Should the North American automotive industry be "bailed out" by the government? The answer is simple: No.
The pro-bailout faction, who call it a "rescue" instead of a "bailout" to make it sound more appealing to the populace, keep quoting the job numbers. Millions of jobs will be lost, they say, if the Big Three are allowed to fail. That may be true, but it’s still a bad idea. Let me count the reasons:
1 Bankruptcy destroys a corporation, but it doesn’t destroy physical assets. If General Motors declares bankruptcy tomorrow, all of the General Motors machinery and factories will continue to exist. All the suppliers stamping plants will still exist. Physical assets are not lost; they simply change ownership. New owners will buy the assets, for cents on the dollar, and re-deploy those assets by starting new companies. And given how poorly the existing owners have used those assets, wiping them out is a good idea.
2 Speaking of the Big Three, management has done a horrible job. Instead of focusing on cost cutting and quality, they have spent the last decade focusing on building big SUVs and big trucks. It’s Honda that has perfected the Honda Civic (now the number one seller in Canada, and high on the list in the United States), and it’s Toyota that invented the Prius, the most popular ultra low mileage car that is currently mass produced in the world. Giving money to the Big Three simply rewards them for these past mistakes, and guarantees us more of the same.
3 We all know how governments work. If they give money to the Big Three, they will want control. They will place limits on executive compensation (which given past history for those clowns isn’t an entirely bad idea), but they will also tell them how to run the company. They will mandate that a certain number of cars must be "green"; they will tell them were to maintain plants and build new ones (presumably where their voters are). In a free market, companies should be free to make their own decisions, good or bad. If they make bad decisions, they fail. If governments make bad decisions, we the taxpayers have to pay for their mistakes, and that’s a bad idea.
4 A government bailout doesn’t solve the problem. Restructuring is necessary, but if the government pays for the sins of the past, restructuring won’t happen.
5 A bailout would be a band aid solution. Whether Detroit gets $25 billion or $50 billion, if their cost structure remains out of whack, they will continue to lose money. If they keep building vehicles that no one wants to buy, they will keep losing money. And when it’s taxpayer’s money, I object.
Bailing out the banks was bad enough. The auto makers would be worse. And then whomever comes next (credit card companies? computer makers? Shoe shine boys?) will drag us down even further.
There comes a time in life when we must all pay for our mistakes. If you drink too much wine on Saturday night, you will have a hangover on Sunday morning. If you spend more than you make, you may be faced with personal bankruptcy. And if a car company makes very expensive lousy cars, the ultimate solution is bankruptcy, so let’s do it, get it over with, allow new owners with new management and a new vision to take over the assets, and get started on building a new, vibrant, efficient North American automotive industry.