Bloomberg reports that Barney Frank is proposing that GM, Ford, and Chrysler receive $25 billion in loans. Further legislation would be needed to authorize additional funds from the $700 billion financial bailout to also be used for this purpose.
Fortunately, the top Republican on the Banking Committee, Senator Richard Shelby of Alabama, opposes aid to automakers. Thank goodness.
There is fear that a collapse of the US automobile industry would put 2.5 million jobs at risk. The truth is, US automobile companies are ill. Unions have negotiated collective bargaining that saddle each vehicle with approximately $1500 in health care costs alone, never mind the cost of sweet pension plans and other benefits. Comparatively, a Japanese vehicle is saddled with only about $150 in health care costs. Having the government intervene to prop up this uncompetitive house of cards is only prolonging the industry’s drunken voyage into oblivion, and impeding the necessary restructuring of the industry and work force. All at taxpayer expense to add insult to injury.
Updated: this Cato Institute article “There’s Nothing Wrong with a Big Two” agrees.
Updated 11/13/2008: this Cato Institute article “Say No to the Auto Bailout” also agrees.
Updated 11/18/2008: CEOs of GM, Ford, and Chrysler gave testimony to the U.S. Senate Banking Committee in support of a bailout. They warn that without an bailout of the automakers, the U.S. economy risks “catastrophic collapse”. The automakers want loans that will fund retooling to produce more energy efficient vehicles. In other words, the “big three” stooges want taxpayer dollars to finance their uncompetitive and inefficient companies, so that they can exploit this unfair advantage over other healthy automakers (Toyota, Honda, Nissan, Hyundai, Kia, etc.), who employ American workers to build vehicles in American factories in a much more efficient manner.
Even after retooling, we should realize that GM, Ford, and Chrysler are saddled by inefficiencies (e.g., health care costs, labor costs) that would continue to make these companies fatally uncompetitive, no matter how their products can be improved. This is an even more important reason why a bailout must be avoided. Without bankruptcy protection to enable these companies to reorganize and shed these inefficiencies, the necessary changes cannot take place to bring about financial health to these companies. Otherwise, taxpayers will be on the hook to redistribute their wealth for years to come to overpay the employees of these automakers, while hurting the healthy automakers by making their salaries and benefits less competitive. Where is the equal protection under the law that the US Constitution guarantees to every American?
