Automakers Bailout…Yes or No?

As General Motors, Chrysler and Ford request federal funds, we as taxpayers should ask tough questions of our congressional representatives. After all, in the end, it’s our money they are committing and our future and the future of our children they are mortgaging. Short answers of ‘yes’ or ‘no’ to the bailout requests are not sufficient to address the complexity of the ramifications of a bailout versus bankruptcy.

On a philosophical level, it’s hard to muster much enthusiasm for a bailout. After all, this country was built on capitalism and an entrepreneurial spirit where if you worked hard, added value for your customers and treated them well, you thrived. Those businesses that fell short of those goals floundered and either reinvented themselves or failed. We live in a world of cause and effect and once the government decides to bail out a company, it’s impossible to determine what the ultimate outcome will be. Reasons U.S. automakers are in trouble include corporate mismanagement, uncompetitive worker wages and inferior products. How will bailout money help resolve these very real issues? The management of these companies will surely see the funds as money available to sustain unreasonably high compensation packages. The unions will see bailout funds as money for maintaining retiree pension and health benefits as well as retaining uncompetitive union wages. For example union workers at GM receive an average of $70 per hour versus $40 per hour at Toyota. That’s quite a gap that must be filled if our automakers are to become competitive. Add to this the need to re-tool our plants to produce higher quality, more efficient automobiles and you begin to see the extent of the problem. The shareholders will view the funds as a lifeline to avoid losing all of their investment. Add it all up and a bailout offer means little bargaining for the real changes that are necessary to make these companies viable.
On the other hand, if the government refuses to provide bailout funding the economic effect could prove devastating. Should GM, for example, file bankruptcy, you cannot assume they would be successful in restructuring the company and emerging from bankruptcy a stronger, leaner company. In fact, the mere filing of bankruptcy protection could cause already dismal auto sales to plummet as potential buyers weigh the risks of buying an automobile that may become the next Edsel. Most would opt for the safer bet of simply buying from a solvent manufacturer. The result could mean the immediate loss of 300,000 jobs in the auto industry but the ripple effect could easily top one to three million jobs. This would certainly send our economy into a deep recession or worse.
The best solution is perhaps a government engineered bankruptcy where the federal courts and government work together to force all constituents within the auto company to make concessions that will allow the company to become viable.
Most importantly, let your voice be heard. Write your congressional representatives, express your opinion and demand they seek thoughtful solutions to the real problems before they give away any more taxpayer money. To contact your congressional representative go to the Resource Center at and click on “Links”, then “Congressional Representatives”.