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No Auto Bail-out

Posted by rightwinger on December 12, 2008

Great!  The Republicans in the Senate stood firm on their opposition of the Auto bail out. Bankruptcy is better because it will force the UAW to make concessions which they have not done thus far.  The problem is that GM sold as many cars as Toyato last year, Toyota made a profit while GM did not.  The UAW has set up ridiculous benefits where people get paid for not working for up to two years.  The demands the UAW has put on the auto industry has made them non-competitive and essentially has killed the golden goose.  Ok UAW so you get all these ridiculous measures agreed upon, now what happens when those same measures drive the company into bankruptcy?  Oh, so you just go to the government and ask for a hand out I guess.  Well that’s not capitalism.   In a capitalist society the weak, non competitive companies fail, while the well managed ones thrive.  UAW either revamp your contracts and come to the table or else.  The only problem with all of this is that Obama is 100% bought and paid for by the UAW.  Believe me when he gets in it will be a no holds barred attempt to bail-out these companies, I mean UAW.  Senator Obama has a history of voting with those who backed him.  When  the going gets tough, he votes with his backers and not on principle.  This behavior is seen repeatedly in his Illinois Sentate voting record.  He always votes for the unions.  The Republicans must stand firm and do all they can to stop this madness.  If these people want to live in a socialist or marxist state, then move to Cuba or Venezuela.

As the Big Three get closer to securing billions in aid from Congress, what was once called a “bailout” has turned into a plan to nationalize the car companies. Bankruptcy is still the better idea.

Congress’ idea to have a panel of overseers led by a “car czar” for the auto industry is very bad news. Not only will people having no experience in autos control the industry. They’ll also be able to reach into taxpayers’ pockets to keep the carmakers afloat in the future.

We could have accepted a “prepackaged bankruptcy” in which the automakers negotiate with both creditors and unions to restructure themselves in exchange for a bailout.

It might have included the closure of marginal auto brands and unprofitable plants. And unions would have opened up their gilt-edged contracts for renegotiation, bringing them in line with manufacturing norms around the globe.

But the Democrat-led $15 billion bailout does none of this. It merely replaces the efficiency of market forces and existing bankruptcy law with extensive government control. It also opens up the possibility of a never-ending stream of subsidies to automakers who have steadily lost market share since the early 1970s.

Here’s the broad outline of what we believe will essentially be an in-place nationalization of a major American industry:

  • The government will name a “car czar” to rule over the industry with “veto power” over any Big Three expenditure over $25 million.
  • The government will get stock warrants equal to 20% of the bailout — today equal to about half the market value of the Big Three. Basically, the government will own the auto industry.
  • Government will control the pay of Big Three executives, limit dividends to shareholders and give government debt priority over private bondholders.

This would be the death knell of American-style capitalism, where Joseph Schumpeter’s notion of “creative destruction” has helped forge the most productive, wealthiest economy ever.

Worse, none of this addresses the Big Three’s basic problem, which is that their costs are completely out of whack with the rest of U.S. industry. The bill asks nothing at all of auto unions, even though they’re a major cause of the industry’s dire condition.

As we and others have noted, U.S. automakers pay their average worker just over $70 an hour in total compensation, compared with about $45 an hour for Toyota, Nissan, Hyundai and other transplants. Same work force. Same country. Nearly a $30-an-hour difference. A “car czar” won’t be able to address this difference.

As part of Congress’ rotten “deal,” automakers would also have to give up their right to legally challenge state-level emission mandates in court. These mandates, along with new fuel standards passed by Congress last year that will cost an estimated $85 billion by 2020, are a big reason the companies are struggling.

Chapter 11 is the better route. The companies would have to go to court with a plan, and the unions would have to cut a deal to keep jobs. There would be no undue political interference (as there is sure to be under Congress’ plan), and no taxpayer-funded free ride.

A bailout or takeover that doesn’t require major restructuring will create moral hazard, writ large. From now on, every big, poorly run industry in America won’t have to make tough decisions to gut out the recession. They’ll just rush to line up behind the Big Three for their own bailouts, costing taxpayers billions more.

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