Everyone these days is asking for a bailout. Why not? It's an easy way to get free money from the government for something YOU dropped the ball on. First we had homeowners, then we had the actual home builders, then we had the banks, and now the automakers want a bailout. While we are at it, why don't we also bail out the hedge funds? They are having their worst year on record. How were they supposed to foresee this financial downturn? No one in this country can fail anymore. Maybe letting Ford and GM go bankrupt is actually the best thing that can happen to the auto industry. I'll present both sides here:
Phil LeBeau writes on CNBC:
- Without it, there is a very real likelihood one of the Big 3 goes under. And take it from someone who has covered many a bankruptcy in the airline industry: bankruptcy ain't pretty. You think someone will plunk down $25,000 for a car or truck from a bankrupt automaker? Nope.
- This is not a bailout. Yes, that word will be thrown around, but this is different. The capital markets have essentially shut down. Where are these guys to go to raise the money they need to re-tool themselves?
- The Big 3 have been restructuring aggressively on the own and still more is needed. These guys haven't been sitting around doing nothing. Had I not seen first hand how dramatically they have cut costs in recent years, I'd be against offering them help. But in this case, Detroit's been trying to clean up its act for some time.
- If Detroit's automakers crater, the implications for the broader economy will be significant. The auto industry, which includes parts suppliers, dealers, service technicians, etc., has perhaps the broadest impact on the economy of almost industry. Washington lets part of that collapse, the ripple will be felt.
Why we should not bail them out?
-The US is already running record deficits. To bail out irresponsible corporations is only increasing the debt on US, that is you and me who are gong to be alive for the next 60 years.
-This is a capitalist society. Inherent in capitalism is the right to take huge risks, make unlimited profits beyond anyone's wildest dreams. On the flip side of that equation is the right to fail, go bankrupt, and start over.
-The Big 3 have failed at making cleaner, more fuel efficient cars. In fact, the US has one the lowest fuel economy standards in the world (even China requires their automobiles to have better MPG than the US). If they go bankrupt, it will clear up space in the market for new companies that can actual deliver real fuel efficient cars to the market. Everyone is better off.
- The price of cars will go up short-term, but long-term the price of cars will go down. The capital structures of GM, Ford, and Chrysler are so inefficient that when you buy one of their cars, about 1/3 of the value of the car just goes to extraneous things like worker pension funds. There is NOTHING these companies can do to fix this problem and it's why companies like Honda and Toyota have been able to beat GM and Ford into the ground. Let them go bankrupt and let a new company take its place that doesn't have these problems.
-Toyota now employs as many people domestically as GM and Ford. Why should we bail out only 3 when Toyota is a better company and deserves that bailout as much as the other companies.
You guys can make a decision for yourselves, but I don't see how Congress can look us straight in the face, want to raise our taxes, and then just dole out our hard earned money.
