Who Should Pay For Fuel Efficient Car Plants – Big 3 or the Federal Government?

It’s no secret that higher gas prices have hit America pretty hard.  While higher gas prices have placed quite a financial strain on the American public, at the end of the day, the “group” that might be effected the most might not be Americans in general, rather the Big 3 American car makers – General Motors, Ford and Chrysler.

After spending years building up the infrastructure to produce profitable trucks and SUVs, higher gas prices have really hurt sales at the Big 3 American car makers.  In an effort to stop the financial bleeding, many truck and SUV plants have been shut down, costing thousands of jobs and hundreds of millions of dollars in lost sales.

These current conditions have led the senior management of these car companies to ask the Federal Government for some financial help in the form of low interest loans to help convert truck and SUV plants into facilities which produce smaller, more fuel efficient vehicles.

While this Federal intervention may seem like a good thing – after all, a healthy manufacturing sector has always been good for the American economy – according to a recent poll, Americans appear to be pretty torn over whether or not the Federal Government should help the Big 3.

The poll, which ran on Daily Fuel Economy Tip for the past week, asked, “Should the Federal Government help Ford, GM and Chrysler convert truck and SUV plants into facilities that produce fuel efficient vehicles?”  Here’s how nearly 200 people responded:

  • 52% of respondents said the government should help
  • 44% of respondents said the government should not help
  • 4% of respondents said they were unsure

You certainly can’t blame GM, Ford and Chrysler for asking the Federal Government for some money.  After all, over the past six months the government has stepped in to bailout Bear Stearns, Fannie Mae and Freddie Mac, and may end up stepping in to finance the sale of Lehman Brothers.

(UPDATE – THE FED AND THE TREASURY DID NOT STEP IN AND LEHMAN FILED FOR BANKRUPTCY THIS MORNING)

Since these bailouts could ultimately end up costing American tax payers hundreds of billions of dollars, it certainly doesn’t seem like much for the American automotive industry to ask for $50 billion in low interest loans.

Also, there is some precedent for the Federal Government stepping in when one of America’s large car manufacturers is hurting.  Back in 1979, during the Carter Administration, the Federal Government stepped in and provided the necessary financing/loan backing required to keep Chrysler from falling into bankruptcy.

There are certainly plenty of good reasons for the Federal Government stepping in and helping out the car manufacturers, the largest of which is it will help save thousands of blue collar jobs, and hopefully revive the Rust Belt, where double digit unemployment is rampant.  Additionally, the availability of more cars capable of better fuel economy is certainly worth the investment.

That being said, there are plenty of reasons to the Federal Government to not step in, namely, this is another case where corporate losses are being socialized while later profits will be privatized.  If we’re going to proclaim ourselves as a free market, capitalist country, we have to be willing to let companies and firms – even big ones – fail if they are no longer viable.

This is certainly a very fine line to walk, and in order for this to end well, a lot of difficult decisions will have to be made on both sides of the aisle.  However, when push comes to shove, I do expect that the Federal Government will step in and offer some financial help to the Big 3.

Their health is just too important to America’s over all economy, especially when you look at the fact that should one or more of these companies fail, there would be an immense trickle down effect, hurting part suppliers, dealerships, and creditors.

So, when it’s all said and done, GM, Ford and Chrysler may fall into the same categorization as Bear Stearns, Fannie Mae and Freddie Mac: TOO BIG TO FAIL.

Comments

  1. The strength of the country was built on capitalist endeavors not supported by the central government. Intervention in the markets always hurts in the long run. The bailout of Fannie and Freddie will cost taxpayers dearly in the out years while the benefits will be short term.

    The automakers are not caught unaware. They have known since the 1970’s that fuel efficient vehicles would be a must for the future. What we have now is the result of their own poor planning. Allow the markets to operate without intervention and we will see stronger businesses and a stronger economy.

  2. It really is one of those issues where you can clearly see both sides of it. But it seems like we have also become a country where you shouldn’t be allowed to fail. If a company makes bad decisions, shouldn’t they have to figure it out? It really is a hard thing to decide on.

  3. GM has 263,000 employees, Ford has 246,000, and Chrysler has 72,000 employees.

    That’s a total of 581,000 employees without even thinking about all the suppliers that can go under too.

    Are they too big to fail from this perspective? Maybe the economy needs to find these people jobs that have a net contribution to the economy, if the car business is not profitable anymore.

  4. They could use the money to re-train workers for viable and sustainable industries.

    They could provide the money in return for shares. Why shouldn’t tax payers invest instead of just giving money?

    They could work with the communities to find local viable alternatives.

    There are other options.

  5. It may seem on the surface like it would be bad for the big three to fail, but if they are not able to efficiently compete, the cost of subsidizing their continued operation would be far higher than their continued fall. The only way for the federal government to give these guys a low interest loan is for the federal government to print the money out of thin air. That will drive the dollar lower and rob every one of us of spending power.

    If they are not able to maintain a profitable business on their own, their employment of workers represents a misallocation of resources, which, in the end, is actually bad for the economy and results in a net loss in jobs (because other sectors of the economy which are profitable do not grow as quickly due to the burden of the unprofitable auto manufacturers).

    The only thing that can come out of this sort of deal is lots of folks losing a lot of money.

    One more thing: if we can get cheaper cars from overseas, why pay more for them to be built here? That would diminish the quality of life of everyone who buys such a car. If we’re buying American cars just because they’re American, we’re just handing auto workers welfare checks for the difference between their wages and the prevailing wage wherever the cars can be made cheaper.

    This whole game will benefit a few people at the expense of everyone else.

  6. We should let all entities which fail to adapt and to invest in a future that includes the well being of America become the victim of its own ineptitude.

    This applies to all the Wall Street bailouts, which if memory serves, only bails out the hedge fund investors and foreign banks, not the mortgage holders that were screwed by these thieves.

    I am against bailouts unless they serve the public interest. To me, that would be the United Way or the Red Cross.

  7. As to the lost jobs at the “big 3” which are now much less big, thus lower case, I say that they can be given jobs in the new alternative energy industry instead. The money that was intended for bailouts would instead go to building a sustainable industry in wind, geothermal, solar, ocean, and biomass production.

    Who knows, maybe we’ll build those “ultimate cars” that I dreamed about. Detroit management never had that much savvy. I’m sure that it’s workers do, though.

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