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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 3 of 3)
11-19-2008 @ 1:21PM
Allen said...
The notion of any bailout for the automakers is ludicrous! Rick Wagoner has said that General Motors needs $5 billion per month and will be broke by early next year - BUT if he is given $10 billion tax dollars (enough for TWO months!) by some miracle, GM will be save. In reality, Mr. Wagoner just wants to get on the government gravy train, knowing that the $10 billion will be just the start and that he will be back for more (witness AIG, where $40 billion has turned into $150 billion and counting!).
In reality, General Motors' problem is that Mr. Wagoner is grossly unqualified to be CEO of that or any other company. He might be qualified as a broom pusher, but not much more. The same could be said for Bob Nardelli of Chrysler, who nearly drove Home Depot into bankruptcy before he was fired. Alan Mulally of Ford is at least competent, but inherited problems left by the last Ford to stick his nose into management. (Just because one has a name does not an executive make.)
The other problem the auto industry has in Ron Gettelfinger and the UAW, whose workers are grossly overpaid (and often paid for not working!) with benefits far in excess the norm. It is far better that one or more of the auto makers go into bankruptcy, which will allow them to get rid of burdensome contracts, including with labor, cut costs, close plants, increase efficiency and emerge as a true competitor. And, no, Mr. Wagoner's trash talk about millions of unemployed is so much BS (consider the source). In reality, the demand for cars and trucks will be met and filled by people working in actual jobs, at a fair rate of pay.
11-19-2008 @ 10:05PM
Charles Roche said...
The Treasury Secretary should take 3 billion dollars and buy up all of the outstanding shares of all big 3 auto companies - then dismiss their boardsand top executive teams.
Then ask each company to come up with a restructuring plan to move forward.
And bring in someone like Steven Jobs to oversee these efforts.
In 90 days present their plans to the Congress .
CFR
11-23-2008 @ 1:02PM
jim said...
> LET EVERYONE KNOW
> For the record...
>
> Ford, Chrysler and GM's contributions after 9/11
>
>
> An interesting commentary...You might find this of
> interest:
>
>
> 'CNN Headline News did a short news listing regarding Ford
> and GM's
> contri buti ons to the relief and recovery efforts in New
> York and Washington .
>
> The findings are as follows.....
>
> 1. Ford- $10 million to American Red Cross matching
> employee contributions of the same number plus 10
> Excursions to NY Fire Dept. The company also offered ER
> response team services and office space to displaced
> government employees.
>
> 2. GM- $10 million to American Red Cross matching employee
> contributions of the sam e number and a fleet of vans,
> suv's, and trucks.
>
> 3. Daimler Chrysler- $10 million to support of the children
> and victims of the Sept. 11 attack.
>
> 4. Harley Davidson motorcycles- $1 million and 30 new
> motorcycles to the
> New YorkPolice Dept.
>
> 5. Volkswagen-Employees and management created a Sept 11
> Foundation,
> funded initial with $2 million, for the assistance of the
> children and victims of the WTC.
>
> 6. Hyundai- $300,000 to the American Red Cross.
>
> 7. Audi-Nothing.
>
> 8. BMW-Nothing.
>
> 9. Daewoo- Nothing.
>
> 10. Fiat-Nothing.
>
> 11. Honda- Nothing despite boasting of second best sales
> month ever in
> August 2001
>
> 12. Isuzu- Nothing.
>
> 13. Mitsubishi-Nothing..
>
> 14. Nissan-Nothing.
>
> 15. Porsche-Nothing. Press release with condolences via the
> Porsche website.
>
> 16. Subaru- Nothing.
>
> 17. Suzuki- Nothing.
>
> 18. Toyota-Nothing despite claims of high sales in July and
> August 2001.
> Condolences posted on the website
>
> Whenever the time may be for you to purchase or lease a new
> vehicle, keep
> this information in mind. You might want to give more
> consi deration to a car manufactured by an American-owned
> and / or American based company. Apart from Hyundai and
> Volkswagen, the foreign car companies contributed nothing
> at all to the citizens of the United States ...
>
> It's OK for these companies to take money out of this
> country, but it is apparently not acceptable to return some
> in a time of crisis. I believe we should not forget things
> like this. Say thank you in a way that gets their attention..
BUY YOUR NEXT VEHICLE FROM GM, FORD OR CHRYSLER.
11-29-2008 @ 7:55AM
Bob said...
Ask the Kremlin for a bailout.
11-29-2008 @ 10:37AM
Paul said...
To all you bleeding hearts of saving the big three. To what fairness would it be to all the other automakers in the US for their competitor to be subsidized with there tax money taken out of their paychecks every week. How would you justify these government actions if it was your competition and tax money.
11-29-2008 @ 10:44AM
Paul said...
To all you bleeding hearts of saving the big three. To what fairness would it be to all the other automakers in the US for their competitor to be subsidized with there tax money taken out of their paychecks every week. How would you justify these government actions if it was your competition and tax money.
11-29-2008 @ 10:44AM
Paul said...
So Jim in the end they could not afford to give out all the freebees and now the entire country will be expected to pay? It is the governments responsibilty to use the money out of disaster relief and FEMA not the Big Three showboating and not being able to pay there power bill.
11-30-2008 @ 11:21AM
MIKE said...
I HAVE A 2001 FORD F 250 PICK UP TRUCK, AND IT IS A GREAT TRUCK. IT HAS 370,000 MILES
12-01-2008 @ 8:25AM
X777X said...
I thought that the big three automakers were looking for loans and not grants. If the policies of the Repugnant Party hadn't have gotten our banks to the point that they can't lend money we wouldn't even hear about this. The bailout of the banks was ridiculous! It would have taken less money to have paid off everyone's mortgage in the United States. Then the whole economy would have been saved rather than just the campaign contributors to the Repugnant Party.
12-01-2008 @ 2:30PM
neil said...
When considering bail out money and fore-going of executive bonuses and excessive compensation, will Congress allow Nardelli to "borrow" from Chrysler and then have the loans "forgiven" as he did wit h Home Depot. He took all the integrity out of Home Depot. Will he do the same for Chrysler? Then again, as with Home Depot, building an inferior product increases immediate profitability and if you can dupe the public into believing that short term replacement is the way to go, Chrysler might be able to sell two additional replacements during the equivalent lifespan of a Chevy or Ford.
12-03-2008 @ 11:43PM
Neil said...
To: ALL AMERICAN'S
It is inportant for each of us to contact our Congressmen & women TODAY and tell them -
DO NOT US OUR TAX DOLLARS TO BAIL OUT AMERICAN CAR MAKERS!!
They need to go reorganize like any other busineses.
They MUST CUT THE OUTRAGIOUS WHITE COLLAR & UNION WAGES!!!
UNIONS ARE DESTROYING AMERICA" ability to compete in the golbal markets!!!
IT IS NOW OR NEVER - AMERICA
12-18-2008 @ 11:48AM
VMCAVIN said...
First, isn't it well known that the U.S. government has always had a problem with subsidies and has typically not followed "free market capitalism"? From what I know, and have been taught, academics and those on the ground usually want free markets to work as they do in theory.
In my business classes we usually deconstruct and ridicule all the case studies of how the government usually intervenes in business affairs, distorting prices and creating unnecessary losses for consumers. So, I'm not sure what your sources are, Mr. Lazarro, but we've been reading the likes of Pugell and Mankiw, which are just copious with such examples of market meddling -hardly a sign that they've openly promoted a free market economy. (they're usually protectionist and proud of it!).
In this case, I think the automakers should be allowed to fail. They are typical of the kinds of recipients of government favoritism (steel prices, tariffs/quota limits of [better] foreign cars), so, they screwed up, have a bad product and should scrap their company. It is the end of an era.