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Source link: http://archive.mises.org/8920/yet-another-gm-bailout/

Yet Another GM Bailout

November 10, 2008 by

If the government does bail out GM, it will not be the last time. Even if the government gives GM a check every week, there will come a time that no amount of government money will be enough to save them. What is the best solution? In a word… bankruptcy. By filing for bankruptcy protection, GM can escape from the death grip that the UAW has on the business. FULL ARTICLE

{ 77 comments }

Michael A. Clem November 12, 2008 at 1:32 pm

Where are the workers from the fuel injection shops suppose to go? What about those in the door rail industry? The Roll forming, Stamping, Rubber, Steel, Glass makers, Transfer and Eyelet, Tool-Makers and Machine shops through out the country would be forced out of business.
This same fallacy has been presented a few times on these auto bailout threads, but also refuted at least a couple of times. Just because a business shuts down doesn’t mean that its resources and such just disappear in a puff of smoke. No, other companies that are in better shape take over those assets and put them to use. If GM shuts down, then perhaps Ford would take those assets and put them to use, or perhaps a new car company could be formed to put those assets to use. People wouldn’t stop buying cars just because GM was gone, so demand for roughly the same amount of cars would still exist.
Thus, all those automotive and subisidiary jobs would still exist, too, but they would work for, or contract with, a different car company instead of with the then defunct GM company. Therefore, concerns about GM or any company being too big to fail, or affecting too many people are unwarranted, and miss the point of how businesses and the market work. It’s change that would take place, not absolute loss.

John November 12, 2008 at 5:00 pm

It can’t be overstated how much the UAW has crippled GM. By their very nature unions work against the free market – driving up costs, driving down quality and harming competition. Bail-out NO ONE I say, and dismantle the government-backed “free” enterprises like Freddie Mac, Fannie-Mae, USPS, etc. And how much money is spent (wasted) annually on administering the tax system? They call it revenue, I call it plunder. Rant over for now.

Joe November 12, 2008 at 6:48 pm

No one is asking exactly *how* GM would repay these loans. They already have $59 BILLION in negative equity, and that’s growing by a couple billion a month (and probably accelerating over the last month). Would these be zero interest loans with no payments for five years?

$16 billion in additional funding would be gone in eight months, at the third quarter rate of burning cash. It looks like Delphi won’t be able to emerge from bankruptcy, meaning that GM would be on the hook for even more healthcare and pension costs. I don’t think any amount of money can fix GM. Unfortunately, it must be allowed to fail to stabilize the rest of the market.

Walt D. November 12, 2008 at 6:52 pm

The latest reason:
“If the auto industry is not bailed out, they stand to lose $150 billion in tax revenue”.

Dave D. November 12, 2008 at 9:01 pm

Is it fair to scapegoat the union workers because they want a healthy wage? Executives are paid more than any person should ethically be paid, at millions each year. And it’s the backbone of the industry that is being blamed?

GM is in the hole it is in because of bad business decisions. Its love of gas-guzzling SUVs and its huge wager that their demand would continue to remain high amid unrest in countries from which we import oil, and foreseeable oil shortage, for one. The fact that while ten years ago they had a small subcompact capable of getting 50mpg, and now have nothing over 37mpg, and they (somehow) claim that anything over 30mpg is ‘green’ and fuel efficient. How about the fact that they manufactured an electric car which people wanted, but was snatched from their hands and crushed? They do not appear to be actually committed to creating any autos that have anything special about them. Their only hybrid cars are either full-size sedans or large SUVs. The fact that they have made a Tahoe Hybrid makes me want to laugh and cry at the same time.

Should I feel pity for a company that has flushed itself down the tubes? I don’t think so.

Richard Pagan November 13, 2008 at 10:04 am

Bailout G.M.? at first i was thinking no way! But after some review and putting some thought toward the situation, let’s as Americans bind together and insist on not giving G.M. a fish but teach them how to fish so they could feed themselves. G.M.’s economical difficulty is directly related to supply and demand, (what they are supplying, we are not demanding.) If G.M. wants our 2.5 Billion dollars to bail them out, let’s put a stipulation on what they must use it for. 2 billion dollars to bring back a full on production of the EV1 to be sold to the American public and not leased. The EV1 must roll out in 6 months at approximately $15,000 a unit at a tune of at least 125,000 units the first year. With a plan of 50 % increased prodution per year and a gaurantee of 5 years of said vehicle prodution, until a new and improved model is released; and never to abort the sales and production of electric vehicles until our petroleum crisis is solved. The remaining .5 billion dollars of the bailout can be used as they wish, as long as they comply.

B. McNamara November 13, 2008 at 11:26 am

The government should appoint an oversight committee to supervise and alter the GM-UAW contract to conform to a logical, workable and profitable model. Production and sales now have to support too many non-productive jobs and are suffocating the company. This desperate moment is the time to step in and force changes to make the company profitable. That will help all of us, uncluding us retirees. We need some real no-nonsense leadership.

ken November 13, 2008 at 7:10 pm

Why is an American employee of GM entitled to more job protection (government subsidy) than an American Toyota employee? Is it because they are more American? Is it because they work harder? Is it because they are a member of a special interest group? Is it because they are more valuable to our economy? Maybe it is because the Big three in their dieing throws have advertised their products as synonmous with the American flag and we have bought in. Too bad these American icons have opted to source more of their parts from non-US sources than their Toyota American counterparts – otherwise I’d believe they do have a sacred tie to our nation’s fabric. We need to reexamine what it means to be American — why we are special to the world – and what it will mean if we turn our backs on the ideals that made us a great nation – one that every other nation admires. When you remove the consequences of risk taking, you remove the market incentives that truly keep us competitive, employed, happy.

Ohhh Henry November 13, 2008 at 7:41 pm

“Why is an American employee of GM entitled to more job protection (government subsidy) than an American Toyota employee?”

Government’s job is to help people who are cannot or will not help themselves. Losers in other words. If an insufficient supply of losers exists then they must go out and cultivate or create new bunches of losers. That is why they hobble successful companies and individuals and subsidize unsuccessful ones. It is a make-work project for politicians and bureaucrats.

The recommended procedure is:

1) Find something to hobble or destroy which is working fine on its own. It could be a foreign country, a domestic industry, a city, a school system, an ethnic group, whatever. Be careful to disguise the sabotage as “aid” or “regulation”.

2) Wait for a cry to be raised for “help”.

3) Confiscate money and power away from whichever entities or individuals managed to sidestep or work around the hobbling procedure in step (1) and use the money and power to respond to the cripples crying for help. Hire family members and pals to help you to spend all the money and wield the new powers.

4) Repeat.

Len Wilson November 14, 2008 at 8:28 pm

The beauty of capitalism is that it is self-policing. If the government sends our tax dollars to a loan for a failing business, then the balance of fairness is upset.

Loaning 25 billion to failing companies is a bad investment. It is only prolonging the inevitable. Years of overpaying employees, and making promises for future benefits has finally caught up with the big three.

If the big three go down, then sales will probably shift to the asian automakers. The present parts suppliers will then have a market to supply parts to them instead. The volume of auto sales will remain the same, it’s just a matter of which manufacturer will make them. Bailing out GM will not increase their auto sales, it will only prolong the lackluster performance that we’ve seen in the past.

The big three have progressed from:
The only
The best
The overpaid
The worst (Japan had to remind us how to build good products)
Now the victim

Since most of us non auto workers were not part of the “overpaid” part, it us unfair that we should be responsible for the “victim” rescue.

Buckley November 16, 2008 at 1:56 pm

I take it that while many here are well versed in Austian economics, how many here are actually well versed in concerns to the automotive industry itself? I mean did the author do any research in concerns to how automobilies are made? Which cars get the best performance when tested by impartial testing groups? Has the author been inside an automotive plant lately? Talked to some automakers? Talked to those who sell auto parts, sell the cars, did he talk to anyone about this situation?

What Ms Cagnet said her post was correct. Except that if the Big 3 went down ,it just wouldn’t affect the US midwest.Many other people worldwide. Ford has plants all over North America and some of those plants serve such companies as BMW, Hynduai(SP) and other overseas carmakers. If these plants were closed ,if the Big 3 were to shut down, then these overseas companies would suffer.

One wonders ,if the Big 3 went down, who could replace them? That is to say who has the money and resorces to take on such a task? Mass producing one car is not as easy as some elsewhere have said.

Everything is not as black and white in concerns to this bailout ,or proposed bailout, as some here would think it is. The issues here are complex and involve many people around the world than most of us can imagine.

Stanley Pinchak November 16, 2008 at 3:21 pm

Buckley,
because the situation is so complex, we can’t have government come bungling in and messing everything up. If someone thinks that they can turn around parts of the big three, then let them come and purchase the assets, before or after bankruptcy proceedings. Since a huge millstone around the American auto industry is union contracts, post bankruptcy reallocation seems more likely. Get rid of some of the dead weight and the industry will recover without being a continual drain on the taxpayers.

Matt Sutphin November 17, 2008 at 7:48 am

I would say history has shown that as a people we need the heart as well as the brain to survive this kind of environment. I wonder how many on this thread have ever gone bankrupt, had to buy fuel for their furnace at the gas station in 5 gallon cans because that is all the money they could find, or have gone to a construction dumpster to get scrap wood to build a dog pen, had to work nights at the local supermarket or paper distributorship to have some money to give all the creditors that keep calling, as well as keep up with tuition in order to have the promise of a good future for your children? And had to do so for an extended period of time.
The point is: It should be understood that fall from grace is not easily or quickly recovered from, particularly in a stagnant deflating environment. Overcoming inertia again has its costs, many not readily quantifiable. Hardship is a human condition; not a textbook exercise. Costs should not be taken lightly by those who would have an industry ‘go sit in the corner’. ‘Greasing the skids’ requires one to be close to the ground in all its many manifestations
We all are under the gun at the moment. We should think as a community; not savage those challenged. And we have all learned a lot of late. We can help Detroit morph itself to green technology for the greater good, rather than obsess on who should pay a price, a la Shelby (couldn’t help but notice this site is based in Alabama!). Let’s remember to use our hearts as well as our minds. Those who have failed should be expected to rebuild trust, but they have their experience to give us as well.
ps
a side note,
Many of my friends are upset about how much they have lost in their pension funds. I ask them to consider if their fund would have ever gotten any higher than it is at the moment without the exhuberance of the past, be it rational or irrational. My take, we shouldn’t feel too sorry for ourselves.

solrev November 17, 2008 at 10:55 am

Auto bailout

Two things are critical to bail out the auto industry; one a sound energy policy that the auto industry can count on, and two reduce labor cost with a universal healthcare system in which business is not responsible for healthcare. Electric and hybrid diesel vehicles are required to save the auto industry. Where do we get the additional electric energy requirement? We nationalize the natural gas industry and build gas power plants instead of coal. Let cheap gas pay for the green revolution just as cheap oil paid for the industrial revolution. If we can survive, until the young people that voted for Obama has kids and grand kids running the show, they can change. There are just too many greedy people and born again pagans that need to die off first for change to happen. “The merchants of the world will weep and mourn for who will buy their goods. He who does unto the least among you does unto me.” Born again pagans can not practice what they preach and Babylon always falls.

Gene Linet November 18, 2008 at 1:28 pm

I don’t understand why libertarians/ Austrians are opposed to the bailout. I am in favor of capitalism – however, we have to consider the realities of business in a regulatory environment. A business like GM cannot survive in the US – satisfying unreasonable emission/safety standards and Union demands – without also receiving government compensation for the losses incurred therefrom. What Austrians should be saying is that FIRST, the industry should be deregulated – and THEN corporate welfare should be abolished. But to proscribe the latter while the first is still in effect is to proscribe business altogether.

kevin November 27, 2008 at 1:49 pm

Why the crisis. Two words: BIG OIL. High GAS prices started the crisis and the housing crisis finished it.They handed us the shovel and we dug our own grave.Who is resposilbe? CONGRESS They run the country not the President. Quit pointing fingers and go after those moneymongers in CONGRESS.”In God We Trust” and in GREED we will fall!!!

j December 3, 2008 at 8:00 pm

I feel the auto makers should stop looking for the government to bail them out and start looking to see where they can cut back on their own expenses just how every individual affected by the economy has to do to stay above water.

pjkPA December 6, 2008 at 6:13 am

This is not a bailout .. this is just a small dose of fairness.

The Japanese government has been “bailing out” companies like Toyota Honda Nissan for 60 years.

And our own US government has been rigging the US market against our own US companies like GM FORD Chrysler etc… how .. by letting Japan keep our products out of their market while selling products in the US more than freely. They are not even paying US taxes giving them a $3000 per car tax advantage alone over our own US companies.

If our government had been doing their job we would not have to help our companies now.

Level the playing field and our companies will not need help. It’s totally wrong that a Chevy Cobalt costs $45,000 in Japan while a imported Japanese or built car is sold in the US without even paying US taxes.

Bob December 8, 2008 at 2:59 am

I work in a factory on an assembly line that supplies parts to the big 3. I only make a little less than $12 per hour. We get a cost of living increase of 2% every year, but we haven’t gotten one in a last couple of years.

Our benefits have been getting cut because of the big 3. The big 3 have been demanding that their suppliers sell them parts cheaper and cheaper. That means my company has to cut our benefits and workforce. Whereas, alot of us have to do TWO jobs and work faster for the same pay. Bullshit. Let the big 3 fail!!

Kristen December 12, 2008 at 1:44 pm

You guys are all selfish people who do not understand anything about this whole situation. When somebody in your family who you depend on has worked for over 32 years for the company as a LINEWORKER, then tell me how you would feel about the bailout. Yes, the big wigs should not have their private jets and company credit cards that pay for everything in their lives. But what about the average citizen who has been loyal and worked for a company for so many years? It’s fair for them to lose their job with nothing in return? The government can give all this money to AIG and all the banks to help the credit market. However, did all of you fail to notice that this money was just handed over and these people were throwing parties for themselves?!?! If the money was given with stipulations and guidelines to be followed, then maybe this country wouldn’t be in such an awful mess. There’s one person to blame for this and it’s the stupid idiot who can’t even do an intelligent speach, let alone read a teleprompter.

fundamentalist December 12, 2008 at 3:02 pm

Kristen: “When somebody in your family who you depend on has worked for over 32 years for the company as a LINEWORKER, then tell me how you would feel about the bailout.”

It’s very sad for anyone to lose their job and I sympathize with the hundreds of thousands who have lost jobs in the current downturn. But don’t think that the bail-out would save any jobs. The Big 3 auto makers will have to get rid of close to half their workers with or without a bail out because they make too many cars that no one wants to buy.

The choice is not between saving all the jobs or losing all of the jobs. The choice is between cutting half the jobs now or wasting billions of dollars and then cutting half of the jobs. The bail out has nothing at all to do with saving jobs.

Greg Scott December 15, 2008 at 5:46 pm

The idea that GM can operate out of bankruptcy is not very realistic. Who will want to buy autos from a company in bankruptcy? Be careful what you ask for you may get it. No other industrialized country is so eager to give up its industrial base. The only activities that actually generate wealth are those that extract things from the earth (mining, agriculture) or make something out of these things. Look at China and its emergence as an economic power as a case study on this. There are two major factors that are hurting the automakers and it does not necessarily include the union. One having been around for a long time they have significant pension and medical expense for their retirees. In this regard they are actually unloading a burden on the government. Secondly the current economic situation is by far the most dire it has been in my lifetime of nearly 50 years. It hard to function in an evironment where people are so afraid to buy a big ticket item as car and sales are only 60% of normal. Failure of the big 3 will surely result in the failure of many suppliers including manufacturers of steel and plastics. This will in turn eventually shut down. the transplant manufacturers as well. The impact on the economy which is beyong fragile will be catastrophic. Probably far worse than the picture the auto companies are painting. Not to mention what will happen when all the outstanding credit default swaps on GM come due. This whole economic debate is academic, however, as the economists in Washington know all these things as did those (and unanimously I might add) at the congressional hearings. It is a hot potato that noone wants to handle, but will go through one way or another due to sheer necessity.

Greg Scott December 15, 2008 at 5:46 pm

The idea that GM can operate out of bankruptcy is not very realistic. Who will want to buy autos from a company in bankruptcy? Be careful what you ask for you may get it. No other industrialized country is so eager to give up its industrial base. The only activities that actually generate wealth are those that extract things from the earth (mining, agriculture) or make something out of these things. Look at China and its emergence as an economic power as a case study on this. There are two major factors that are hurting the automakers and it does not necessarily include the union. One having been around for a long time they have significant pension and medical expense for their retirees. In this regard they are actually unloading a burden on the government. Secondly the current economic situation is by far the most dire it has been in my lifetime of nearly 50 years. It hard to function in an evironment where people are so afraid to buy a big ticket item as car and sales are only 60% of normal. Failure of the big 3 will surely result in the failure of many suppliers including manufacturers of steel and plastics. This will in turn eventually shut down. the transplant manufacturers as well. The impact on the economy which is beyong fragile will be catastrophic. Probably far worse than the picture the auto companies are painting. Not to mention what will happen when all the outstanding credit default swaps on GM come due. This whole economic debate is academic, however, as the economists in Washington know all these things as did those (and unanimously I might add) at the congressional hearings. It is a hot potato that noone wants to handle, but will go through one way or another due to sheer necessity.

Greg Scott December 15, 2008 at 5:47 pm

The idea that GM can operate out of bankruptcy is not very realistic. Who will want to buy autos from a company in bankruptcy? Be careful what you ask for you may get it. No other industrialized country is so eager to give up its industrial base. The only activities that actually generate wealth are those that extract things from the earth (mining, agriculture) or make something out of these things. Look at China and its emergence as an economic power as a case study on this. There are two major factors that are hurting the automakers and it does not necessarily include the union. One having been around for a long time they have significant pension and medical expense for their retirees. In this regard they are actually unloading a burden on the government. Secondly the current economic situation is by far the most dire it has been in my lifetime of nearly 50 years. It hard to function in an evironment where people are so afraid to buy a big ticket item as car and sales are only 60% of normal. Failure of the big 3 will surely result in the failure of many suppliers including manufacturers of steel and plastics. This will in turn eventually shut down. the transplant manufacturers as well. The impact on the economy which is beyong fragile will be catastrophic. Probably far worse than the picture the auto companies are painting. Not to mention what will happen when all the outstanding credit default swaps on GM come due. This whole economic debate is academic, however, as the economists in Washington know all these things as did those (and unanimously I might add) at the congressional hearings. It is a hot potato that noone wants to handle, but will go through one way or another due to sheer necessity.

logan February 18, 2009 at 12:24 am

Maybe GM should include a DVD of ‘Pearl Harbor’ with each new vehicle.

It was American manufacturing that helped the US win WWII. It also saved alot of American lives.

Maybe, if it had gone the other way. Alot of these naysayers would not even exist. They would have no parents or grand parents.

anon February 18, 2009 at 2:29 am

re: logan – so you’re not against a bailout?

some people still rue thatcher for destroying britain’s manufacturing base.

Shawn Downey March 7, 2009 at 10:48 am

“It may be surprising that the following companies employ a larger number of workers than GM: Target, AT&T, GE, IBM, McDonalds, Citigroup, Kroger, Sears, and Wal-Mart. It is also worth noting that Home Depot, United Technologies, and Verizon all employ nearly as many workers as GM.”

Briggs,

None of the companies you listed are in the “manufacturing” industries, you listed companies all in retail and service industries. We have very few manufacturing companies, and this is why the bailout is a big deal, to keep the few manufacturing companies that we have. It’s true, the bailout is more for piece of mind because our economy has turned near entirely to a service economy, and GM is equivalent to the last “dodo” bird, unfortunately :( Luckily, Silicon Valley still offers hope for new manufacturing companies.

There’s also an issue of nostalgia, since the US invented cars, but going deep down it’s really embarrassment that we’ve lost the automotive market that we created and that was at the heart of our economic recovery so many years ago.

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