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Auto Industry Bailout: For or Against?

The case AGAINST:

Simple economics: If the Big Three automakers fail, it’s because someone else is doing it faster, better, and cheaper. And that won’t change with a measly $15 bn loan that can barely cover the companies’ monthly billion-dollar losses… As they say, you can’t teach an old dog new tricks. Any bailout will just be delaying the death.

carsTime to restructure: Just as it doesn’t make sense to grow oranges in Minnesota, it may not make sense to mass-produce cars in the US. GM, Ford, and Chrysler all have profitable overseas operations, but they’re getting squeezed here at home with higher costs, tighter regulations, and powerful unions. We’ll have to take the hit sometime, so why waste taxpayer money? It’s time to acknowledge that the economics just cannot support an auto industry in Detroit.

Bailing out a lack of innovation: Finally, Tom Friedman likens an auto industry bailout to funding typewriter companies on the eve of the birth of computers.

The case FOR:

lions_fanLost jobs: If there is no bailout and the Big Three automakers must reduce production, a conservative estimate is that we will lose 453,000 jobs next year; others have said it could be as bad as 2.5 million. What will all these people do next? Watch the Lions go 0-16?

Repaying taxpayers: Letting the car companies fail would lead to less tax revenue from lower incomes and lost jobs–which may end up costing us more than an upfront loan funded by taxpayers. Plus, there’s always the chance that the car companies could take the loan and actually turn things around… meaning we’d get our money back eventually, even if it’s in yen.

Like our economy isn’t crappy enough already… let’s just make it worse. The death of the auto industry would have a ripple effect on the entire economy, just as we saw with letting Lehman fail (bailout of AIG, collapse of WaMu, hello-goodbye of $700 bn). If the Big Three go down, taxpayers may eventually have to jump in and bail out everyone on down in the supply chain, plus insurers, pension guarantors, etc. How long could it take to get out of this? Well, how long have the Lions been in the “re-building” phase? Years and years.

What do you think?

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