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Should the Big Three car manufacturers be bailed out by the US government?


General Reference (not clearly pro or con)

Rasmussen Reports, an opinion polling company, released the following results from its Nov. 11-12, 2008 poll on American opinions about bailing out the Big Three automakers:

"Forty-six percent (46%) of Americans are opposed to a taxpayer-backed bailout of the Big Three automakers. Thirty percent (30%) support such a plan, and 25% are undecided...

A near identical percentage (45%) are opposed to a specific government bailout for General Motors, which says it is facing bankruptcy in the near future without an infusion of federal aid. Thirty-five percent (35%) of Americans support a GM bailout, with a sizable group (20%) not sure."


Nov. 11-12, 2008 - Rasmussen Reports


Should the Big Three car manufacturers be bailed out by the US government?

PRO (yes) CON (no)
Paul Krugman, PhD, Professor of Economics at Princeton University and 2008 Nobel Prize winner in Economics, stated the following on the Nov. 16, 2008 episode of This Week with George Stephanopoulos:
"[I]f it were any kind of normal time, the answer would be clear. Let the thing go into bankruptcy, Chapter 11, continues to operate, restructure a lot of stuff. There are two reasons why this is a big problem now and why I'm kind of very reluctantly screaming in favor of some kind of bailout. One is that the credit markets are frozen. So normally a company can keep operating, declare Chapter 11 but keeps operating but that depends on being able to continue to get credit lines to do business. And you can't do that right now. So Chapter 11 quickly becomes Chapter 7 which is liquidation. So we actually see the thing disappear and then we're talking about a million plus jobs probably disappearing. The other is we're in the middle of this terrible, terrible slump and letting GM go under is an enormous anti-stimulus policy. It would be working towards a major negative blow to the economy... You know, this is not a good time to stand on principle and say we shouldn't bail these guys out."

Nov. 16, 2008 - Paul Krugman, PhD



Rick Wagoner, MBA, Chairman and Chief Executive Officer (CEO) of General Motors (GM), wrote the following in a Nov. 19, 2008 opinion article titled "Why GM Deserves Support," published in the Wall Street Journal:

"Much has been said about the impact of the credit crisis on U.S. auto makers, and whether or not the government should assist the industry during this extraordinary financial turmoil. In these discussions, many critics simply ignore the substantial changes that U.S. auto companies have already made -- changes much like those the critics are calling for as part of any aid package...

The auto industry may be historically anchored in Detroit, but it reaches into every state and community in our nation... GM, Ford and Chrysler last year purchased $156 billion in parts, materials and services, supporting jobs in all 50 states...

The future of the domestic auto business is critical to the health of the U.S. economy. It is a vital engine of economic growth and a foundation of economic stability. It remains a path of upward mobility for millions of American families. For America to compete in the global marketplace in the 21st century, it needs a strong manufacturing base and a vital domestic auto industry...

Short-term government support to bridge the current financial crisis will enable GM to continue as an engine for prosperity and as a creator of vehicles and technologies that America needs. Such assistance will save millions of jobs now, and produce enormous benefits for years to come."


Nov. 19, 2008 - Rick Wagoner, MBA



Barack Obama, JD, President-elect of the United States, stated the following in a Nov. 16, 2008 interview on 60 Minutes:
"For the auto industry to completely collapse would be a disaster in this kind of environment, not just for individual families but the repercussions across the economy would be dire. So it's my belief that we need to provide assistance to the auto industry. But I think that it can't be a blank check. So my hope is that...the discussions are shaped around providing assistance but making sure that that assistance is conditioned on labor, management, suppliers, lenders, all the stakeholders coming together with a plan what does a sustainable U.S. auto industry look like? So that we are creating a bridge loan to somewhere as opposed to a bridge loan to nowhere.

In this situation, you could see the spigot completely shut off so that [bankruptcy] would not potentially permit GM to get back on its feet. And I think that what we have to do is to recognize that these are extraordinary circumstances. Banks aren't lending as it is. They're not even lending to businesses that are doing well, much less businesses that are doing poorly. And in that circumstance, the usual options may not be available."

Nov. 16, 2008 - Barack Obama, JD



Spencer Abraham, JD, former US Secretary of Energy under President Bush and a former US Senator from Michigan, wrote the following in Nov. 24, 2008 editorial titled "For Detroit, Chapter 11 Would Be the Final Chapter," published in the New York Times:
"For those concerned about the potential price of a federal bailout for Detroit -- and I'm one of them -- the reality is that this cost would be dwarfed by the long-term spillover costs of bankruptcy and liquidation. Nearly three million jobs would be lost in the first year if all three car companies closed and their suppliers absorbed the shock, according to the Center for Automotive Research. That would mean tens of billions of dollars in pension liabilities would be transferred to the Pension Benefit Guaranty Corporation, the federal insurance fund that protects the pensions of nearly 44 million American workers but already has a $10.7 billion deficit...

There's no denying the American auto companies have made major mistakes, by over-investing in S.U.V.'s, for example, and failing to quickly streamline their manufacturing. But allowing one of them to file for bankruptcy would be a disastrous course...

If we let any of the Big Three go bankrupt, we will set in motion a chain of events that will cause us, in six months, to ask again: How did we let this happen?"

Nov. 24, 2008 - Spencer Abraham, JD



Jennifer M. Granholm, JD, Democratic Governor of Michigan, wrote the following in her Nov. 13, 2008 commentary titled "Save Automakers to Help Economy and Security," posted on CNN.com:

"Letting the auto industry disappear will be devastating... The auto industry supports one of every 10 jobs in the United States. A recent study estimated that 3 million jobs nationwide could be lost in one year if these companies are allowed to fail...

That's because U.S. automakers buy more U.S.-made steel, aluminum, iron, copper, plastics, rubber, electronics, and computer chips than almost any other company. They provide health care to nearly 2 million Americans and support 775,000 retirees or their survivors through pension benefits...

Beyond the $25 billion in loans already approved to help GM, Ford and Chrysler modernize their manufacturing facilities and operations to build more fuel-efficient vehicles, Washington needs to get additional funds to this critical industry with the same urgency they showed in sending help to the financial institutions.

Using a small portion of the $700 billion already set aside to help the national economy recover will save and create millions of American jobs."
 

Nov. 13, 2008 - Jennifer M. Granholm, JD



Gary Becker, PhD, Professor of Economics at the University of Chicago and 1992 Nobel Prize winner in Economics, wrote the following in a Nov. 16, 2008 article titled "Bail Out the Big Three Auto Producers? Not a Good Idea," posted on the Becker-Posner blog:
"I believe bankruptcy is better than a bailout for American consumers and taxpayers...Bankruptcy would help GM and Ford become more competitive by abrogating significant parts of their labor contracts with the UAW. One of the greatest needs would be sizable reduction in their health costs through sharp increases in the deductibility and co-payments, and a reduced coverage of medical procedures. Bankruptcy should also help bring the wage rates of GM and Ford in line with those of foreign producers in the US. Some of their pension liabilities may be shifted onto the Pension Benefit Guarantee Corp, but even that would be preferable to an overall bailout...

Is GM 'too big' to fail? I do not believe the company is too big to go into a reorganization -- which is what bankruptcy would involve. Such reorganization would abrogate its untenable labor contracts, and give it a chance to survive in long run. A bailout, by contrast, would simply postpone the needed reforms in these labor contracts, the business model of GM, and its management."

Nov. 16, 2008 - Gary Becker, PhD



Michael Levine, LLB, Distinguished Research Scholar and Senior Lecturer at the New York University School of Law and former airline executive, wrote in his Nov. 17, 2008 editorial titled "Why Bankruptcy is the Best Option for GM," published in the Wall Street Journal:

"The cost of terminating dealers is only a fraction of what it would cost to rebuild GM to become a company sized and marketed appropriately for its market share. Contracts would have to be bought out. The company would have to shed many of its fixed obligations. Some obligations will be impossible to cut by voluntary agreement. GM will run out of cash and out of time.

 

GM's solution is to ask the federal government for the cash that will allow it to do all of this piece by piece. But much of the cash will be thrown at unproductive commitments. And the sense of urgency that would enable GM to make choices painful to its management, its workers, its retirees, its suppliers and its localities will simply not be there if federal money is available...

 

Federal law provides a way out of the web: reorganization under Chapter 11 of the bankruptcy code. If GM were told that no assistance would be available without a bankruptcy filing, all options would be put on the table...

 

GM as it is cannot survive without long-term government life support. If it gets that support, it can't change enough and won't change fast enough. Contrary to Mr. Wagoner's brave declaration, bankruptcy is an option. In fact, it's the only option that merits public support and actually has a chance at succeeding."


Nov. 17, 2008 - Michael Levine, LLB



Mitt Romney, JD, MBA, former governor of Massachusetts and 2008 presidential candidate, wrote the following in Nov. 18, 2008 editorial titled "Let Detroit Go Bankrupt," published in the New York Times:
"If General Motors, Ford and Chrysler get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won't go overnight, but its demise will be virtually guaranteed...

The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check."

Nov. 18, 2008 - Mitt Romney, JD, MBA



Daniel Mitchell, PhD, Senior Fellow at the Cato Institute, wrote the following in his Nov. 13, 2008 commentary titled "Say No to the Auto Bailout," posted on CNN.com:

"A taxpayer bailout would be a terrible mistake. It would subsidize the shoddy management practices of the corporate bureaucrats at General Motors, Ford and Chrysler, and it would reward the intransigent union bosses who have made the synonymous with inflexible and anti-competitive work rules...

Advocates oftentimes admit that bailouts are not good policy, but they invariably argue that short-term considerations should trump long-term sensible policy. Their biggest assertion is that a bailout is necessary to prevent bankruptcy, and that avoiding this result is critical to prevent catastrophe.

But Chapter 11 protection may be precisely what is needed to put American auto companies back on the path to profitability. Bankruptcy laws specifically are designed to give companies an opportunity - under court supervision - to reduce costs and streamline operations."


Nov. 13, 2008 - Daniel Mitchell, PhD



Evan Newmark, MBA, journalist at the Wall Street Journal, wrote the following in his Oct. 28, 2008 article titled "GM = Government Motors," published in the "Mean Street" column in the Wall Street Journal:
Now you may shrug your shoulders, thinking, 'We bailed out Wall Street. Why shouldn't we bail out Detroit?' And, such tit-for-tat logic will be repeated endlessly by politicians and pundits in the coming weeks.

But there are big differences between saving the U.S. banking system and saving Detroit

The global credit meltdown was a cataclysmic event that spanned months. It threatened to bring down everything.

Detroit's decline has been a slow-motion car wreck spanning four decades. GM, Ford and Chrysler have been losing domestic market share for years to Toyota Motors, Honda Motors and BMW. Who actually admires Detroit for its car-making prowess?

So, bail out Wall Street and save the global economy. Bail out and save--well, Detroit

But a bailout won't even accomplish that. It will only further delay Detroit's day of reckoning--and make it more expensive."

Oct. 28, 2008 - Evan Newmark, MBA