Throwing Out My Opinion on the Auto Bailout

by Benjamin Jones on December 5, 2008

I like to keep politics off of EcoModder, since I really feel like ecomodding is a non-political issue, even if there are some political reasons to get into. That’s why I am so hesitant to write this post: I don’t want to inject politics into a site that I think is better off without it. However, I think this issue is rather important and I tend to agree with the people I usually disagree with on this issue, so I think it’s also a fairly open topic as far as debate goes.

Why We Shouldn’t Bail Out the Big Three

For me, this all comes down to sustainability and good business practice. No one can say that Toyota and Honda haven’t made some big trucks and SUVs in their time, but these two automakers represent a smart strategy in North America. While the other automakers were focusing on development and production on high dollar SUVs, both of these companies dipped their toes in the water to get some of those profits. However, they remained focused on core quality and cutting edge environmental technology, likely aware that the SUV bubble was just that, a bubble.

When the bubble burst, both on gas prices and with the beginning of the global recession, it became this focus that sustained both of these companies, as well as the other Asian and European makes. The Big Three, who hadn’t invested in security, sustainability, or the base, has been left holding on to a pile of high dollar, undesirable vehicles. It’s not so much an issue of saving money, but creating products and technologies for the long term, which is something Honda and Toyota did with their hybrid systems 10 years or more ago. Right now the Big Three are just catching up to the next trend.

So, when it comes to finances, why should the government bail out the Big Three? The case was made for the banks because the world economy depends on the credit market, and however it may be being mismanaged, it’s still an important step to prevent massive collapse. Will an auto company dying create massive collapse? Let’s think about a few things:

  • Bankruptcy exists for a reason. It is a time for companies to be protected from creditors to restructure their businesses radically. This is what the automakers need. Avoiding this seems like giving the crack addict some good advice instead of checking them into rehab. If they can’t restructure in bankruptcy why would they be doing better with billions in hand outs?
  • There is plenty of evidence out there to say that a breakdown in the Big Three would create a lot of unemployment in the US. However, recessions are a time of industry consolidation. If one of the Big Three did go under, it would be the perfect time for one of the more well off automakers to buy the company or to at least take over some of the resources. It would be much cheaper for VW to renovate a GM plant in the US than to build a new one, and VW would employ people just like GM did.
  • Automakers are going to cut jobs no matter what. In order to get this money they’re promising things like cutting brands, models, management, workers, union contracts, and dealerships. Even if they get the money a radical restructuring is going to end tens of thousands of jobs due to previous mismanagement. We shouldn’t be treating it as if the bailout will be securing anyone’s job at this point.

But finally, I’d just like to note, the Big Three dug their own grave. Even with the yen as strong as it is against the dollar and Japanese domestic auto sales slipping even before the recession, you don’t see Subaru asking the Japanese government for money. That’s because other car makers built a wide base and maintained quality throughout.

The Big Three are in a bad way. But they’re not there because of this recession. They have been slipping slowly for the last 3 decades and the recession may have sped up their decline by a handful of months or a year. This was inevitable and throwing money at the problem when they’re not even going to be selling any cars isn’t going to wipe the slate clean.

Feel free to disagree, but keep it civil. I’m not calling anyone stupid, and you shouldn’t need to either, 🙂

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1 Josh December 5, 2008 at 12:36 pm

Great article, I couldn’t agree more. Bankruptcy was designed for this sort of thing. It is intended to save companies that have screwed up financialy.

2 Larry W. LeFavour December 6, 2008 at 9:06 am

I don’t like to call names ether, but I find it hard to agree with our politicians and find it even harder to imagine them with any common sense or even a brain. I can’t wait to see what the big three have come up with to make our government give them billions of dollars. I wouldn’t give them a red cent.
Nothing is going to save the big three, or should we start calling them the little three. I’m sorry, but I am so fed up with the direction our country is going. I will try to send you another email with a new song, Please listen to it. It’s about OUR nation under God.

3 Larry W. LeFavour December 6, 2008 at 9:10 am

The dirt cheap cars were not worth noting.

4 nobody December 6, 2008 at 2:00 pm

When the economy was great these guys made poor products and were barely able to make a profit. Should we expect them to be better in a bad economy ?

Let the dinosaurs die so we can make room for the more advanced species.

5 Percival Oswald December 6, 2008 at 7:35 pm

Tell me, why do we always give the tax dollars to the big guy? Wouldn’t it make sense to give the bail out money, at least most of it, to the tax payer? It wouldn’t cost nearly as much money that way and America would suddenly become weathy. Some would be broke again in 6 months but others would turn that money around and get very rich and industry, the banking industry, and autos would come right out of the mess their in and people would buy houses like crazy.
Aren’t we giving the money to the wrong people

6 Paul Holmes December 6, 2008 at 10:19 pm

The Dirt Cheap Cars weren’t worth noting? aaah! Say it isn’t so! So, a car that would fulfill the basic driving needs of like 50% of americans that can be made for about $1200, and is zero emissions and oil free isn’t worth mentioning? Last time I checked the world is going to crap because of excessive carbon dioxide emissions. By the way, you don’t have to know what you’re doing to make your own. I did, and I didn’t even know how to change my own oil!

7 Don Hall December 28, 2008 at 7:01 am

Paul is right, The Dirt Cheap Cars are a good case(s)in point, innovation made America a stronger industrial coountry (company?)

We lost electronics to the Asians, we lost engineering jobs to … Asians, ooops, yes we did get back some manufacturing tips during the Chrysler Lee Iocca fiasco days, remember the K-cars. Pure trash.

My point? Good article that should end up pointing to American can-do!

Positive attitude combined with get off the couch and quit complaining about bad gooberment (really? mispelled?)

After all, We did elect Obama, which gives us a fifty fifty chance of having a voice. Watch the quivering re-elections as they roll around … people may actually get to see the full weight of their votes in the near future!

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