Stop the auto bailout

April 1, 2009

- See all 3 of my articles

Today’s guest post is from Phil Ossifer (not his real name), writer of the blog Chunga goes wild. Guest posts do not necessarily reflect the opinion of The Soap Boxers.

Phil works in IT, but his journey to the world of Information Technology was interrupted by a jaunt as a chef that involved training at the prestigious Culinary Institute of America and a successful career as a chef / ice sculptor. After mastering the world of food, Phil turned his talents to computers. In the process, he logged classroom time toward his Bachelor’s degree in four different decades. Last year, he gave the university an ultimatum – grant him tenure or give him his degree.

Without further ado … “Stop the auto bailout” by Phil Ossifer.

The U.S. Government is making a big mistake by providing additional $billions in another attempt to bail out major players in our failing automotive industry.

Why do we think a few more $billion will help? These companies were losing money even during the economic boom (GM and Chrysler are over $100 billion in debt at the end of 2008, and it has gotten much worse). All of this after already supplying them with $15 billion in 2008.

We should not continue to throw good money after bad in attempts to keep the industry afloat longer, since this will ultimately make our situation worse. It adds billions to our debt, extending the depth and length of the current recession/depression. Hey! National debt is not limitless – eventually, other countries would be unwilling to buy our debt. There are indications that China is already shying away from taking on new U.S. debt. Played out, this is similar to a large auto company failing – only this time it’s a nation.

I realize that there is much pain and gnashing of teeth that will result from a failure of GM or Chrysler, but unfortunately, I think our automakers are destined to fail in the face of superior competition. That’s not an anti-American slam; it’s my objective assessment.

This is not the first time we’ve had a painful parting with a traditional industry that we needed at one time. Over the decades, we’ve had many changes (e.g. outsourcing of manufacturing, toy-making, etc) that have led to job loss and other trickle-down effects. Example: The Japanese beat us at consumer electronics manufacturing and we ended up turning away from that industry. It would have been foolish to try to keep it afloat by adding to taxpayer debt. We had to change, and we have to continue to change to compete in the global economy.

What the U.S. is good at – and has to keep doing to survive – is innovation. We invent something new, lead the pack, then inevitably a competing country beats us at our game, and we re-invent again. Doing this starts with solid education. This process is not something to be feared, because 1) it is inescapable, as more developing countries get in the game, and 2) there is a lot of good in this process – quality improves, choices improve, and prices drop.

I realize that this does not provide any help for the many autoworkers, supporting sub-industries – and trickle-down effects like adding to the mortgage default rate, reduced spending, etc, etc.and I do not have an answer for that.

But let’s not delay the inevitable. The loss of our automakers is pain that we must go through, because our alternatives are either 1) go through the pain now, or 2) go through the pain a little later, but with of billions in new debt. These continued bailouts can hasten the pace towards financial insolvency, and I for one don’t feel like learning the Mandarin language just yet.

I admit that this may be easier for me to say this since I’m more removed from the direct effects of the failing auto industry. I don’t like it, but I think that it is our reality.

3 Comments (+add yours?)

  1. The Casual Observer
    Apr 01, 2009 @ 06:19:00

    I definitely agree with Phil that the business of America is innovation. The nice thing about innovation is that it is unlikely to be rendered obsolete, as innovation itself is the engine that renders other ideas obsolete.


  2. Matthew H
    Apr 01, 2009 @ 07:34:00

    Wow, that was disappointing.

    We’re already on the hook for most of this. Most of GM’s debt is for medical care. If GM goes under, who’s going to pay for the retiree’s medical bills? The U.S. will, either through Medicare or soaked by the hospitals who will in turn soak the government for it. So at the very least, the U.S. should provide Medicare for all GM retirees, which in itself may be sufficient for them to survive.

    The idea that GM is borrowing money to make cars is just wrong. The debt is from health care requirements. If we “go through the pain now”, how does this help? The people working at GM won’t get any older? They won’t need health care? Bullocks.

    Which do you think costs the government more? A guy working at GM for a year, or a guy who’s unemployed for a year? Have you actually added up the money that another 175,000 unemployed people would cost the U.S.? The 280,000 retirees suddenly without health care? And of course there’s all that tax revenue we’re getting from GM employees, which we won’t be getting if they’re unemployed.

    Maybe you should try math, instead of platitudes. It’s not always true that there’s pain now or more pain (or even the same pain) later. For GM, I think you’ll find that keeping it alive by taking over its health care obligations is a big winner long-term for the U.S. in terms of debt and income for the U.S. government.


  3. Anonymous
    Apr 01, 2009 @ 08:35:00

    Matthew – thanks for the well-thought-out response. If what you say about GM’s healthcare debt is true (and I have no reason to think otherwise), then I agree with you (gov’t should guarantee GM’s healthcare obligations.) So, YES – this will include of billions of additional debt!

    But we should NOT try to keep the company solvent for the purpose of making cars (which you also said), because I feel that the company is destined for failure. We can’t afford to continually prop up every major company (banks, auto, etc) or entire industries, because this will hasten our pace towards possible financial insolvency as a nation.
    No, I didn’t do the math or any in-depth analysis, because 1) time, 2) I’m probably not smart enough. But I did refer to “trickle-down effects”, which would cause pain and billions and hurt lives and our economy. My point is: These effects *will* happen regardless. I do not want to throw billions of debt on top of *that*. Thanks again for your response. – Phil


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