So the American and Canadian governments are deciding whether or not to bail out the formerly Big Three car makers. On the side of the car companies they say that it is just a short term hiccup and that if they were allowed to fail then the North American economy will fail with them. On the side of the people who oppose such action they say that there is no guarantee that the bail out will save them and that this will start a chain reaction of bailing out every company that asks (if they can prove that they’re failure will hurt the national economy…which is a lot of companies). They complain that this is not allowing the proper corrective measures of the market.
Fact check: If they fail, there will be significant pain. I hear consistently that for each one car job there is 7.5 supporting/spin off jobs. However, bankruptcy does not mean that the companies completely disappear. It means that they are restructured and very likely will live again. But this process is not without signigicant pain.
So what do you think? (note: this is very scientific)
PAulm
Wall Street Journal:
“A bailout might avoid any near-term bankruptcy filing, but it won’t address Detroit’s fundamental problems of making cars that Americans won’t buy and labor contracts that are too rich and inflexible to make them competitive.”
(http://online.wsj.com/article/SB122628060458212379.html)
Also, the (formerly) Big Three aren’t the only car companies on this continent. If they fail, Honda, Toyota, Volkswagen, etc., will pick up the slack. It’ll be bumpy for a while, but the industry as a whole will get over it.
Furthermore, the thing about supporting/spin-off jobs is true of *any* industry. Where I work, we build heat-treatment machines. There’s the steel mill that makes the steel for the machine’s enclosure, the fabrication company that makes the enclosure, the industrial controls company that makes the controllers, the electronics companies that make the parts that go into the controllers, the companies that make the wires and cables, and the freight companies that get all this stuff where it needs to be. And we have jobs because there are yet other companies that require our services. How many jobs is that?
So, why stop with auto makers? Why not bail out *any* company that screws up and fails?
That road leads to insanity.
I can haz free market?
An industry bailout in Canada will NOT surprise me in the least. It’s the “Canadian way”. That being said, the ideal of the government stepping in to “save” a company is a very NOT-American ideal, thus the high levels of frustration in the U.S.
Clearly, I have no answers… but I do have a political cartoon to send your way. I’d say it concerns what Tyler was speaking about:
http://images.politico.com/global/081119_cartoon_600.jpg
(And no, I don’t know how to make that a direct link… my bad)
Interesting. Apparently I DO know how to make that a direct link… once again, my bad.
What the heck is going on? My first comment is missing. So my comment about making “a direct link” is completely useless. Weird.
Perhaps WordPress took longer to check it because of the link (for anti-spamming reasons)? I don’t know.
Yeah, that’s the issue. A bailout would be more reasonable if they can prove (via independent audit / analysis) that there’s nothing they could have done. That it’s just the result of the larger economic woes. But there again, what business isn’t hurting now?
However, the big three have a history of ignoring market forces. Gas prices rise, people look for more fuel-efficient cars, so what do they produce? Even bigger SUVs and pickups.
http://www.npr.org/templates/story/story.php?storyId=9839029
However, it looks like this bailout is not without precedent:
“Realizing that the company would go out of business if it did not receive a significant amount of money to turn the company around, Iacocca approached the United States Congress in 1979 and asked for a loan guarantee. While it is sometimes said that Congress lent Chrysler the money, it, in fact, only guaranteed the loans. Most thought this was an unprecedented move, but Iacocca pointed to the government bailouts of the airline and railroad industries, arguing that more jobs were at stake in Chrysler’s possible demise. In the end, though the decision was controversial, Iacocca received the loan guarantee from the government.”
http://en.wikipedia.org/wiki/Lee_Iacocca
And for the record, if you post a link in a comment, it will notify you right at the top “Your comment is awaiting moderation.”
So the anti-spam theory is probably correct.
I am thankful for the Amazing Paul Moore!