When the top executives from General Motors, Ford and Chrysler came to Washington, D.C., to beg Congress for a bailout last week, they flew in on private jets. It’s hard to feel a lot of sympathy for the Big Three’s plight.
In a few months when they have to file for bankruptcy and up to 3.3 million jobs are immediately lost or endangered, sympathy will be in plenty, but solutions will be few. That’s why an auto industry bailout, as unpalatable as it sounds, is so necessary.
The Big Three came to D.C. because they simply don’t have enough money. Without a government loan, they will soon be filing for bankruptcy ““ either Chapter 11 or Chapter 7.
The chapter they end up at doesn’t really matter; they won’t survive either way.
Normally, the problems of a private industry would be none of the federal government’s concern.
In a free market economy, competition causes businesses to improve and provide better services or collapse and make room for the next business venture.
However, the auto industry occupies a unique place in our economy, and in the current economic environment, its collapse would have a significant impact on the rest of the U.S. Nearly 250,000 auto industry workers would lose their jobs immediately and permanently if GM, Chrysler and Ford go belly-up, not to mention the effect on suppliers, another 730,000 workers, and those working in dealerships across the country.
The number of jobs that would be affected is estimated to be between 2.4 and 3.3 million.
Many blame unions like the United Auto Workers for making it impossible for the Big Three to compete against foreign competition, but those same people ignore the progress unions have made in allowing for competition and fairness.
The UAW has allowed a two-tier wage system in which new employees’ wages were significantly cut so that they weren’t making any more than non-union workers.
The bailout is expected to have a $25 billion price tag. Right now, the actual legislation is still unwritten, so the money for the auto industry may be taken from the $700 billion bailout Congress already approved.
If the bailout is successful, this money will be paid back in full, and America could have a growing, green and successful industry pumping money into the economy.
It’s a risk, but some economists predict that if we don’t take it, a collapse in the industry could cost the federal government $100 billion in lost taxes.
So the question is, exactly how risky would this loan be? There is no question that GM, Ford and Chrysler need to make major changes to survive in today’s market ““ and with federal money on the line, Congress will have a strong chip to leverage for the changes that are necessary to revitalize the industry, such as a move toward greener, more sellable products and more competitive wages.
Speaker of the House Nancy Pelosi recently wrote to the Big Three’s executives insisting that any loans wouldn’t “be life support for three months. It’s about viability for a long time to come.”
The loan would likely work out the way she insists it should. The Economist predicts that “the North American car market should come back strongly in 2010 or 2011,” but they need government help to make it until then.
General Motors is already making moves towards green products with a plug-in hybrid. The Chevrolet Volt is set to be on the market in 2010. The United Auto Workers are showing signs that they’ll make concessions on jobs to help the industry. These signal potential for the Big Three to make the changes necessary to compete successfully with foreign automakers.
Opponents of the bailout insist that the free market is the panacea to all our economic woes, but the only thing the free market can offer us in the case of the Big Three is the enjoyment of watching the executives who brought about this problem suffer from it.
Congress appears to be afraid of giving the loan because they don’t want to seem too soft on a group of people that the American people generally see as jerks.
The Big Three executives’ resistance to fuel efficiency improvement, their reliance on gas-guzzling products while gas prices soared, and their general incompetence has led to the untenable position of the auto industry today. They deserve a little (or a lot of) economic pain for it.
However, the bailout won’t stop that from happening ““ just like with the banks, the top executives responsible for the problems shouldn’t ““ and won’t ““ go unscathed just because Congress decides to loan the companies the money they need.
If we really want to punish the executives, their resignations can be made a condition of the loan, but the truth is, this isn’t about them.
Instead of worrying about the executives, Congress should be worrying about the millions of workers who rely on them and the potential ripple effects on the rest of the economy.
President Bush and President-elect Obama have both signaled support for extending a loan to the industry, with conditions. The bailout will probably happen.
Congress should focus on making the bill effective instead of opposing it completely. Their constituents might frown for a while, but in the long run, the bailout is the right decision.
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E-mail Ohlemacher at dohlemacher@media.ucla.edu. Send general comments to viewpoint@media.ucla.edu.