Tuesday, October 28, 2008

Automakers Ready Their Begging Bowls

General Motors has asked the U.S. Treasury to provide financial help for its prospective merger with Chrysler. But rather than use taxpayer money to facilitate this merger, the government should be forbidding it. U.S. automakers are not viable businesses, and if they are to survive at all, they should get smaller, not larger.

Congress recently passed legislation providing for a bailout of the U.S. auto industry, but this law should be repealed and the automakers should be told clearly that no federal aid is forthcoming.

There was a time when automakers represented the strength of U.S. manufacturing, but that time is long past. They have failed to adapt to changing market conditions, and should not be preserved for the sake of nostalgia.

In the last 42 months GM has lost $69.74 billion and Ford has lost $22.46 billion. If they can turn things around, I’ll root for them but U.S. taxpayers should not be forced to make that bet. If they cannot save themselves, bankruptcy should take its course.

There is value in the automakers. There are factories, technology, machinery, workers and more. However, that value is not being put to its most productive use. It may be that these productive inputs could be reorganized into several competing automakers. If we allow them to fail, entrepeneurs will do the work needed to pick through the pieces and create value for consumers.

It may also be that the U.S. is simply not suited to make automobiles anymore. That, in itself, is not a bad thing. If we produce those things for which we are suited, we will benefit from trading with those countries that produces autos at lower cost.

If the industry goes under it will take a large chunk of jobs with it, and this is certainly a negative consequence, but the cost of avoiding this job loss exceeds the benefit. The industry clearly cannot afford to pay its labor costs from sales revenue, meaning that money must be diverted from profitable pursuits to keep these people employed.

Jobs are lost every day, and those people find employment elsewhere. This process is important because it is the means by which our society reallocates resources to produce the things that people actually want to consume. There is nothing special about auto industry jobs; they warrant no artificial preservation.

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