Should the Gov. Bail Out Detroit Automakers?by Tim Manni
At least one person thinks so. Phil LeBeau of CNBC explains in his blog “Behind the Wheel” that if the “Big Three” — Ford, General Motors, and Chrysler — were to fold “the implications for the broader economy will be significant.” LeBeau goes on to make the point that the US auto industry “has perhaps the broadest impact on the economy of almost any industry.”
The resounding question that should be asked first is “What form would the ‘bailout’ take?” I use the term “bailout” loosely, since back in 1980 Chrysler received a $1 billion loan from the US government. Lee Iacocca and company paid back the loan in full, allowing the auto maker to get back on its feet with thousands of jobs intact — the US manufacturing wheels kept rolling:
(July 13, 1983) What saved Chrysler, we are told, are the 1.2 billion in loan guarantees provided by the federal government–so successful was the timely injection of cash that the company could announce today that it will pay off the remaining 800 million by September. And it didn’t cost the taxpayer a penny, did it, they ask gloatingly. Chrysler chairman Lee Iacocca, who came to Washington four years ago with begging bowl in hand, is now in the vanguard of the push for more government intervention in American industry.
Allow me to take off my rose colored glasses for a minute and ask “What, or how much, would the big three be asking for? And what guarantees could the companies provide that they could and would stay in business to pay back the loan?” Economics 101 teaches us that private companies should be allowed to fail, the very reason Fannie Mae and Freddie Mac became quasi-government entities — so they could never fail, they are too big to fail.
And there lies the deciding factor. Are the Big Three too big to fail? Will the effects from one, if not three, folded US automakers be devastating to the economy and the citizens as a whole? Discussion on this topic will be quite lively. Would a bailout once again save a struggling manufacturer, or are the government and its tax payers saving private companies who have made poor business decisions?