Aid for General Motors and Chrysler
You have likely heard that the auto-industry is sharing the struggle that has become the American economy. If you were crossing your fingers hoping that “big-brother” would step in and save the day, your wish has been granted. The United States Government has promised 17.4 Billion dollars to General Motors and Chrysler to help them get through these troubling times. George W. Bush stated,
“My economic advisers believe that such a collapse [speaking of a case in which GM or Chrysler were to go Bankrupt] would deal an unacceptably painful blow to the hard-working Americans far beyond the auto-industry.”
Thank goodness for the razor-sharp intuition of President Bush’s economic advisers. Bush added,
“…And it would leave the next president to confront the demise of a major American industry in his first days in office.”
Did Chrysler not receive help to “avoid-bankruptcy” in 1979? Clearly this “avoiding-bankruptcy” help is not doing its job. One might even venture to say that it is counter-productive. By ensuring the financial security of these businesses, the government:
A) allows the businesses to continue operating, despite the clear signs that they should not, in an inefficient manner, which is wasteful of resources and labor and yields inferior products.
B) indicates to these and any other business that are regarded as cornerstones of the American economy that the government will not allow them to face the consequences of their actions.
In 1979, Chrysler “needed” their loans guaranteed to avoid bankruptcy, and here, not 30 years later, they need help again. How did guaranteeing Chrysler’s loans improve their condition at all? Furthermore how do the American people benefit from keeping a suffering business running? Since they would likely continue running as a suffering business, why not allow the economy to purge itself of this clearly inadequate business and allow for the growth of a wiser, more forward-thinking one to take place? Peter Schiff suggested Sunday, on “Your $$$$$” (a program on CNN), that bancruptcy was precisely what needed to occur in the cases of both Chrysler and General Motors. Clearly Mr. Schiff understands that these financial short-comings within businesses occur for a very good reason. General Motors and Chrysler have clearly not conducted their businesses in such a way that they might maintain a more competitive position in the vehicle market. Of course General Motors and Chrysler are suffering while Toyota enjoys the spoils of being a superior business (note: Toyota’s recent declaration of its first loss in over 70 years has more to do with Japanese economics than the American car market, in which Toyota is flourishing). In the capitalistic spirit, consumers should reward businesses that have the interests of the CONSUMERS in mind. Most of the time because of price and practicality this trend occurs naturally; it certainly is occurring in the case of these auto-manufacturers, and their sudden financial misfortune makes a good deal of sense with this idea in mind. Of course, in the past, some Americans have suffered a fixation on buying “American” cars, but the more American car-makers do poor business, the more this trend will disappear, as it clearly has over the past few years.
Concerned about jobs? Well thanks to their recent increase in success in the United States, Toyota has begun building more factories in the United States. Those factories will need man-power. The American working class stands to benefit greatly by the growth of companies like Toyota. The continuing of businesses like General Motors and Chrysler promotes future instability and uncertainty and serves as an obstacle to more efficient companies who seek to deal in an American market. Bankruptcy IS exactly what these car manufacturers need. People seem to believe that were America to be without any of the “Big 3″ Auto-manufacturers it would be in some sort of worse shape than it is already in. Fortunately, that is far from the case. The downfall of General Motors, Chrysler, and/or Ford would be a disappointing event to be sure, but (to quote President Bush) “Americans have got to understand” that this country is not dependent upon those auto-manufacturers for jobs or economic stability.
By the way, one of the conditions of the money being provided to Chrysler and GM is that they will be required, by March 1, 2009, to submit a report proving that they will survive, and if they cannot they must re-pay the money they are being given. I will not insult the intelligence of the reader by explaining how absolutely ridiculous a statement like that is, but I would like to point out that the intelligence of Americans is being insulted by the mere suggestion that a condition like this justifies a 17.4 billion dollar hand-out to ensure the safety of businesses that we are expected to believe that we cannot prosper without.
A brief suggestion: this government, supposedly founded for YOU and by YOU has no business spending money that it has supposedly for YOUR benefit on expensive foolishness like this. Do not be fooled into believing that this country needs GM or Chrysler; it does not. Do not believe that Americans will suddenly be without jobs if either go out of business; Americans will have far more jobs available if all of the companies that function in America are flourishing and growing instead of struggling. The answer is not more intervention; the answer is less.
This is an argument I have not heard before: that the economy will be just fine without Chrysler and GM. I wish I could agree with this, but I think you underestimate the size of these companies. GM is the biggest company in the world. According to a leading Boston newspaper, “total job losses would reach 2.5 million if GM failed and 3.5 million if all three auto companies went out of business in 2009.” (http://www.metrobostonnews.com/us/article/2008/12/14/20/4504-72/index.xml) The ripple effect of this surge in unemployment would be disastrous.
I think you are barking up the wrong tree. Most free-market economists predict that chapter 11 bankruptcy will not destroy the Big 3, since the recession is expected to lighten up in 2010. They can hold out until then, and most consumers will understand that (thus will not be deterred from buying a warranty from a bankrupt company).
If the Big 3 go down there will be disastrous economic effects in the short term. This is undeniable. So will the bailout (which is not a “hand-out” in this case, but a loan) keep them afloat? Do they really need it to subsist in the long term? These are the questions you ought to be asking, imho.
Also, Toyota’s prosperity will make up for many of the lost jobs from the Big 3 (filling the niche as it opens), and this factor is always left out by pro-bailout pundits.
-ed
Eddie
December 22, 2008 at 7:34 pm
i was wrong about gm being the biggest company in the world. they are 9th (wal-mart is 1st). Ford is 12th.
http://money.cnn.com/magazines/fortune/global500/2008/full_list/
and i meant to give you credit for pointing out the potential for Toyota to pick up the unemployed (and without having to worry about those pesky unions
.
Eddie
December 22, 2008 at 7:40 pm
Eddie,
I would like to point out that I do not believe that we are going to see the bankruptcy of all or the complete demise of any of the Big 3 before 2010. I would love to see a slacking of the recession by then, and I believe that if the United States Government will stop interfering with matters that it cannot and should not fix we will see that happen.
As for the jobs, we are already losing an alarming number of jobs. I believe this loss is occurring because our businesses are struggling and providing an unstable job market, which is why I suggested that a decrease in the market dominance of one or all of the Big 3, for any reason, could be beneficial because a more stable business would certainly take their place in the market providing a larger, more certain, number of jobs along with a superior stream of product.
I am well aware of the size of the companies, and I am also aware that a large, unstable company has more potential to create larger, more harmful ripples in the economy. Because I doubt that the government deciding against dealing a 14.7 billion dollar handout/loan (I address this as a handout because regardless of the outcome of this situation I sincerely doubt if the government will ever see repayment) I believe that these financial difficulties (which have occurred for good reason) could benefit our economy, workforce, etc. in the long run (assuming that they are addressed properly by the companies experiencing them).
When I consider this issue I do not look at it like “the Big 3 go(ing) down.” What I see happening is potential bankruptcy for perhaps one or more of them, and eventually, perhaps, we will see one of them “go down.” Again, that would be most unfortunate, but that does not mean the government is responsible for ensuring their continuance. I do not believe that the evidence for an immediate need to bail them out (which is essentially what the government is doing) is quite convincing. The questions that I believe we need to be asking sound a little more like, “is there any significant proof that this bailout could succeed, and even if it could, is it truly beneficial to this country as a whole?”
William Ivey
December 23, 2008 at 5:05 pm
William, I have some problems with your logic. First of all, this:
“General Motors and Chrysler have clearly not conducted their businesses in such a way that they might maintain a more competitive position in the vehicle market. Of course General Motors and Chrysler are suffering while Toyota enjoys the spoils of being a superior business.”
Perhaps you are unaware of Toyota’s type of business practice. Toyota could not have developed as quickly and successfully as it has in a free market system. Toyota developed in a corporatist system of government in which employers have a major role in governance. Even today they are not operating in a free market, since their business policies are cushioned by governmental provisions in Japan (i.e. the government supports their business practices even in the US).
But, more importantly, I have a problem with this:
“Do not be fooled into believing that this country needs GM or Chrysler; it does not. Do not believe that Americans will suddenly be without jobs if either go out of business…”
This is just wrong. It suggests ignorance of the situation. 2.5 to 3.5 Americans will lose jobs if 1-3 of the big three go under. That wouldn’t exactly be good for the country now would it? It’s as though you address this situation with the certainty that your simple conception of free-market economics is right and sufficient for enlightening all of the dumb people who think a government loan is necessary. Don’t be so arrogant. You’re no economist and you don’t know anything about this situation. The circumstances ought to precede your opinion, at least to some degree. If you want to come up with some durable argument in support of free markets it’s very possible, but you have not done that here. Instead you’ve only denied certain facts without providing any supportive evidence to show that your economic theory is the right one. I don’t mean to sound rude but you really need to learn more about the situation before you decide your presituational opinion is completely right and everyone who disagrees is ignorant and needs to hear what you have to say.
Eddie
December 23, 2008 at 5:51 pm
Please do not misunderstand I do not mean to come across as arrogant. I realize that there is plenty about this world that I do not know that I wish I did. However, an important truth that I’ve learned is that economist or not, I know when something is not working. I realize that when we are trying the same economic interventionist tactics we have been trying for ages, that we are going to continue to address symptoms rather than problems and continue to solve neither. I don’t mean to talk down or to sound as if I am somehow enlightened above anyone else; I am suggesting that people not be frightened by unpleasant statistics and numbers because those statistics and numbers have been in existence since long before the auto-manufacturer crisis, and if we keep dealing with similar problems in the same way that we have this one, we will keep seeing them in the future.
We have been seeing government intervention for years. We have not, however, seen a government truthfully putting their trust in the ability of the market to take care of itself and the companies within it that function on its own. When a company faces financial struggles, there is usually a reason, and my suggestion, however simple it may be, is that we start being more observant of those reasons and stop trying to fight economic nature, especially considering that that fighting is costly and there are no true guarantees behind it.
William Ivey
December 23, 2008 at 8:10 pm
Correct me if i am wrong, but do the Big 3 even stand a chance of becoming healthy companies again? There are so many problems with the product they are offering that it does not seem feasible. They need to both completely reshape their image, this negative stigma of buying “American”, and create an environmentally friendly product. I am not a green peace advocate, or environmentalist, but companies are going green, the Big 3 can not avoid it forever.
Even if you do not believe anything I just said. What about 1979? History is the best textbook we have. So do we give Chrysler ANOTHER “loan”? Chrysler has a shaky credit history, giving them a loan is just bad business. I just do not understand why giving a loan to a company that can not make money is a good idea.
John
December 25, 2008 at 10:25 am
Did Gm deserve the bailout? You Ask me I would say NO.. why? When Honda and Toyota were out inventing new cars, GM was busy boasting about its pride and Showing off its hungry hungry Daughter the Hummer
Caitlin
June 15, 2009 at 9:01 am