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.
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.