese, meanwhile, moved towards more fuel efficient cars. Toyota is on it's 2nd or 3rd generation Hybrid. The American automakers simply stuck to an old model which no longer works.

Billions of dollars in bailout money will not make management any smarter.

2. The Unions are destructive:

There was a time when unions were necessary. Now, they are a destructive force. The Big Three has been bent over a barrel for years by the UAW. This resulted in outrageous contracts which inevitably will bankrupt a country.

GM is paying billions into retirees pension funds and for medical coverage. It is estimated that $1,200 in each car is simply the money GM pays for medical. This puts them at a big disadvantage. The Japanese built plants in southern states where labor is much cheaper. They enjoy a competitive advantage which the Big Three cannot overcome.

Billions of dollars to the automakers will not make the Union any less greedy. Bet the ranch thei will want their fair share.

3. The 3 million jobs tied to the auto industry will be lost anyway:

It is estimated that 3 million people are employed by industries directly tied to the automobile industry. The idea of bailing these companies out is to save these jobs. Sadly, they will be lost anyway. Billions of dollars given this year will be followed by billions more in the future. They will not turn profitable simply with loans for billions.

People dislike hearing this, but these jobs will be lost. A bailout only delays the inevitable. Instead of realizing this in 2009, the unemployment jump will occur in 2010 or 2011. Communities will be wrecked because of this regardless of what the government does.

4. The Feds know nothing about business:

The proposals suggested include some type of government "ownership" in exchange for the money. Since when did the Feds become adept at picking winners. How do members of Congress believe that they will fare better in the automobile business when the Post Office lost $40 billion. Perhaps they ought to look at their own business model to see where it is broken.

I do not want the government deciding which companies survive and which ones are allowed to go under. This is heresy. Government is there to oversee, not to manage. Get them out of the private sector altogether. Perhaps when the Feds show some ability to budget, manage, and oversee their own affairs effectively, then we can trust them with running a business.

5. It puts a stop to the madness:

Everyone and their brother is knocking at the Treasury's door. Handout nation is in full swing. Initially, the $700 billion bailout was going to be limited to financial institutions. Now, the automakers seem to qualify. Many are suggesting we take some of the money from that package and give it to the automakers. The Big Three do not qualify. Once again the government mislead us.

This insanity has to stop. We need to put a cork in the government money drain. Passing on this bailout will tell the business community that you are responsible for you owned destiny. You succeed or fail based upon your abilities. That is called capitalism.

One final note, I find it interesting that the Democrats suddenly took an interest in the big corporations. Listening to their rhetoric during the campaign, you would believe they think that big business is the anti-Christ. Obama assaulted McCain over tax cuts for the greedy oil companies. Now, the big corporations are not so evil when there are millions of jobs at stake. Perhaps business does some good after all.

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