Democratic leaders had just proposed an auto bailout. They want to use $25 billion of the $700 billion financial industry bailout to help General Motors, Ford Motor and Chrysler. However, top Republican senators said on Sunday, Nov 16 that they will oppose the auto bailout plan. "Senators Richard Shelby of Alabama and Jon Kyl of Arizona said it would be a mistake to use any of the Wall Street rescue money to prop up the automakers. They said an auto bailout would only postpone the industry’s demise."
What do you think about this bailout plan?
I personally think it'd be another mistake. If the government can save one industry, it might need to save the other. With the trickle down theory, the failure of industry will have an effect on a lot of others. The bailout plan will also increase the moral hazard problem. The auto industry in Detroit has been dying. This is sad, but not anything new. They themselves have to come up with improvements and/or reforms to fight against foreign companies. The bailout wont be able to help them in the long run.
2 comments:
I totally disagree with the bailout plan. If anything I'd probably be happier if the government gives them a loan with really good financing terms but the bailout shouldn't just be a capital gift.
The auto industry has to learn from it's mistakes. Their Re companies in the south with huge manufacturing facilities et all that are owned by foreign manufacturers. They're still
Profitable.
The problem with these companies is they became too big too fast making cars that really weren't future proof or future oriented...
I understand your point that the huge manufacturing facilities in the south are still profitable and therefore, the government would be unfair to them by bailing out Chrysler, Ford and GM.
In the 1970's, 1980's and 1990's, the United Auto Workers (UAW) was a very powerful labor union that aggressively bargained for high wages, pensions and health benefits. If these demands were not met, they would go on strikes.
The foreign car manufacturers had particularly set up their factories in the southern states so they could avoid the UAW. Therefore, their costs of production were lower than GM's, Ford's or Chrysler's. I am not sure if going into bankruptcy would help these auto manufacturers. Maybe they would be able to negotiate cuts in wages and other benefits (like health, pension etc.) with its workers and therefore reduce their overall costs.
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