Federal bailout of U.S. auto industry

Executives from General Motors, Ford and Chrysler met with congressional leaders this week to get government handouts to keep their businesses afloat. McCain and Obama both have voiced their support for a proposed $25 billion corporate welfare plan. This bailout seems likely to pass in light of other investor bailouts this week as Republican and Democratic lawmakers practically tripped over each other to extol the virtues of American automotive innovation.

Some conservative lawmakers criticized the proposed automotive bailout. Arizona Representative Jeff Flake, for example, said, “Federal bailouts may stave off short-term economic damage, but the long-term economic outlook will be much worse if the market is not allowed to make its own adjustments.”

The American automakers claim they need the money to “go green” and invest in alternative fuel research, but market demand is already pushing automakers to design fuel efficient vehicles. In reality, they’re losing billions dollars because of their huge inventories of large vehicles they can’t sell. Oil production peaked in the United States over 30 years ago and they’ve had since then to invest in that research.

The market should be incentive enough for the auto industry to do what it takes to get competitive. In the meantime, transit systems around the nation are at capacity and beyond as more Americans discover they can get to work without the single occupant motor vehicle, in spite of service cutbacks because of high fuel prices. Bike shops are closing not because of lack of business, but because there is no inventory.

Contact your Senator and Representative and let them know how you feel about taxpayer support of a shrinking industry.

On bailouts: Read this fascinating alternative history of the 1979 Chrysler bailout.

If Chrysler had collapsed, argues [economist and author Barry Ritholtz], vulture investors might have swooped in and reconstituted the company as a smaller automaker less tied to the failed strategies of Detroit’s Big Three and their unions. “If Chrysler goes belly up,” he says, “it also might have forced some deep introspection at Ford and G.M. and might have changed their attitude toward fuel efficiency and manufacturing quality.” Some of the bailout’s opponents — from free-market conservatives to Senator Gary Hart, then a rising Democrat — were making similar arguments three decades ago.

Ritholtz blogs at The Big Picture.

13 Comments

  • Jennifer
    September 18, 2008 - 5:39 pm | Permalink

    Heh.

  • Jennifer
    September 19, 2008 - 12:39 am | Permalink

    Heh.

  • Jennifer
    September 19, 2008 - 12:39 am | Permalink

    Heh.

  • Anonymous
    September 18, 2008 - 5:56 pm | Permalink

    Ford makes a car that gets 65 mpg, but cannot import it to North America. It costs to much.

    Should the big three be bailed out? No! Free Enterprise requires them to fail if they cannot compete.

    What happened to the American idealism that the strong survive, and the weak perish. Every one that supports government assistance to big business is a "Liberal" the worker will not be assisted the rich will be helped. The debit placed on the backs of the working class.

    So go bury yourselves by giving assistance to every big company that comes crying, the jobs will still go overseas. You are helping the rich get richer and yourselves into the work houses.

    The American Dream!

  • Anonymous
    September 19, 2008 - 12:56 am | Permalink

    Ford makes a car that gets 65 mpg, but cannot import it to North America. It costs to much.Should the big three be bailed out? No! Free Enterprise requires them to fail if they cannot compete. What happened to the American idealism that the strong survive, and the weak perish. Every one that supports government assistance to big business is a "Liberal" the worker will not be assisted the rich will be helped. The debit placed on the backs of the working class. So go bury yourselves by giving assistance to every big company that comes crying, the jobs will still go overseas. You are helping the rich get richer and yourselves into the work houses.The American Dream!

  • BD
    September 19, 2008 - 7:41 am | Permalink

    Bailouts won't work with these jerkoffs because the they still put out shit products aka broken down SUVS and other assorted shitty vehicles.

    And don't get me started about the parasites called unions.

  • BD
    September 19, 2008 - 2:41 pm | Permalink

    Bailouts won't work with these jerkoffs because the they still put out shit products aka broken down SUVS and other assorted shitty vehicles.And don't get me started about the parasites called unions.

  • -p
    September 30, 2008 - 1:22 pm | Permalink

    Maybe a thousand out of work auto engineers would have some free time to cook up something useful (cupholders and video games in the headrests of mini vans are not useful).

  • -p
    September 30, 2008 - 8:22 pm | Permalink

    Maybe a thousand out of work auto engineers would have some free time to cook up something useful (cupholders and video games in the headrests of mini vans are not useful).

  • -p
    September 30, 2008 - 8:22 pm | Permalink

    Maybe a thousand out of work auto engineers would have some free time to cook up something useful (cupholders and video games in the headrests of mini vans are not useful).

  • Texas Direct Auto
    October 1, 2008 - 10:48 pm | Permalink

    No bailout for automakers we should not have bailed out wallstreet the 700 billion is almost the same figure we have been spending in Iraq all this time due to W being in office and wanting to get the oil from over there when we could just put that money into getting our own oil and resources over here..

  • Texas Direct Auto
    October 2, 2008 - 5:48 am | Permalink

    No bailout for automakers we should not have bailed out wallstreet the 700 billion is almost the same figure we have been spending in Iraq all this time due to W being in office and wanting to get the oil from over there when we could just put that money into getting our own oil and resources over here..

  • Texas Direct Auto
    October 2, 2008 - 5:48 am | Permalink

    No bailout for automakers we should not have bailed out wallstreet the 700 billion is almost the same figure we have been spending in Iraq all this time due to W being in office and wanting to get the oil from over there when we could just put that money into getting our own oil and resources over here..

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