The U.S. Senate made the right choice rejecting the auto industry bailout.
This isn’t about class warfare: it doesn’t bother me that the CEOs took their bizjets from Detroit to Washington (CEOs take private jets so that they have more time to work on running their companies, not to show off), and many of the shareholders who stand to lose are private citizens’ 401Ks and pension funds, not rich industrialists.
This isn’t about environmental concerns: companies will make electric cars as soon as they think they can profit from them (would you buy an electric car as your principal car now, when you have to stop every 2-3 hours and plug it in overnight, the batteries are an environment catastrophe waiting to happen, and a lot of the electricity in the U.S. is generated from dirty coal?).
This isn’t about free-market purism: sometimes even healthy private organisations do need a little bridge financing to get through hard times, and in rare cases the government has to be the financier of last resort.
This is about not prolonging the agony: the existing three major North American car companies are obviously doomed, and all a little more money will do is delay the bankruptcies, mergers, and restructuring that might actually create a vibrant, healthy North American auto industry (maybe just one company instead of three).
No money pit
A bailout would also be a commitment to a money pit — after spending
$25B now, would the U.S. government be able to say ‘no’ to more in three months, when the industry burned through the first handout? What about another three months after that?
These aren’t healthy companies going through a rough spot — they were dying slowly even during the boom, when the world auto industry was way over capacity for demand, and Detroit was losing hundreds or thousands of dollars on every car they sold. GM burned through USD 4.2B cash in 2008Q3 alone, and that was mostly before the market meltdown.
The U.S. auto industry won’t disappear, but it has to change, and that change is going to be painful for the workers, their families, and their communities. It’s good that the U.S. government has decided not to make a pointless intervention leading to false hope and prolonged agony; now, though, it’s time to think about palliative care for the industry, while the workers grieve and then move on with their lives. Can the government help? How?
$25B to help communities would be a lot more useful than $25B into GM’s, Ford’s, and Chrysler’s petty cash boxes. But how to spend it?