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We Must Bail Out the American Auto Industry

Dec. 10, 2008
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Failing government intervention, the heads of the American auto industry have stated that the "big three," (Ford, Chrysler, GM), may become financially insolvent and go out of business. Following the immensely unpopular bailout of the banking industry, many people are justifiably skeptical about billions of additional taxpayer dollars being used to rescue privately held companies. Let us briefly examine the objections to the so-called "auto industry bailout," and proceed to the reasons why I think the move is indeed a necessary one.

Opponents will argue that the American auto industry has been mismanaged for decades, citing Detroit's short-sighted focus on gas-guzzling SUVs. This is a convenient argument, which ignores that until the recent spike in fuel prices, the public could not buy enough of these large, comfortable v ehicles. When the price of gas skyrocketed, sales of these models understandably ground to a near-halt, driving down profits and stock prices. Detroit has been accused, perhaps rightfully, of failing to invest needed dollars in research and development of fuel-efficient vehicles. But the market has always provided alternatives to the F150 or Escalade - domestic automakers have always offered smaller models with better gas mileage, and while none of these even approached the quality or efficiency of such foreign models such as the Toyota Prius or Honda Insight, the point is that the cars were there on the lot, but the American consumner was just not interested. Why then, would the Big 3 have spent millions developing such cars when consumer demand was just not there? It is easy, in hindsight, to paint Detroit's auto execs as near-sighted bogeymen.

Next, naysayers will play the corportate welfare card. This resonates well with citizens and small business owners who themselves are having a difficult enough time making ends meet. "Why," it is asked, "should the taxpayers money be used to rescue a private industry, when the only beneficiaries would be the private stockholders in these firms?" Case-in point: When the Big 3 chiefs flew to Washington in private jets to ask for government aid, it was seized upon as the ultimate hypocrisy. While certainly an ill-advised move from a public-relations standpoint, the executives' choice of transportation became a distraction from the real issue, and offered grandstanding politicians a chance to publicly lambaste the auto chiefs as dimwitted fat-cats, while painting themselves as folk-singing defenders of the workingman's tax-dollars. It might have been amusing, if the stakes were not so real and so grave to the nation, and if the net worth of the average Congressperson was not well over seven figures. Having just passed a billion dollar bailout to the real-estate banking industry (itself a borderline criminal enterprise with plenty of K Street lobbyists), the nauseating display of outrage by the occupants of Capitol Hill brought to mind a line by Sean Connery from The Untouchables, describing insincere politicians - "There's nothing like vaudeville."

To be sure, small business owners are also facing hard times. They rightly ask why the government teat should be offered to these three companies when, if they were to ask for similar aid, they'd get the bum's rush out the front door.

The answer, like it or not, is one of scale. When the Big 3 point out that their industry affects thousands, if not millions of jobs nationwide, they are not exaggerating. If the domestic automakers go belly-up, the resulting economic ripple-effect would lead to unimaginable numbers of additional layoffs, resulting in even more unemployed, uninsured Americans. It is not just the assembly-line worker who will be out on his ass. Also affected will be the receptionist at the chassis factory, the janitor at the wiper-blade plant, and the mechanic at your local dealership. We are talking staggering amounts of newly unemployed, uninsured Americans added to the dole. For this reason alone, I think, Congress needs to approve some sort of life-line to these companies.

While I agree that the auto-industry probably needs to reexamine it's business model (see "Toyota'), now is not the time for grand-standing or imposing new regulations dictating where Detroit should spend its R&D money. The Big 3 know full well what needs to be done if they want to compete with the better-selling foreign makes, and it is foolish to think that the government all of a sudden knows what the consumer wants. I concede that if taxpayer dollars are to be used, then it should not be just a billion dollar giveaway, but nor either do I believe that crippling oversight and regulation from Washington is going to help. Outside of national defense, does the national government do anything well?

Unfortunately, the reality is that without a new line of available cash, these companies will almost certainly go under, and the nation is not equipped to deal with the economic or social implications. Someone a lot smarter than me proposed that instead of a billion dollar bailout, why not just have the government buy all the stock in these companies? That would provide an influx of cash, raise the stock price and confidence, and the taxpayers would get instant equity. But that is a whole separate discussion in itself.


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