I can't remember in which thread Chris asked about opinions on the possibility of a bailout for the automakers in the USA, so I decided to start a new thread.
Overall I think the bailout is necessary. Because the credit markets have dried up completely the major automakers would be unable to file for chapter 11 bankruptcy, which requires the company to continue operating during the proceedings. Without access to credit they would be forced to stop operating, which drops them into chapter 7 bankruptcy, also known as total liquidation. I would love to support the free-market argument right now, but I am not sure that the efficiency gains that would be brought about by the death of these dinosaurs of companies, these iconic names of America, would offset the negative effects of the layoffs, the further drop in (The Conference Board's index of) consumer confidence (already at its lowest level since the index was created in 1967), and the ripple effects felt by supporting industries (e.g. car sales lots).
All that said, I really wish I could see domestic car companies die because of their stupid decisions (e.g. non-military Hummers). But allowing these companies to die as the economy heads into a recession may significantly increase the likelihood that the recession becomes a depression, a risk I do not think this country should take, particularly as the 'untouchable' Eurozone declares itself to be in a recession.
Subscribe to:
Post Comments (Atom)
Posts
I mostly agree. It's just so difficult - I really want them to fail, just in the right way.
ReplyDeleteOK, so clearly my knowledge of bankruptcy law is inferior, but my understanding is that credit markets are actually stabilizing.
Regardless, what happens when we give them this money? We just gave them $25B a couple years ago I think.
One thing I think is necessary is that we do put money into retraining employees who will lose their jobs, and possibly even chip in for early retirement for some of the older workers. The biggest problem the big three face is labor costs and particularly benefits. Helping them shed their workforce in a way that doesn't amount to throwing these guys out on the street is a win-win in my opinion.
Now, I would still like to see them fail. America just doesn't have a competitive advantage in making cars anymore. We're a developed country - our new workers should be doctors not assembly line workers.
One other possibility is that, as much as I hate this terminology it does actually work here, President Obama could make the big three a central part of a Green New Deal, essentially using the government to subsidize a super-green auto industry right here in America. You create jobs, save the automakers, reduce our dependence on oil, and heal the planet. Yay!
That last point of Chris' was the one I wanted to make. If we could transform our current auto industry into true pioneers of a green auto movement during this crisis, that would be ideal, in my book.
ReplyDeleteI would be down with a green revolution in the auto industry so long as we have the competitive advantage in the technology (I also hate the term Green New Deal, so I have decided to reclaim the term green revolution and redefine it as ecologically neutral or positive technological development as opposed to drastic increases in crop yield). I think this article highlights the dangers of subsidizing an industry that should be allowed to flounder in the current market, and I have a hard time arguing (using economic reasoning) that the big three have the inside track for cheap green technology after decades of resistance based on the tobacco-industry idea of 'The fewer problems we acknowledge the less we have to change.' Subsidizing the wrong automakers risks artificially raising prices for green technology and dropping the efficiency of technological development by shrinking the pool of funds for smaller innovators with competitive advantage.
ReplyDeleteInteresting sidebar: assume credit markets loosen enough to allow the big three to file for chapter 11, allowing them to settle old debts, get out of labor contracts (I believe that this can be pulled off through chapter 11), and start anew without liquidating capital and plant. From there the dinosaurs could evolve, following the east-Asian model of car manufacture, which focuses on relationships between the car company and the suppliers (of all inputs, including labor) rather than on the bottom line of each transaction, the goal being to raise overall quality and efficiency by eliminating some of the uncertainty and inefficiencies associated with a constant search for a cheaper input. More clearly stated, the big three could use regional or even individual plant contracts with unionized workers (typically called competitive operating agreements) and make a call for every American car worker to take a hit for the sake of 'Amurrican' pride and the auto industry.
Thanks for reading the ramblings.