Wednesday, November 26, 2008

Bailing Out the American Auto Industry


I've been waiting to write anything about this topic--I am not an economist after all. However, after thinking about this topic for weeks, I don't know how this country, a superpower after all, could possibly let it's domestic automakers go out of business as well as all the supporting parts suppliers dependent on the Big 3 (GM, Ford, & Chrysler). About 2% of the nation's workforce work for the Big 3 automakers alone and 1 out of every 10 American workers is dependent upon the auto industry. Three million people would lose their jobs according to one study by the Center for Automotive Research.

If the Big 3 go under, think of the effect it will have on communities all over the country. Take Lordstown, Ohio, for example: "If the industry failed, among the hardest-hit communities would be Lordstown, Ohio, a village of 3,600 people about 50 miles east of Cleveland that has been home to a GM factory since 1966. If the plant closed, Lordstown would lose up to 70 percent of its budget, a scary scenario that proponents of a multibillion dollar bailout say would be repeated across the industrial Midwest."


The fight over the American auto industry is dividing the country along sectional lines to a certain extent. Lawmakers from Ohio, Michigan, and other Midwestern states are in favor of helping the industry, regardless of party. Ohio Senator Sherrod Brown, a Democrat, makes the sensible argument that it's not just about jobs but also about national security: "If we ever need that national security production for serious defense, for any kind of significant war, it's gone." Other lawmakers, particularly those from states who are not dependent upon the auto industry, are skeptical of any help by the government. Arizona Republican Jon Kyl, Senate Minority Whip: "Just giving them $25 billion doesn’t change anything. It just puts off for six months or so the day of reckoning." Senator Jeff Sessions (R-AL) is similarly critical: "How is this money going to make a positive difference in creating a new competitiveness? Once we cross the divide from financial institutions to individual corporations, truly, where would you draw the line?"

The quote from Sessions highlights a question for me which has yet to be answered. Why the resistance to helping the auto industry, upon which so many Americans rely, when the White House and so many lawmakers seem so eager to help America's struggling financial institutions? What exactly does AIG make anyway? How about Citigroup? These paper-pushers are the recipients of hundreds of billions of dollars from American taxpayers even when their leaders are pocketing hundreds of millions of dollars in executive bonuses. AIG will burn $150 billion in taxpayer money; the U.S. government will be insuring $300 billion in Citigroup assets. Yet the automakers must beg and plead for a pittance in comparison and even so, it's not clear whether they will get help or get the door slammed in their face. Why the double standard? As Senator Carl Levin (D-MI) says: "It's a double standard, basically. Holy cow, AIG gets $150 billion for one insurance company that not only made mistakes but engaged in very dubious practices ... and they're bailed out? I'd love to see what their financial plans are, but I doubt they were even asked for them."

There is no doubt the U.S. automakers--their corporate leadership and powerful unions--will have to restructure and make concessions to survive. Making affordable, safe, fuel-efficient cars will be necessary in the long and short term. Not having the CEOs show up to Congressional hearings in expensive corporate jets would be another step. But it would be an American tragedy to let America's auto industry go extinct. At that point, the United States could no longer be considered a world superpower but rather a paper tiger set for a rapid and calamitous decline.

3 comments:

DJ said...

If they get a bailout, we better not hear about the crazy parties like the ones AIG had..

DC said...

Agreed.

And, if the unions & workers have to make steep sacrifices the leaders of these failing companies should have their compensation slashed as well.

Citigroup's CEO getting $250 million??? Please.

Cocowillie said...

Public schools could use a nice shot in the arm.
http://pubschoolrules.blogspot.com/

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