Should the government save Detroit?
Published 5:34 pm Friday, December 5, 2008
Seemingly everyday Americans are bombarded in the news about the government bailing out corporations who’ve been labeled “too big to fail” by pundits.
First, there was the massive $700 bailout of Wall Street and the banking industry, which was then followed by the $306 billion guarantee by the Treasury Department for most of Citigroup’s assets.
Now, executives from the “Big Three” national automakers – Chrysler, General Motors, and Ford – have come to Washington D.C., hat-in-hand, to beg for money, hoping to stave off a possible collapse of the American automobile industry. CEOs of the three companies told members of Congress they need an immediate influx of at least $34 billion to keep the bankruptcy lawyers at bay.
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Alabama Sen. Richard Shelby, who voted against the $700 billion financial bailout in October, was hardly swayed by the executives’ testimony. Shelby was adamant about his stance on saving the Detroit automakers.
“I wouldn’t loan them any money. They’re either failed or failing,” Shelby told the Birmingham News on Friday.
The Big Three are betting on the “trickle down” effect.
A failure of the U.S. auto industry would hurt not only Detroit, but the thousands of workers employed at supplier plants.
Nariman Behravesh, Chief Economist at IHS Global Insight, said the failure of General Motors alone would cause unemployment to jump to 9.5 percent in the United States.
The American consumer would also be hurt, as new vehicle prices could increase by as much to 5 to 15 percent and car owners would have trouble finding replacement parts for used vehicles, according to some experts.
“But bankruptcies at parts makers wouldn’t just cause consumers problems when trying to find replacement parts. Because automakers share suppliers, bankruptcies in the parts sector would quickly cut into production of all brands of vehicles made in North America. That would feed into the shortage of vehicles and cause prices to rise,” according to a report on CNNMoney.com.
Still, would an immediate influx of taxpayers money help save an industry that many – like Shelby – believe is doomed to failure anyway?
Clearly, foreign automakers have passed Detroit by, building better and more reliable automobiles and they haven’t been saddled with the incessant demands and stipulations of unions.
Could $34 billion even stop the bleeding?
Gas-guzzling, big engine automobiles – an American ideal fostered by Ford and Chevrolet in the 1970s – went the way of the dinosaur.
Is it best to let their makers follow that same path?