Were We Going to Run Out of Cars

It is obvious from the Democratic convention this week that the Obama campaign believes that their intervention in the failure of GM and Chrysler was a positive.  They seem to be making the case that without the administration making a deal while ignoring the rules of bankruptcy law, GM and Chrysler wouldn’t exist now.  All kinds of companies go in and out of bankruptcy without any interruption in service.  Just look at the airlines, at any point in time there is an airline reorganizing and coming out of Chapter 11.  American Airlines is involved in it right now.  More importantly these orderly bankruptcies are done without taxpayer money.  The issue isn’t one of saving jobs, it is the use of tax dollars and changing the rules everyone else must follow.

A recent report to Congress from the administration has pegged the GM bailout at $25 Billion.  If you add this to the bailout of Chrysler, and Ally financial (the old GMAC), the total comes in around $38 billion. Even if liquidation was a possibility, and the government wanted to help those dislocated we could have gotten away much cheaper.  At 100,000 jobs (the true number at these companies) we could have closed the doors and given every employee a $100 grand stipend while they look for work, and saved $28 billion.  We then wouldn’t be stuck with the possible risk of having to bail them out again when they prove that they can’t seem to make cars that people want to buy while maintaining enough profit to stay in business. In fact this was Chrysler’s second time (1979 federal loan guarantee) at the taxpayer trough.   At least this time they got sold off to Fiat so the next time they screw up perhaps it will be Italy’s problem.

It is a misnomer that this intervention is called the auto bailout.  Ford, Nissan, Honda, Toyota, BMW, Mercedes & VW did not need any government money.  It is also a mistake to compare this to the financial industry bailout.  There certainly were flaws there as well, but at least you could say that it was systemic problem.  In other words, most banks were affected by the downturn, which cannot be said for the automakers.  Lost in all of the analysis of this bailout was the most important question that was never asked.  Was there a risk we were going to run out of cars?  Is there any doubt that if GM or Chrysler had actually been wiped out that the other carmakers would have stepped up production to fill the void?  The market demands a certain number of cars.  These would likely have been produced in American plants since they all have plants here.  Perhaps this would have led to no net job losses.

We have two car makers who have proven that they cannot compete when times get tough.  The current administration believes that intervening in the market, playing favorites, changing the laws, and spending a fortune to save these failed companies is a good idea.  If a company can no longer provide for their customers, the market forces them to deal with that reality.  Intervening delays the inevitable, confuses others as to the rules they must follow, doesn’t save net jobs, and burdens taxpayers unnecessarily.  The fact that this act can be used as a positive for the President running for reelection is a testament to the lack of economic understanding in the electorate.

Author Bio:

Michael has been an editor and contributor at the website www.freemarketsfreepeople.net for over 2 years. He has over 20+ years of diverse business experience, from running complex operations where he managed hundreds of people, to starting and running small businesses such as www.realinterestfund.com. He is blessed, or perhaps cursed, with a logical mind which he uses to analyze government, media, politics, and culture. He believes that his life experiences help him bring a unique perspective to the issues of the day.
  • Drew Page

    The GM and Chrysler bailouts were for the benefit of the UAW, not the car companies.    Yes, the bailouts did save the jobs of a lot of auto workers, but the expense of these bailouts was pushed onto the American taxpayers, the creditors who supplied those auto makers and the bond holders of those companies.   The Big Three auto makers got themselves into their financial problems as a result of constantly giving in to union demands for higher wages, generous health insurance, supplemental unemployment benefits and especially pensions.    Instead of standing up to the threats of a strike by the UAW, the Big Three gave in to union demands and tried to make up for it by cutting quality and raising prices.   This is what drove them to bankruptcy. 

  • Lormac1948

    What great analysis on the real “auto bailout” debacle. It’s only purpose was to save the unions using  taxpayer money.  If  they had gone through chapter 11 most of the union contracts could have be thrown out. We Americans bought GM for the unions. We will be paying  for a long time.

  • Jints4ever5611

    Real problem for GM? There employees are paid $70/HR vs $30/HR for Honda, BMW, Toyota etc. All which produce cars here using US workers. The real beneficiary of this rescue was the Union

  • Winghunter

    Former head of Obama’s Auto Task Force, Ron Bloom, statement at ’09 celebratory dinner. “I did this all for the unions”

    Auto Bailout Was Really Just a UAW Bailout http://blog.heritage.org/2012/06/13/morning-bell-auto-bailout-was-really-just-a-uaw-bailout/

  • venter

    Who is buying the cars and how many recalls,  Who really owns the company me or China?

  • Joel Wischkaemper

    I fully agree with this article.  Is the ‘inability’ (profit level) to deal with auto making a reflection of the corporate office decisions, or is it the labor rules that permit unions to run the work place?  
    I believe pretty serious work/employment rules, and a pretty serious OSHA presence is a requirement in modern manufacturing.  I think a majority of the people in Congress refuse to open the Pandora’s box of labor regulation, but a good study that would tell us what the perfect world in auto manufacturing in the United States would be worth its weight in gold.  ..But I think a good study on the needs, role, and regulations in ALL the Business-Labor processes could create a basis for the United States to remain a leader in world commerce..  I am not interested in not protecting the workers.  I am not interested in not protecting business.  But what would be an excess by either group? Make me President and I would hammer the Congress to pay the money for private studies from countries around the world.

    • Drew Page

      Make all states ‘Right To Work’ states.    I have no sympathy for the UAW, they killed the goose that laid the golden eggs.   Further, I have no sympathy for the car companies that routinely gave in to union demands.  They all got what they deserved.  

      • Rbbullett

        They got what they deserved? Spoken like a t(d)rue moron!!

  • http://www.facebook.com/andrew.domenitz Andrew S Domenitz

    if the idiots in charge would just read “economics in one lesson” by henry hazlitt we all might be better off. it shows the mistaken beliefs that seem to be rampant in the thinking among our nobel prize winner loser advisors

    • DanB_Tiffin

      That is a wonderful book and it is easy to find a readable transcript online.

  • DanB_Tiffin

    I imagine that either GM or Chrysler would have gone out of business finally, but that sort of thing happens.  Ford was not in that bad a shape at that time, so they probably would have continued.  Maybe the survival of a “Big Two” instead of a “Big Three”  Oh, well.  The bailout was simply wrong for so many reasons.