Pros And Cons Of A Federal Auto Industry Bailout
Pro 1: Eco Cars
If the bailout money works the way it is supposed to and pulls the big three out of the hole, good things could potentially come of it. One proposal is that after being saved the automakers could be pushed to manufacture and sell cars that are both good for the environment and economy.
Con 1: Taxpayer Cash
Perhaps the most obvious con, it is no secret that we will all be helping bail these companies out. Although it is still unknown where the money may or may not come from, taxpayer cash will be included for sure. Bloggers, business leaders, and experts are expressing their frustration about this all over the Internet.
Pro 2: Recession Woes
While most are already feeling the effects of a recession on their wallets and gas tanks, it could be a lot worse if something else big happens. Some experts feel not bailing out the big three could result in a much deeper and more severe recession then we are already in. With thousands of jobs connected to the auto companies and stocks across the board, their downfall could have a large effect on our economy.
Con 2: Bankruptcy
One of the only other options for GM and the rest of the big three is to file bankruptcy under chapter 11. It is true that we have already assisted these companies financially this year and it helped them for few months. For this reason, some economists feel another bailout would just be like bailing out a sinking ship that is going to sink no matter what we do. Bankruptcy however, could be their only salvation, and many experts claim that it could be their best option. Michael Levine of the Wall Street Journal claims, 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.
Pro 3: Prior Success
As history tends to repeat itself, I think it important to consider the Chrysler bailout of 1979. In the mid 70’s while our country was going through a gas crisis, Chrysler refused to stop making their biggest most gas guzzling luxury cars. This mistake led them to requesting a bailout in late 79. However, to the surprise of the watching country, Chrysler came out with the “K-car” that sold like hot cakes and pulled the company out of a financial crisis. Chrysler then paid off their debt to the government 7 years early, and the government made over $660 million in profit from the bailout when all was said and done. Many people claim that if given another bailout, the auto companies could pull themselves out from near bankruptcy, and the federal government could generate revenue as well.
Con 3: Private Jet-setting
Unfortunately, when the CEO’s of the big three traveled to Washington D.C. to request billions from taxpayers early this week, all three CEO’s took private jets with round trip travel costs totaling of over $40,000 per CEO. This ostentatious show of wealth was considered highly disrespectful to the taxpayers about to consider bailing them out and created tons of bad publicity for the potential bailout. If companies are going to get taxpayers money, then we need to know that they are being frugal with it.