U.S. automakers have been running on empty for years. Now they want American taxpayers to fill up their tank.
Detroit’s Big Three — General Motors, Ford and Chrysler — are seeking a slice of the $700 billion federal bailout pie to help them meet payroll and fund pension obligations. And they have found sympathetic ears in Washington: House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid and President-elect Obama, who are urging the Bush administration to give the auto industry access to the bailout fund.
The answer should be an unequivocal “no.”
Automakers have been saddled with poor sales, expensive union contracts and the legacy costs of retired workers’ pensions that are bleeding them dry. The Big Three argue they are victims of the credit crunch and deserve federal assistance to stay in the black (this on top of the $25 billion loan they received several weeks ago).
But this is not a sudden heart attack that requires a shock of capital to defibrillate. It is the waning stages of consumption, a decades-long decline in the industry’s health that has been primarily self-inflicted. Detroit has been making vehicles that don’t appeal to enough consumers to enable it to compete with foreign automakers.
Forty years ago, GM manufactured about half the cars sold in America. Today, its market share has dwindled to about 20 percent.
Plus, the manufacturers negotiated their unwieldy labor contracts. They agreed to the terms.
If the quality of a restaurant’s food and service erode to the point that it loses a majority of its customers, then it closes its doors, its property (and often its equipment) are sold and a new business usually springs up in its place. It doesn’t receive taxpayer dollars to fund new recipes — or worse, subsidize slinging the same old hash. Starbucks’ profits fell 97 percent in the fourth quarter. No one (yet) is proposing a federal bailout for Big Latte.
Why should the Big Three automakers be treated any different? Because they’re “too big to fail?”
Nonsense. Propping them up will only delay their necessary day of reckoning, and at great cost to taxpayers. If decades of declining sales won’t spur them to change their business practices, how will welfare improve the situation?
Let them fail. It’s not as if no one in the United States will ever build cars again.
If, say, GM files for bankruptcy, it still will continue to operate while reorganizing. If it liquidates, then investors will buy its assets and find more creative and effective uses for them. Many of GM’s workers will be rehired to do the same jobs under different conditions. They have valuable skills and operate modern machinery.
The problem rests with their management, which is not utilizing these assets properly. Indeed, their value would increase if they were put to better use by new management.
Government (i.e., the taxpayers) should not be protecting businesses from their failures in the marketplace. A bailout, especially one with federal strings attached, will prevent Detroit from making the fundamental changes necessary for its survival.