Should We Bailout The Car Companies?
November 17, 2008So, the US government has already pumped a bunch of capital into national banks. Now the auto industry is asking for a handout. Should we give it to them?
I think the government should loan GM (and the others) money, but with one stiupluation: they go into bankruptcy. This does a number of things:
First, it lets a judge alter GM’s debt and labor contracts. This would lower GM’s debt payments and labor costs. GM’s average hourly rate (with fringe benefits) is $71 an hour. Toyota’s is $47. I know the labor unions will cry about it, but if GM goes under, the unions are not going to be much help to the tens of thousands of unemployed union memebers, will they? The unions worked with the airlines that went into bankruptcy, and that allowed the airlines to come back out. The UAW needs to consider doing the same thing or have it done for them.
Second, going into bankruptcy lets the US government give GM “debtor in possession financing.” This lets GM keep running, but give the US government dibs on repayment and assets if GM goes belly-up. This gives the tax-payer the most protection.
GM has been hemorriging money for years, even before the credit crunch. They need some punishment to go along with any help they get.
Babble On For Ever 
Should we bail them out?
Hell no. We don’t have to give them money to let them declare bankruptcy.
Contrary to what Nancy Pelosi says, the “failure” of the Big Three is not the end of the American economy.
It’s not as if the companies will cease to exist. They’ll declare bankruptcy, parts of the companies will be sold off, there will be some jobs cut, but the companies will still operate. And hopefully, they’re restructure and start making cars people will want to buy. We need a strong exporting arm in this country, and our current auto companies aren’t doing it for us. We need a competitive auto industry (which means wage changes, as you’ve mentioned), and a focused industry. We do not need to throw good money after bad by bailing out an industry that has been hemmoraging money for a decade.
The problem is, with the credit situation, no one is willing to loan to GM. That means they cannot afford to go into Chapter 11. That’s why I am proposing the government become the lender of last resort to them. In a normal credit situation, it would be someone else making the loan.