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Source link: http://archive.mises.org/8923/bailing-out-big-auto-is-a-bad-idea/

Bailing Out Big Auto is a Bad Idea

November 10, 2008 by

Washington seems set to hand out tens of billions of dollars in a new bailout, this time for the Big Three Automakers.

In all the newspaper reporting about this likely event, there is one question not raised: Why shouldn’t the Big Three be allowed to fall if they fail in passing the market test of making cars that consumers want.

I make this case in a new article that I have up on the American Institute for Economic Research (AIER) blogsite.

The piece entitled, “Bailing Out Big Auto is a Bad Idea,” may be accessed here.

{ 14 comments }

prettyskin November 10, 2008 at 10:42 am

Give them the money! It’s worthless money, is it not?

8 November 10, 2008 at 10:53 am

Why shouldn’t the Big Three be allowed to fall if they fail in passing the market test of making cars that consumers want.

The cars are relatively fine, what kills them is the union contracts and retirement benefits.

Little Auto, not Big Auto November 10, 2008 at 11:53 am

I think you mean Little Auto. The Big Three (Toyota, Honda and Nissan) don’t need, or want, a bailout.

Chris J November 10, 2008 at 12:35 pm

8,
Their cars are relatively fine if you want an oversized, inefficient car. But what if you just want something small and efficient to carpool to work in? Ford’s best option gets 30mpg. Chevy is similar. Chrysler doesn’t break much above 20. Why would I be interested in buying a vehicle that makes such inefficient use of my resources? Why won’t they make me a new Omni, Metro or Festiva?

The deal was I would trade my dollars for something of value produced by my fellow man. Now the deal is I just have to give them my money. Not a good deal.

Same is true of banks. I have all the credit I need. Why would I need more? Still I have to pay them.

When does it end?

Jardinero1 November 10, 2008 at 1:00 pm

I read that the fed has loaned two trillion dollars in the last twelve months.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aatlky_cH.tY&refer=home

The upside to this is that all these bailouts may result in the total collapse of the state. I say keep on bailing, only faster.

Pipo November 10, 2008 at 1:14 pm

Jim Rogers has been saying that for years. Let them fail. They are not efficient.

http://www.jimrogers-investments.blogspot.com

Horst Muhlmann November 10, 2008 at 2:37 pm

Jardinero1 said “The upside to this is that all these bailouts may result in the total collapse of the state. I say keep on bailing, only faster.”

I could not disagree with you more. Maybe particular states will collapse. But they will only be replaced by larger and more onerous states.

Back in the Depression, did people say, “Gee, this Federal Reserve thing isn’t working out. Neither are all of these make work and relief programs. Let’s do away with them”? To the contrary. Roosevelt is a hero to most people. Laissez-faire got the blame then, and it is getting the blame today.

Danny November 10, 2008 at 8:13 pm

Roosevelt was rescued by ww2, that will not happen this time.

Franklin November 10, 2008 at 8:37 pm

“Roosevelt was rescued by ww2, that will not happen this time.”

I don’t know, Danny. There are an infinite number of ways that government can get creative. Rebuild the Middle East, step up the war in Afghanistan, new alliances, new battles, new programs… things we can’t possibly now imagine.
To paraphrase a pop culture icon: “Always in motion, the future is…”
But then again, this also goes for the forces of liberty too.

Friedrich November 11, 2008 at 3:15 am

Well first the failout plans for the banks now the next failout for car manufacterers and after that I guess it will be teh steel industry and after that the supplier of electric energy.

So here we got for another round of socialication.

Regards
Friedrich

David Carlson November 11, 2008 at 3:21 am

When will the government intervention end??? This is a legitimate question that the mainstream media has not addressed often enough. This is the ultimate question. WHEN will the line be drawn? It seems as though government feels they can intervene in ANY private market. It really is phenomenal.

-David Carlson
http://www.davidcarlsonpolitics.com

Franklin November 11, 2008 at 8:53 am

David asks,”When will the government intervention end??? ”

I realize that it’s partially rhetorical, though spot-on.
Two answers:

(a) Never, and I don’t necessarily mean that there will be a civil war. It just will not happen, unless….

(b) the U.S. Constitution is amended, explicitly forbidding the government to interfere in private commerce.

Therefore, we are back to (a).

Regards,
F.

AW November 20, 2008 at 10:15 pm

After the oil crisis in the 1970s, the American auto industry pleated that it “needed time to grow strong enough to compete with the imports on the free market” and the Reagan Administration agreed to limit auto imports. The auto industry did not respond with the promised development of more fuel-efficient cars but merely increased its price an average $2,600 per new car and achieved record profits while selling fewer cars than in their record sales year in 1977! (Hudgins, Edward, 1985, The Heritage foundation, The costly Truth About Auto Import Quotas, http://www.heritage.org/research/energyandenvironment/EM74.cfm). This incident indicates that governments have to be more critical prior to interfering as they cannot only hurt consumers but can also ruin international relations with import restrictions.

Despite of this fact that we got screwed, I believe that our politicians in Washington will bailout the American Auto Industries. Why you asked? Because they already sent their lobbyists carrying bags full of money up capitol hill and deposited into those politicians’ campaign contribution funds.

Varun Verma November 25, 2008 at 2:56 pm

It seems the CEOs of the Big Three will be headed back to Washington DC early December. And, this time they might carpool instead of flying the private corporate jets. But that does not change the fact that bailout is the wrong solution. I have written a detailed article entitled “Big Three Auto Bailout is Wrong Solution” to make my case. You can read in the detail here:

http://commonsensetopics.blogspot.com

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