Economic crisis of 2008 / United States should bail out the automobile industry

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Position: United States should bail out the automobile industry

This position addresses the topic Economic crisis of 2008.

For this position

Quotes-start.png "“Ripple effect” is too mild a term for the impact that a bankruptcy among the Big Three would have on other manufacturers, suppliers, dealers, insurance companies and thousands of businesses that at first glance would not seem to be related to the auto industry. The industry supports, in one way or another, one in every 10 jobs in the nation. A bankruptcy would be like a hurricane blowing through the U.S. economy." Quotes-end.png
From Putting a Face on Big Auto, by Bob Herbert (The New York Times, November 28, 2008) (view)
Quotes-start.png "Because of GM's deep commitment to its employees, dealers and communities, the company has been restructuring itself without the storm and drama some pundits mistake for actual progress. Working with the UAW, we have transformed our labor agreements to close the competitive gap. We have taken $9 billion out of our annual structural costs since 2005 alone, and we have substantially reduced legacy costs inherited from decades past." Quotes-end.png
From Why GM Deserves Support, by Rick Wagoner (The Wall Street Journal, November 19, 2008) (view)
Quotes-start.png "If G.M., which is on life support, or Ford or Chrysler were to go bankrupt, the reverberations would kill the jobs of entire armies of American workers. It would undermine the standard of living of hundreds of thousands of families and shutter the entrances of untold numbers of small and intermediate businesses. Senator Shelby might want to do some homework before embarrassing himself again with the absurd comment that the crisis facing the Big Three is not a national problem." Quotes-end.png
From ‘Drop Dead’ Is Not an Option, by Bob Herbert (The New York Times, November 15, 2008) (view)
Quotes-start.png "In order to seek so-called Chapter 11 status, a distressed company must find some way to operate while the bankruptcy court keeps creditors at bay. But GM can't build cars without parts, and it can't get parts without credit. Chapter 11 companies typically get that sort of credit from something called Debtor-in-Possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate." Quotes-end.png
From Panic in Detroit, by Jonathan Cohn (The New Republic, November 14, 2008) (view)
Quotes-start.png "If the federal government can provide a whopping $150 billion lifeline to a single insurance company — American International Group — then surely the federal government can save and create millions of American jobs by loaning and investing a fraction of that amount to an industry that will lead us to energy independence. Supporting the automotive industry through the current crisis and steering a clear transition to a low-carbon future will create millions of middle-class jobs that are vital to a strong economy while reinvigorating American technological superiority." Quotes-end.png
From Provide assistance now, by Jennifer Granholm, Richard Blouse (USA Today, November 13, 2008) (view)
Quotes-start.png "Senators who think Detroit is still stuck in the dinosaur age may be shocked to learn that the Big Three are the leading purchasers of computer chips nationwide. In fact, GM, Ford and Chrysler are making cutting-edge vehicles featuring the latest in technology, engineering and fuel economy. Detroit's automakers spend $12 billion annually on research and development. No other industry can match that." Quotes-end.png
From What Detroit's Doing Right, by Mike Cox (The Washington Post, January 12, 2009) (view)
Quotes-start.png "If the economy were growing, it might have been a better idea to let one or more of the three go bankrupt, restructure and emerge smaller and lither. But in a bitter recession, the risk that a bankruptcy filing would snowball and produce catastrophic unemployment is too large to take. A bailout offers a chance to put the car companies on a track to a more fuel-efficient future." Quotes-end.png
From Reality Check for Detroit, by The New York Times editorial board (The New York Times, December 5, 2008) (view)
Quotes-start.png "In agreeing to lend the automakers $17.4 billion, Bush really had no options. GM and Chrysler would have run out of money by the end of the month, a failure that could have resulted in the loss of up to three million middle-class jobs next year. On top of the two million jobs lost this year, such a blow would have deepened a recession that is already the worst in a quarter-century." Quotes-end.png
From A slender lifeline, by The Philadelphia Inquirer editorial board (The Philadelphia Inquirer, December 21, 2008) (view)
Quotes-start.png "Certainly the Big Three need to do even more to refocus, restructure, and reduce costs. Still, labor expenses, which account for only about 10 percent of the price of a new vehicle, don't consign Detroit to ineluctable oblivion. Indeed, Detroit's offerings are often significantly less than the competitor cars from Japanese automakers. Thus the idea that the Big Three shouldn't be helped because it's impossible for them to compete is suspect." Quotes-end.png
From Why we should bail out automakers, by Scot Lehigh (The Boston Globe, December 17, 2008) (view)
Quotes-start.png "Economic theory notwithstanding, it would be insanity to throw hundreds of thousands of auto company employees, and maybe a few million others in the supply and sales chains, out of work -- leaving them and their families at the mercy of an economy that has no replacement jobs for them. Public funds would end up supporting these people anyway, except that we would have lost our domestic auto industry -- which, despite its many failings, is the only domestic auto industry we've got." Quotes-end.png
From Lemmings on Wheels, by Eugene Robinson (The Washington Post, December 16, 2008) (view)
Quotes-start.png "President Bush and Treasury Secretary Henry Paulson are right to indicate they'll provide aid from the $700 billion Wall Street bailout fund for the automakers. The program wasn't created to aid manufacturers, but its broader aim is to avert an economic meltdown. Allowing GM, Chrysler or Ford to file for bankruptcy protection might very well put the automakers in a position from which they wouldn't recover. Cars are typically the second-largest purchase in a consumer's lifetime, and many consumers would be wary of buying from a bankrupt car company." Quotes-end.png
From The bailout bailout, by The Philadelphia Inquirer editorial board (The Philadelphia Inquirer, December 15, 2008) (view)
Quotes-start.png "The effects of a shutdown would multiply beyond the auto industry and would significantly postpone our nation's economic recovery. If Congress fails to act now, U.S. real gross domestic product could decline by more than 1 percent and the country would be likely to lose more than a million jobs. We all agree that the auto industry is important -- but we also agree that real changes and tough decisions must be made to ensure that the firms become financially viable. Any funding must come with significant strings attached." Quotes-end.png
From A Bridge Detroit Needs, by Carlos Gutierrez (The Washington Post, December 11, 2008) (view)
Quotes-start.png "What has emerged so far is hardly a risk-free framework. Once federal dollars start to flow, it will be that much harder to force GM, Chrysler and the UAW to keep any promises they made to secure the cash. But the fact that the March 31 deadline is firm and enforceable by a single official gives the various stakeholders relatively little wiggle room -- and makes this a fair substitute for actual bankruptcy. Appropriately modified, it might work." Quotes-end.png
From Hail the Autocrat, by The Washington Post editorial board (The Washington Post, December 11, 2008) (view)

Against this position

Quotes-start.png "A bailout would not solve the automakers' problems. Standard & Poor's Ratings Service predicts that the companies would still be on life support. Both are bloated and aren't making cars that Americans want to buy. Although onerous, bankruptcy would finally force the automakers to address the market and financial realities. A government commitment to prop up the automakers would squander good taxpayer dollars on a bad deal." Quotes-end.png
From Say 'no' to the automakers, by The Dallas Morning News editorial board (The Dallas Morning News, October 30, 2008) (view)
Quotes-start.png "It's one thing to bail out the financial sector, whose product -- credit -- is essentially fungible and on which all other businesses depend. Automobiles, however, are not interchangeable, and Congress can't substitute its specific technological and aesthetic preferences for those of the market. What if we lend Detroit $25 billion and still nobody buys its cars?" Quotes-end.png
From Welfare for Detroit, by The Washington Post editorial board (The Washington Post, October 27, 2008) (view)
Quotes-start.png "Honda, Nissan and Toyota all have been enjoying pre-tax operating profits upward of $1,500 per vehicle; Detroit loses money on each car and truck. The charts also show why: labor costs. Thanks to union contracts, the Big Three face hourly labor costs as much as 75 percent higher than at Japanese companies - and three times as much as in the overall private sector. If Congress buys into a bailout, it'll amount to a giant subsidy for inefficiency. " Quotes-end.png
From Big Three Baloney, by New York Post editorial board (New York Post, November 26, 2008) (view)
Quotes-start.png "Here's an alternative plan: Buy out the UAW with taxpayer dollars and free the Big Three to staff their factories with nonunion workers the way Toyota and Honda and BMW do. Last week's Hill circus notwithstanding, the negotiation that really needs to take place now is between Democrats and their union allies. The Big Three executives are just in the way." Quotes-end.png
From A Car Wreck Made in Washington, by Holman Jenkins (The Wall Street Journal, November 26, 2008) (view)
Quotes-start.png "Lavish contracts granted to the United Auto Workers, for instance, put GM on the hook for more than $70 an hour per worker. And the companies face unsustainable obligations to vendors, bondholders, dealers, governments and (especially) retirees... plus another 8,000 employees who get paid not to work. A free-cash bailout does nothing to deal with these issues - meaning the car-makers are certain to come crawling back to the public trough as soon as the $25 billion runs out." Quotes-end.png
From Bailing Out a Car Wreck, by New York Post editorial board (New York Post, November 19, 2008) (view)
Quotes-start.png "A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk. In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check." Quotes-end.png
From Let Detroit Go Bankrupt, by Mitt Romney (The New York Times, November 18, 2008) (view)
Quotes-start.png "When the government shovels out money, all sorts of people are going to show up with wheelbarrows. But that's the thing: There is no bailout fairy. This isn't money that miraculously materialized on printing presses. It's taxpayer money that, at least in theory, has to be repaid. The national debt is in 14 figures now—north of $10 trillion—and climbing fast." Quotes-end.png
From Bailout Nation, by Chicago Tribune editorial board (Chicago Tribune, November 16, 2008) (view)
Quotes-start.png "The flaw in this dire outlook is simple; car production and buying would not shut down in a bankruptcy. Life goes on at bankrupt companies - cars and trucks would still come off assembly lines and head to dealers. The key would be explaining the process carefully to assure folks that no one is going away." Quotes-end.png
From Why We Shouldn't Bail Out the Big Three Automakers, by Eric Torbensen (New York Post, November 16, 2008) (view)
Quotes-start.png "The Detroit Three are taking advantage of the passage of the $700 billion financial bailout to argue that they, too, need government money to go on. But as Megan McArdle of The Atlantic argues, the finance firms are different. If credit coagulates, everyone suffers, while if the Detroit Three go bankrupt, their shareholders lose their stake, employee and retiree pay and benefits are cut, and real estate values go down in areas where the companies and their suppliers operate -- but life for most of us goes on." Quotes-end.png
From Detroit Automakers a Relic of the Past, by Michael Barone (Human Events, November 15, 2008) (view)
Quotes-start.png "Granting immortality to Detroit’s Big Three does not enhance creative destruction. It retards it. It crosses a line, a bright line. It is not about saving a system; there will still be cars made and sold in America. It is about saving politically powerful corporations. A Detroit bailout would set a precedent for every single politically connected corporation in America." Quotes-end.png
From Bailout to Nowhere, by David Brooks (The New York Times, November 14, 2008) (view)
Quotes-start.png "In World War II, government had the auto companies turning out tanks. Now they would be made to turn out hybrids. The difference is that, in the middle of a world war, tanks have a buyer. Will hybrids? One of the reasons Detroit is in such difficulty is that consumers have been resisting the smaller, less powerful, less safe cars forced on the industry by fuel-efficiency mandates. Now Detroit would be forced to make even more of them." Quotes-end.png
From A Lemon of a Bailout, by Charles Krauthammer (The Washington Post, November 14, 2008) (view)
Quotes-start.png "A bankruptcy by one of the Detroit companies, or several of them, would not end the car industry in America. People will still buy cars, and most of those cars will be assembled here. A new American car company could rise from the wreckage of the old ones. And don't forget the transplants — Toyota, Nissan, Honda, BMW and the rest. They employ 113,000 Americans to assemble cars in the United States. None of them is asking for a bailout." Quotes-end.png
From A questionable bailout of America's Big 3 automakers, by The Seattle Times editorial board (The Seattle Times, November 14, 2008) (view)
Quotes-start.png "Lawmakers can place conditions on the aid, but they'd still be propping up companies with bloated cost structures and a history of making gas-guzzling trucks and SUVs. Detroit's record of resisting fuel-economy standards makes it hard to swallow the carmakers' contention that they are suddenly now ready to lead the nation to energy independence. Congress could also make matters worse with political meddling in corporate management." Quotes-end.png
From Bailout won't cure what ails Big Three, by USA Today editorial board (USA Today, November 13, 2008) (view)
Quotes-start.png "Right after GMAC became eligible for TARP money, GM reduced to zero the interest rate - for up to 60 months - on certain models. This, of course, penalizes GM competitors, including Toyota, Honda and other "transplants" whose cars are made in America by Americans for Americans, and Ford, which doesn't have the freedom of maneuver conferred by TARP money because Ford isn't taking any." Quotes-end.png
From The Next Subprime Sinkhole, by George F. Will (New York Post, January 8, 2009) (view)
Quotes-start.png "General Motors alone burned about $5 billion a month for the last quarter and is expected to completely exhaust its kitty by the end of this year. (The other two will follow suit shortly after.) At that rate of cash burn, the bailout money translates into five more months of life. A comeback in that time would be hard to pull off even if these were the best run companies on the planet, rather than ones debilitated by decades of labor intransigence and management incompetence, two characteristics that show few signs of abating." Quotes-end.png
From It's 65 Million B.C. for the Detroit Three, by Shikha Dalmia (Reason, December 2, 2008) (view)
Quotes-start.png "But the fact is, the industry will now get money for doing nothing. No restructuring and no rewritten labor contracts, which are what the industry needs. This deal only buys time for the industry until March, when the loans come due." Quotes-end.png
From A Bankrupt Bailout, by Investor's Business Daily editorial board (Investor's Business Daily, December 19, 2008) (view)
Quotes-start.png "These are agonizing questions. But it’s equally agonizing to contemplate the United States becoming the land of Alitalia-style life-support rather than Pan Am-style churn. If the Big Three, their heads in the sand, have made the wrong models with the wrong technologies for years, while their competitors adapted to a changing world, at least one must pay the price." Quotes-end.png
From Pan Am Dies, America Lives, by Roger Cohen (The New York Times, December 17, 2008) (view)
Quotes-start.png "General Motors looks like a financially failed rather than an economically failed enterprise -- in need of reorganization not liquidation. It needs to shed labor contracts, retirement contracts, and modernize its distribution systems by closing many dealerships. This will give rise to many current and future liabilities that may be worked out in bankruptcy. It may need new management as well. Bankruptcy provides an opportunity to do all that." Quotes-end.png
From Bankruptcy Is the Perfect Remedy for Detroit, by Todd Zywicki (The Wall Street Journal, December 16, 2008) (view)
Quotes-start.png "...our bailout of Detroit will be remembered as the equivalent of pouring billions of dollars of taxpayer money into the mail-order-catalogue business on the eve of the birth of eBay. It will be remembered as pouring billions of dollars into the CD music business on the eve of the birth of the iPod and iTunes. It will be remembered as pouring billions of dollars into a book-store chain on the eve of the birth of and the Kindle. It will be remembered as pouring billions of dollars into improving typewriters on the eve of the birth of the PC and the Internet." Quotes-end.png
From While Detroit Slept, by Thomas Friedman (The New York Times, December 10, 2008) (view)
Quotes-start.png "The absence of the UAW also gives car producers the flexibility to deploy employees as needed. Work rules vary across company and plant, but foreign rules are generally less restrictive. At Detroit's plants, electricians or mechanics tend to perform certain narrow tasks and often sit idle. That rarely happens outside Michigan. In the nonunionized plants, temporary workers can also be hired, and let go, as market conditions dictate." Quotes-end.png
From America's Other Auto Industry, by The Wall Street Journal editorial board (The Wall Street Journal, December 1, 2008) (view)

Mixed on this position

Quotes-start.png "In return for any direct government aid, the board and the management should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver -- someone hard-nosed and nonpolitical -- should have broad power to revamp GM with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others, and downsizing the company." Quotes-end.png
From Detroit Auto Makers Need More Than a Bailout, by Paul Ingrassia (The Wall Street Journal, November 10, 2008) (view)
Quotes-start.png "Perhaps the biggest shortcoming in these announced restructurings is that there are no plans to replace current management. The executive teams at Ford and Chrysler are fairly new, but GM has been run by the same executives and board for years. GM chief G. Richard Wagoner made $24 million last year. Why should taxpayers provide loans to reward the same management that allowed GM to drift into chaos? Congress should insist on new management as a condition of a cash infusion." Quotes-end.png
From The Big 3-2-1, by The Philadelphia Inquirer editorial board (The Philadelphia Inquirer, December 7, 2008) (view)