Auto Bailout

I was out on another business trip last week, to the same place I went in November.  It wasn’t practical to write, chiefly because the people there are given to working long days: on average, we started a little after 9:00 am and finished around 7:00 pm.  They’re aware of the economic crisis, and that it will befall them eventually, but it hasn’t quite seeped to their part of the world yet.  Some companies have made cutbacks, but life is quite clearly going on.

Meanwhile, the big question in this country is the bailout for the old-line American automobile manufacturers.  A bailout plan passed the House last week, but stalled in the Senate.  The  Bush administration contemplated using money from an earlier bailout scheme for financial institutions to help the car companies, but then decided to hold off.

From my perspective, General Motors, Ford, and Chrysler have been basket cases for years.  An infusion of cash will only prolong the agony.  And Federal aid with strings attached, in the form of requirements for gas mileage or environmental protection or something similar, results in the government trying to run the automobile industry, which is probably the only thing worse than the current management.  (A big part of the crisis now befalling us has its origins in regulations to get banks to open up lending to minorities, in the name of civil rights.)

Consider: if the price of gasoline stays low, people will want bigger cars.  I don’t like sport-utility vehicles: they drive like buses and are hard to park in the city.  But it’s a free country, and if people want them, and are prepared to pay for them, it’s their privilege to own and drive them.  The natural response of an automobile company would be to make bigger cars to match the demand.  The non-Big Three car companies, unconstrained by their bailouts, will happily comply.

For GM, Ford, and Chrysler, and their government handlers, the question then becomes whether to do what is economically prudent, but politically incorrect, or to press on with more efficient cars that nobody really wants.

Beyond that, the most compelling reason that anyone can come up for ‘saving’ the Big Three, after the effects on the economy, is that they are icons of American industry.  Alas, the icons did it to themselves.  The GM, Ford, and Chrysler that we knew are gone: refinancing their shadows won’t bring them back.

So part of me wants to simply pull the plug on them.  If they went broke, it wouldn’t be the end of the world.  It would hurt, but the wheels of commerce would grind on, and their assets would go on to bigger and better things.

And yet….

It’s true that the other car companies are have productive advantages over the Big Three: they have newer factories, a better capacity for innovation, and lower labor costs.  But  what about the unproductive advantages?

The Big Three built their factories generations ago, on land that they bought, either with cash on hand, or by borrowing on their own account.  They pay taxes, when and as they are profitable (maybe not now, but the principle is there).   They considered themselves corporate citizens, with generally the same responsibilities as ‘natural person’ citizens.  While they lobbied against taxes and regulations that affected their operations, they accepted whatever was ultimately resolved into law.

A company that wants to construct a large industrial plant today will comparison-shop among the locations where it might build.  But beyond that, it will negotiate with state and local governments for tax abatements and benefits for its operation.  After all, only damned fools pay full price.

And once the abatements and benefits are gone, the modern company is free to pull up stakes and start the whole process over.

To what extent does this difference resolve into the survival or the failure of the Big Three?  If it really does make a difference, then perhaps some measure of government help is called for.  If, however, the tax abatements and other goodies represent only a minimal investment of ‘seed money,’ as the proponents of such measures suggest,  then whatever rescue we might prepare for the Big Three will only be throwing good money after bad.

But does this mean that the old-school approach of the Big Three to build a factory, stay put, and be part of the community, as we expect of good corporate citizens, is one of the quaint practices that led them to ruin?


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