The Practical Philosopher's Blog

Using the practical application of timeless wisdom to address modern issues

Automotive Bailout

So now the President has overridden the collective wisdom of Congress and is sending even more of our tax dollars ($17B) to the Big 3 automakers.

 

The big question, though, is will it work?

The short answer: No it won’t.

 

Why? 2 reasons:

  1. The biggest root cause is not being addressed- Unions and their legacy costs. The 21 December 2008 issue of Mpls Star Tribune cited in an analysis article that companies like GM are “…persuading [it’s] debt holders to accept stock and getting union wages more in line with those paid by foreign brands in the United States.” The only problem is that most of the additional cost-per-vehicle that unions saddle the automakers with is in the form or healthcare costs, mandatory buyouts for workers on any plant closings, and retiree benefits. As long as those unsustainable and unrealistic costs and constraints remain, the automakers will fail.
  2. A socialist, command-economy approach to ‘restructuring’. Between Congress and media pundits, the automakers are being told that the road to ‘prosperity’ is through small, fuel-efficient cars and environmental hybrids and more radical straight-electric cars. The problem is, these are politically-correct directives that bear no tie to economic realties. These types of vehicles are low profit margin for small vehicles, slow selling for hybrids because of their price tag, and completely market-unproven for the short-range straight-electric cars.

 

Given the above strategy, we will have wasted $17 billion of our tax dollars and at least 2 of the Big 3 Automakers will go into bankruptcy. In the end, this the only way for them to shed the strangling unions and let the market work it’s creative destruction on the Big 3’s rigid, uncompetitive culture and management practices.

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Filed under: Economy, Minneapolis Star Tribune, , , , ,

2 Responses

  1. William says:

    I just linked to your blog from The American Spectator. Looking around, I like what I see here and have added you to my daily blog read. Keep up the good work!

  2. pracphilosblog says:

    William,
    Thanks for your kind comments. I have just recently decided to make my voice heard and hope to provide many more good postings in 2009.

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