It is highly unlikely that the government will refrain from bailing out Detroit at this point; on Monday, Congress is going to debate rescue legislation for the Big Three that
[C]ontain[s] strict conditions for the beleaguered companies, including management and salary changes, concessions from their powerful unions, and a commitment to making more fuel-efficient vehicles. . .one option under consideration was a smaller, more targeted amount of funding “that would get the companies through to March.”
If the government does not bail out the automakers now, the new Congress and administration will almost certainly do so early next year.
But what are the three automakers going to do in the next one hundred days that they have not done over the past decade? Can they restructure, innovate, and operate in a way that creates lasting economic effects worthy of the taxpayers’ investment? And should the American taxpayers risk billions of dollars on the Big Three in the hope that they can become profitable again?
My answers to these questions are “Not too much”, followed by a bunch of “no’s”.
Chrysler, General Motors, and Ford have failed to meet the primary social responsiblity of corporations in a capitalist system: they are unprofitable. It is not merely stagnant economic conditions that have led to their decline; their competitors, for the most part, produce superior automobiles, and have a more effective business model. Most of the rival automakers produce cars more economically due to lower labor inputs and a more streamlined production system.
Certainly there are thousands of jobs tied to the automobile industry, and the effects of plant closures cascade through local economies. But these corporations already face hard choices, and need to close plants, renegotiate labor contracts, and most importantly of all, innovate so that they can compete in a global economy, in a highly competitive industry. An investment in these industries may soften and prolong the downward spiral, but it will not likely turn it around.
The government should resist the siren’s call to bail out these corporations, and let the businesses use existing bankruptcy protection laws to turn themselves around, or succumb to market forces. A $52 billion investment to get the Big Three through March is likely a $104 billion investment on March 2nd.
And as for the state and local governments of Michigan, Ohio, and other states that are impacted by the declining auto industry, as well as the unions representing the workers? Be prepared to cut state/local government spending to match the likely tax revenue decline, offer concessions to the corporations, and get some of these startup automobile companies on speed dial so that they locate in an area with an experienced, motivated work force, and a government ready to do business.