Bail Out Mania

First banks, then insurance companies. Now we are onto car makers. What could be next, fast food restaurants, maybe Internet companies? This bail out mania has to stop and before any bail out of the auto industry.

Bankruptcy would allow the car companies (two out of the three) to restructure debt, redo labor deals and set them up for a successful future. Government aid will just prolong the inevitable. After all, we already bailed out Chrysler once. If Chrysler would have been allowed to fail, Ford and GM might not be having the trouble they do today.

Labor unions are killing GM and Ford. When the were actually making money in 1998, the unions decided to strike at GM costing the company $2 Billion and leaving GM with labor costs that were $30/hr higher than the Japanese. The trouble is the GM workers were not $30/hr more productive than the Japanese. Therefore, GM could not compete long-term and we have the problem of today.

Of course management is not completely blameless. There strategy of larger cars and SUVs was fine with gas less than $1.50/gal. However, at $4 people began to buy other, smaller cars from the Japanese and park the SUVs (like we did). Detroit was not prepared for the abrupt turn in the market and should be penalized for bad strategy.

Finally, government is not blameless either. The ridiculous CAFE regulations for fuel economy are a joke. If the Government really wanted to encourage higher mileage cars, they should have taxed gasoline like the Europeans do. $7-$8/gal gas makes everyone economize, unlike CAFE standards. Washington was too busy getting fat off $0.35/gal in Federal gas tax with SUVs guzzling 15 MPG to want to do anything to stifle consumption.

So here we are with the Feds committing $25B for some electric car subsidy that is sure to be a complete waste and Detroit asking for another $50B in low interest loans. All this so Washington can save overpaid union jobs that will eventually bankrupt these companies any way. If it is so important to save these jobs, why not let the State of Michigan pay for it. Tax any union salary over $20/hr at 50% keep this problem up north.

$50B is over 8 times the market capitalization of Ford and GM today. A better idea might be to give each of the employees at both companies a couple hundred thousand and call it good. It would cost the exact same amount of money.

From AP today.

What Happened?