One of the biggest advocates against the automotive bailout is the Cato Institute. Since Congress appears to be poised to pass an intial bailout measure, it is worth a final review of some reasons why it might not be a good idea. Here’s a brief video by Cato on the subject:
The main takeaways:
- Union contracts make Detroit’s long-term prospects untenable, no matter how much money you throw their way
- Labor costs are meant to be fixed, not variable…union contracts obscure this reality
- Employee wages are multiples of fair market values that non-unionized competitors face
Finally, we must ask the question:
Where is it written in stone that we need a Big Three?
Ultimately, this bailout enables the Big Three to avoid facing economic reality now, filing bankruptcy, and doing what’s necessary to void untenable labor contracts. The only way the U.S. will have a viable automanufacturing industry in the long run is to conform its business practices to global reality.
Bankruptcy means bad businesses can restructure, organize efficiently, split into parts that make sense and emerge stronger than before. Subsizing bad companies means we’ll never see the good ones.
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Great article. Why should our tax money bail out these stupid companies? This bailout is promoting bad companies to continually do bad at the expense of consumers and yet there are so many consumers who believe that the US auto makers should get bailed out. Sounds very stupid to me.