Tuesday, November 18, 2008

The Automaker Bailout

It is a ridiculous idea to bail out "Detroit." Bailing out GM, Ford, or Chrysler is a horrendous idea. The fact that the government is bailing out someone doesn't mean that they should bail out everyone.

In the case of the three companies above, each one of them is insolvent, not because of the financial crisis, a crisis which is quickly passing (Banks are lending again), but because their business is rotten to the core. There are several fundamental reasons to not bail them out:

1) The government will never recover its money
2) The money will be squandered
3) It will not help employees
4) It will not help the rust belt economy
5) There are better ways to do all of the above
6) The automobile industry in the US will not collapse, nor will the parts market

First, we all understand that GM and Ford leadership are beyond hope. It appears Chrysler not so much (They got paid to "buy" Chrysler back from Dimeler). Giving money to any of these companies will put a good deal of the money into more products that Americans don't want to buy. It will also put money into share holders (who are just speculators at this point) and executives who will quickly leave to go somewhere else. These companies will go broke eventually, and when they do no one will want the parts.

Secondly, though there will be a large sort term shock to the economy, the demand for cars (while down) will not go away and will fully recover. Other automoile manufactures will pick up demand and they will produce the cars in the US. Toyta, Honda, Mazda all do, they do it because its cheaper and better to produce it here than ship them here. Theywill pick up the demand by producing more cars here, and buying more parts. No way around that. We won't go back to riding horses. American's laid off will get jobs back, though probably not in Michigan where the unions have ruined the state.

Finally, and most importantly, if the government wants to spend its money, it can put the money in a short term unemployement fund. As the "big" three go out of buisness the money can be given to the laidoff directly, and bypass the shareholders and executives (who clearly don't deserve it). This will be a short term solution, but so is giving the exectives and share holders the money to squander.

Plus letting the companies go under will finally clear the way for more efficient buisnesses to form and hire people. Its better to work for a proffitable company than a zombe. Trust me, it is.

Let the market work and take these ridiculus companies away. We will survive, and have nice cars to show for it.

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