The US plan for bailing out the US automakers is a horrible idea. This is yet another case of seemingly well-intentioned legislation, designed to dupe the American public into thinking that the lawmakers “care” about the US economy and is a weak attempt at underlining the idea that the “Big Three” are too big to fail. Washington has been smug during the well publicized “hat-in-hand” hearings starring the CEOs of GM, Chrysler and Ford, eager to blame them for poor management and failing to be competitive against foreign manufacturers who’s crystal ball appears to have been more well attuned to the aspirations of the market than the domestic manufacturers.
The big problem with the bailout is that it will enviably have much fine print which will effectively undo competitive market forces and will ultimately bind the flexibility of Ford, GM and Chrysler. Take for example the CAFÉ standards, which mandate certain baseline mileage criteria, which car manufactures must meet in order to sell cars in the US. Legislation like this and worse will enviably be attached to the bailout creating a force opposite of free-market economics and ultimately worsening a situation the bailout was designed to rectify. Think of the logic here: There is a public policy mandate to build certain types of cars regardless of the price of gasoline. If gas prices were stabilized high and thus the demand for small, fuel-efficient cars were also high, there would be no problem. Market forces would push the balance in the right direction and the US car industry couldn’t make gas efficient cars fast enough. Consider the opposite situation. When gas prices whip-saw, like they have over the last six months, consumers complain about high gas prices, curb their driving habits until the price of gas falls and then it’s wash, rinse and repeat! In an era where gas prices are still relatively low, sub-two-dollars, the artificial mandate to produce fuel-efficient is a death nail to the auto industry. The big three will end up producing and selling small cars at a loss because of weak demand and government mandate. This is a horrible anti-market idea!
As much as I hate higher taxes, this is the best thing congress could do to address the problem. Look at how much demand dropped over the summer when gas was hovering at $5 per gallon. If congress is really serious about American’s dependence on foreign oil, they should tax gasoline and stabilize the price HIGH! The key to this problem is to lower the demand on gas and raise the demand of small fuel-efficient/alternative energy transportation!
{ 2 comments… read them below or add one }
I agree with some of your comments, like using taxes to keep gas prices high, as they often do in Europe. But only if those taxes are used to subsidize mass transit and other solutions for lessening our dependence on oil. I don’t want that additional revenue going to pork-barrel projects.
But I disagree with your take regarding CAFE. Your comments imply that CAFE standards impose hardships on the big-three when in fact they are applied equally to all car manufacturers. Laws and regulations, when applied to all competitors, are a good thing. Free-market only works when guard-rails are put in place.
Lastly, the big-three have two burdens that continue to hinder their success. First, they still wear the stigma of bad quality from the ’70s and ’80s. It takes time to wash that off. Second, they must bear the ongoing cost of the ridiculous benefits they pay their retired workers. I think their current labor costs are in the ball park of Toyota and Honda, but the cost of past workers eats into profits.
Overall, I’m against the bailout because I think it just defers the inevitable at a substantial cost to taxpayers. But I understand why it was done, and can’t complain about the motivations.
Well Done! I Like it!