Bailout the “Big” Three?


Governor Granholm with the Chevrolet Volt Electric Concept VehicKurt Bouwhuis, Mackinac Center Intern

“In the United States alone, U.S. automakers directly employ about 355,000 workers, and another 4.5 million Americans work in sectors that are supported by the auto industry. Auto manufacturers are the largest purchasers of U.S. manufactured steel, aluminum, iron, copper, plastics, rubber, electronics and computer chips. Hundreds of automotive suppliers in all 50 states rely on U.S. automakers for their core business. Last year, the auto industry purchased $156 billion from U.S. auto parts suppliers. This industry is vital to millions of citizens in our states and across the country.”– Jennifer Granholm

Would all those jobs vanish off the face of the earth if the big three went under?  Would consumers instantaneously demand less cars?  Absolutely not!  Another automotive manufacturer would need to fill in for the decrease in supply of automobiles.  Foreign automotive manufacturers currently employ United States auto workers and would continue to do so if the big three went under.  There would be an abundance of unemployed automotive labor in the United States, which one of the many foreign manufacturers would surely utilize.

Let’s suppose the worst happens and all these jobs vanish entirely.  In the short run, the economic impact would be catastrophic.  We would have a large spike in unemployment, as individuals reallocate resources in the economy.  In the long run, however, would be much better off?  We would be better off because we would be eliminating entities that do not create wealth.  The big three currently combines raw materials, labor, and capital in such a way that the outcome is a good that is valued less then the sum of it parts.  Growing such a business model hinders economic growth.  I’ll illustrate this point with a simple example:

Suppose I directly employ 5 million people in the process of making encyclopedias.  Before I know it, this new technology emerges called the Internet.  This new technology delivers infinitely more information that is dynamically updates at a much lower costs.  Over the next couple years, my sales begin to decline.  I start laying people off, and cutting back on production.  My company begins to show losses.  But wait!  I have numerous suppliers across the country, with business models that depend almost entirely on my encyclopedia production.  Should the government bail me out?

Why not?  The United States Government seems to have a fancy for investing in failing entities.  In fact, Jennifer Granholm, has made a new friend who can save the American automotive industry. “The bottom line is (Obama) is committed to this industry surviving and thriving,” Granholm told the Free Press in Lansing, Mich. “It is a great statement of confidence in his belief in the industry and it’s importance, not just to Michigan but to the rest of the country.” — Jennifer Granholm

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3 thoughts on “Bailout the “Big” Three?

  1. That is a stupid analogy. It might work if cars had finally been replaced with the personal flying machines people have been dreaming about for years. That isn’t the case, Though….. we still have cars.

    Foreign car companies have their suppliers already, saying that they would take up the slack is ridiculous. Sure they undoubtedly would produce more vehicles, but that doesn’t automatically translate into significantly more jobs in comparison to the what GM, Ford, and Chrysler provide.

  2. As I see, part of the problem, is the consistant unreality of the Union expectation. Meaning that even when times were tough before, when contracts were due to be negotiated, there was no long term foresight, or thinking that demanding more and more at some point makes it impossible to build a product that produces a profit.

    If the government LOANS the big 2 any money, this is what I think needs to take place. First of all, DO NOT loan any money to Chrysler (Cerbus) as they do not play by the same set of rules.

    As for Ford and GM, the government needs to put a conservative (like me) that has owned my own business and worked for large and small corporations, never in the automotive field, to oversee what is going on. This person will have the ultimate authority to hire, fire and renegotiate contracts, with unions and suppliers.

    I would demand 50% pay cuts for all workers that make over $250,000 per year and a 25% pay cut for those making less than $250,000 per year. I would then end pensions and convert to 401K’s, with no contributions from employers, until profitable again. Then institute employee contributions to their health care be increased. Discontinue tuition reimbursement, unless it was pertinent to their current job and approved ahead of time by me.

    These may sound like drastic measures, but these are drastic times, and we need to step up to the plate. I have been layed off since March, and I don’t like the prospects for jobs around here. And I don’t like the Fed’s. throwing my tax dollars down an uncontrolled hole.

  3. Fernandez,

    “That is a stupid analogy. It might work if cars had finally been replaced with the personal flying machines people have been dreaming about for years. That isn’t the case, Though….. we still have cars.” — The analogy was used to show that amount of jobs that would be lost is irrelevant. The point is, the big 3 do not do an adequate job of efficiently using resources, just like a large amount of encyclopedia production in modern times would be a waste of resources. It was not to say that the automobile will be replaced by some new method of transportation.

    “Foreign car companies have their suppliers already, saying that they would take up the slack is ridiculous. Sure they undoubtedly would produce more vehicles, but that doesn’t automatically translate into significantly more jobs in comparison to the what GM, Ford, and Chrysler provide.” — I’ll grant the fact that there is no guarantee. However, because of the abundance of labor, I doubt all foreign competitors would completely ignore the new vastly untapped resource.

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