First, the United States Congress should pass and the president of the United States should sign a rescue package for General Motors, Ford and Chrysler, post-haste. If this was the "Roaring '90s" or even the "Fabulous '50s," an operational cessation by General Motors (NYSE: GM), Ford (NYSE: F) and Chrysler, would hurt the U.S. economy. As investors know, however, we are not in the 1990s or the 1950s, but in a teetering economy, and an auto sector cessation would be devastating, driving the U.S. economy into a deeper and longer recession.
Second, the notion that only companies that "perform" in the free market should continue and that others, the underperformers, should fail, as an absolute rule, simply has not been the history of the United States economy. Moreover, dozens of companies receive billions of dollars in subsidies from the U.S. government, which is you, the taxpayer.
Need a few examples? Let's do what the late, great New York Governor Al Smith would do: Let's look at the record.
Pure capitalism? Not in the U.S.
Try sugar companies. A pure capitalist operation for pure sugar, right? Not even close. You, the taxpayer and citizen, pay a few cents extra per pound of sugar. Not much for you, but about $2 billion per year in federal subsidies for the U.S. sugar industry. Is that what you call a company or sector surviving on its own in the free market?
Second, the U.S. government pays tens of billions of dollars in agricultural subsidies annually. Likewise, is that a company or sector surviving on its own in the free market? Further, some ag companies are doing an enormous amount of harm, such as those who receive federal subsidies for corn-for-ethanol production, which -- in addition to not solving the nation's energy problem -- has driven up the price of food, displaced other crops, and probably resulted in environmental damage in certain zones. Nevertheless, your tax dollars are being spent so farmers can grow corn. And there are dozens of other farm / agriculture subsidies that run into the billions of dollars annually.
Third, there's no-bid / not-full-competition spending. Under the Bush administration, the amount of no-bid or not-full-competition contracts has risen to about $139 billion in 2007 from $66 billion in 2000, The Washington Post reported. Are no-bid or low-competition contracts consistent with a free market system in which full competition is required for price discovery? No they aren't, and the difference, some argue, is overpayment to these contractors, or a federal subsidy.
Fourth, there's the issue of big-ticket defense items. Many systems do not increase our security and are not vital for the defense of our nation. Rather, they exist primarily because constituencies in the Republican Party, and, to a lesser extent in the Democratic Party, have lobbied to get them funded. The result is a federal subsidy to these companies, and also a waste of taxpayer money.
Is that an example of a company or sector surviving on its own in the free market? The B-2 bomber, F-22 joint strike fighter, Virginia class submarine, and V-22 Osprey, are all examples of optional programs that represent hundreds of billions of dollars in corporate revenue subsidized by the federal government. Further, the U.S. Navy has 11 carrier groups -- ELEVEN -- when, in fact, the nation could probably get by with eight or seven. That's at least three carrier groups that shouldn't exist. The result? Ca-ching, Ca-ching rings the cash register of the companies involved that built these ships.
So the notion that the U.S. government does not subsidize corporations is a myth. Further, the notion that only companies that 'bear the rigors of free market competition' should survive is also not born out by historical practice (see the no-bid contracts above).
And given that the U.S. government -- through subsidies, no-bid contracts, and numerous, needless, big-ticket defense purchases -- is allocating hundreds of billions of dollars in taxpayer money to corporations, it should be able to find an additional $50-60 billion to help revitalize the nation's auto sector. To do anything less would be a public policy double standard of the very worst sort.
Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.
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Reader Comments (Page 1 of 3)
11-17-2008 @ 6:05PM
D A HICK said...
JOB NUMBER ONE: RICK WAGONER AND ALL HIS BOARD CRONIES AND EXECUTIVES UNDER HIM MUST GO ASAP. THE UAW PERSIDENT AND HIS CRONIES MUST GO. NOW THEY ARE CRYING WOLF. I AND MOST OF AMERICAN SAYS SCREW EM.
11-17-2008 @ 6:27PM
richard said...
Your argument is that, since we already do stupid financial things (farm subsidies, defense subsidies, etc.), we should do one more and subsidize the car companies?
We need to end all of these subsidies, and bailing out the auto companies is not going to help.
11-17-2008 @ 6:21PM
Frank Mellicka said...
This blog entry is ridiculous. My suggestion for the author of this socialist agenda to open his wallet and pay for the bailout himself. No me thanks. If it does pass, won't be until next year anyway. We'll see where we are then.
11-17-2008 @ 6:54PM
Jim said...
If this were to happen, the first thing that should be done is to disolve all the UAW contracts. With this carniverous vulture hanging over their heads, the same practices would ensue. For the "Big Three" to compete with foreign automakers, there must be a level playing field. The UAW will prevent this from ever happening.
11-17-2008 @ 7:03PM
Don said...
The American auto industry must be saved. The foreign automakers are assembling cars with foreign parts( Honda CRV 85% non USA parts) and do not have the legacy costs. American auto manufacturers were building cars the public wanted till the price of gas spiked. Toyota, Honda & Nissan are making SUV's and were making inroads into the profitable truck area when the market collapsed. There have to be changes in the structure of the industry but it should have a major American component. The days of high wages & great benefits are over. It is difficult to justify bailing out workers making $100,000 in salary and benefits, when the average worker in the country makes around $50,000 a year with few if any benefits. The unions should be realistic & take the lead in offering to abrogate there cotracts if management comes up with a comprehensive plan to manage the company into the 21st century. It could be better than the alternative.............
11-17-2008 @ 7:14PM
james said...
We must remember that a government bailout of the auto industry is different than the Wall Street bailout. By helping save the auto industry, we're helping save millions of middle-class jobs. That wasn't the case with the Wall Street bailout. So, let's don't call it a bailout of GM, Ford and Chrysler. Let's call it what it is: saving millions of American jobs.
11-17-2008 @ 7:22PM
SickNTired said...
Sorry - let them run the course - bankruptcy then sink or swim. The UAW has that cozy position with Democrats so why should they make concessions??? They know these political hacks (and I voted for Obama - the lesser of two evils) will throw their industry a big tax payer bone for getting them elected. The UAW needs a wake-up call - bankruptcy is just that slap in the face.
Why not do a story on the oil companies bailing our Detroit? Record profits - they should be fighting tooth and nail to maintain the status quo of pumping out gas guzzlers.
11-17-2008 @ 7:39PM
Tom said...
The UAW workers have all had to take major consessions already, so the idea that there the problem and breaking the bank is ridiculous. The problem is the CEO's getting there million dollar bonuses. I work for a General Motors parts supplier and just 2 years ago the average wage at my plant was about $29.00 and hour. Now under the new contract its 14-16 dollars. So if thats too much money for auto workers I wanna know what is fair. I barely scrape by on what i make.
If gm or the big 3 fails and all those jobs and related jobs are lost... Your tax dollars are gonna pay for all the unemployment they recieve, Alot less money being spent to sink our economy further into recession, and how much do you think that fuel effecient honda will cost you if there is no american made cars here for competition????
11-17-2008 @ 8:01PM
Information Central said...
"If this was the "Roaring '90s""
if it WERE the "Roaring '90s"
11-17-2008 @ 8:11PM
rob mack said...
average hourly for the big three is 73.00, about 50% higher than next closest, toyota
11-17-2008 @ 8:23PM
Daniel said...
Wow, that was some of the weakest reasoning I have ever heard. I was almost speechless. Because our government does many stupid things, it is OK to do more? Why don't we just ban the sale of all cars not made in America? Or better yet, ban everything not made in America. Or even better yet, why don't we ban all bankruptcies and layoffs all together. I must be a genius because I think I just solved our unemployment crisis! Just say no.
11-17-2008 @ 8:27PM
Walt said...
A couple of things...I've been receiving both "Car and Driver" and "Motor Trend" for 30 years now and all through the 80s and 90s I'm not sure they found an American car they liked. American cars during this time lacked the innovation and quality of the Japanese brands. People bemoaned this fact and bought the foreign brands in droves while crying that they'd like to have a good domestic choice. The car magazines are now singing the praises of the domestics and their initial quality surveys are ahead of the competition and yet people seem to get some joy out of seeing them ( us ) fail. I believe you will find that any car GM has brought out in the last 3 years is truly "world class". This includes vehicles such as the Chevy Malibu, Cadillac CTS, Buick Enclave and siblings, Pontiac G8, Chevy Corvette, and many others. The Chevy Volt which is designed to run on electricity for 40 miles before a gas engine kicks in shows the kind of innovation people have been saying they desire from US brands. The Chevy Cruze, set to debut next year is a true Civic beater, a car running on a direct-inject 1.4 liter set to deliver 40 MPG. I'm proud of my fellow Americans making this effort. To blame the current problems on the union is to say that Benzes, Volvos, BMWs, and others made by high paid union help are also a problem. It's hard for me to understand the disdain for middle class union workers in a world where execs make 100 million and more. I'd love to see less people wave the flag in this country and actually do something to help their American neighbors such as going down to their local Chevy,Ford, or Chrysler dealer and seeing what they offer today. I don't think a visit to a US dealer is too much to ask in an environment where our balance of payments deficit is killing this country.
11-17-2008 @ 8:26PM
g said...
The US auto industry has been run as a greed combine for too long.. Contractural concessions have to be made between the big 3 and the us government... salaries have to be cut and costs have to be cut way back.. any deviations should be met with extreme punishment. Ford seems to be doing the best of all, but they did put out the excursion too. American greed and loftiness needs to STOP and NOW>
11-17-2008 @ 8:35PM
d a hick said...
all the big 3 can make is crap. they have no incentives to do better. they build these 40k and up behemoth gas hogs and tried and crammed them down our throats. times up. we are mad as hell and we arent going to take it anymore. who wants to pay 40k for some crappy volt, when you can invest about 12-16k, get a honda civic or similar, get 30-35 mpg, and take and invest the rest in an fdic insured bank account, even at 1% and you'll be thousands ahead. why throw money at the same crappy thing that hasnt worked in 30 years. they are junk. i have had my 2001 jeep wrangler to 4 5-star dealers 22 times to get the heater and ac fixed and it aint fixed yet. its parked cause i cant drive it in winter. junk junk junk is what the big 3 put out.
11-17-2008 @ 8:46PM
PJR said...
The American car industry has not made a descent vehicle for the average man in the street for many years...if the Malibu is good then I am from Mars!
Further if the Volt was really the savior then the govt. would not be offering a $7500 tax bribe for you to buy it , not to mention all the tax payers money to the tune of $25 billion to get these type of vehicles developed.
Good quality drives the industry not some misplaced loyalty in inferior product, the US car industry has watched the competition succeed for years and has done nothing to address the problems at hand. They deserve to go under.
11-17-2008 @ 9:30PM
timesup said...
We need to bail out the car industry but there has to be changes. There can be no bonuses until all money is payed back and company is sound. That takes care of my problem with the rich guys. Now we get into the real problem the union. These guys don't have a leg to stand on no bail out no jobs. Better yet lets re-hire at the same rates as toyota and no special treatment for union members. This would give the big three motivated employees and every american a fear chance at a good job. It's time for change and lets share the wealth.
11-17-2008 @ 9:47PM
John Dupuis said...
Most people in this country choose not to buy American cars. If you want to know what is wrong with U.S. car companies read the classic book on the subject "On a Clear Day" by Delauren. The unions and the managment are going to do the same old things that got them in this mess, like AIG has. Didn't the Soviet Union own their car manufacturing business too?
11-17-2008 @ 9:53PM
Kent said...
We have to be cognizant of the fact that this automotive bail-out would violate the WTO rules by subsidizing our industry. If we break those rules, then every country we deal with will start making up their own rules and lead to the end of free-trade and protectionism. We have to make sure the bail-out is paid back with interest.
11-17-2008 @ 9:58PM
b said...
$72 hr ? well if you include health care! but lets not fix that!
UAW bad? well if your management or not in it.
rich banks get bailed out and working stiffs can't? before you scream screw them, think about whom you end up screwing, tire manufacturers, plastics workers, brake manufacturers, truck rivers, rail companies, etc. etc. etc.
no fare trade has a lot to do with it also.
this is HUGE don't kid yourself bigger than housing bigger than wall st. look at the big picture.
11-17-2008 @ 10:21PM
D Latta said...
Hey da hick! Get your blinders off. Gm makes many great cars! I drove a 89 Bonneville over 14 years by choice. Loved the car, still on the road. With 190K miles on it, was bullit proof, still on the road today. Daughter had a 89 Pont.6000, with over 250K miles on it, engine & transmission never been touched when she sold it. Now drive a 98 Bonneville that gets 34mpg on the highway, as did a Lumina we owned. Get better gas milage than friends with Honda's. Have a better ride , more safety and less problems! Get real!