Sunday, November 16, 2008

An automaker bailout is harmful in the long run

Daniel J. Mitchell asks us to say "no" to an automaker bailout:
General Motors, Ford, Chrysler and the United Auto Workers union are pouring millions of dollars into a lobbying campaign for a taxpayer bailout. ...

A taxpayer bailout would be a terrible mistake. It would subsidize the shoddy management practices of the corporate bureaucrats at General Motors, Ford and Chrysler, and it would reward the intransigent union bosses who have made [them] synonymous with inflexible and anti-competitive work rules.

Perhaps most important, though, is that a bailout would be bad for the long-term health of the American auto industry. It would discriminate against the 113,000 Americans who have highly-coveted jobs building cars for Nissan, BMW and other auto companies that happen to be headquartered in other nations.

These companies demonstrate that it is possible to build cars in America and make money. Putting them at a competitive disadvantage with handouts for the U.S.-headquartered companies would be highly unjust.

A bailout also would be bad for General Motors, Ford and Chrysler. The so-called Big Three desperately need to fundamentally restructure their practices. More specifically, the car companies need to endure some short-term pain in order to restore long-term viability. But that won't happen if politicians raid the treasury. ...
  • A bailout will hurt the overall economy by misallocating resources. ...
  • A bailout will encourage other industries to seek taxpayer handouts. ...
  • A bailout is a perverse transfer from poor taxpayers to rich taxpayers. ...
Chapter 11 protection may be precisely what is needed to put American auto companies back on the path to profitability. Bankruptcy laws specifically are designed to give companies an opportunity — under court supervision — to reduce costs and streamline operations.

Bankruptcy would not be popular in some quarters, to be sure. The bloated management structure would be streamlined and many overpaid executives would be unhappy about having to find new jobs.

The UAW would be equally upset, particularly since bankruptcy might force an end to extravagant pension benefits and inefficient workplace practices. But bankruptcy is akin to getting an alcoholic to put down the bottle. There clearly will be short-term discomfort, but compassionate people recognize that this is the best approach.

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