What are the Automaker Bailout Costs?

by Terry 12/12/2008 1:33:00 PM

What are the costs of the automaker bailout? Really, I ask myself, why must the automakers need a bailout and why should the government provide one (or more)?

If you take the current condition of the automakers, GM and Chrysler in particular and Ford to a lesser extent, the Big Three are admittedly bankrupt; without intervention they cannot pay their current obligations. Most businesses in this case will, must really, declare a formal bankruptcy. The states each have a system in place to deal with this.

So, what makes the Big Three special enough to demand the federal government provide a massive guarantee of funds? I see basically three areas of argument, which are the selling points for supporting these dying giants.

Industrial Base

In my opinion, the most valuable asset the automakers posses are their collective industrial base. This offers the most tangible resource which adds value to the national economy. Without the manufacturing plants, the automakers are nothing. Industrial capacity within the country is a vital national concern. A nation with no industrial capability is at the whim of its suppliers.

Labor Force

The labor force, represented by the United Automobile Workers union, is of some value. Trained workers are of some value. There is considerable cost to society and the taxpayers of an idle (i.e. unemployed) work force. The most valuable labor force is one that works. Ideally, the work force does its work efficiently and has the workers feel like they contribute to society, themselves and the employer. The worst condition of a work force is one that does not work.

Technology Sciences

Technological improvements are vital for the growth of society. Progressive technological improvements always contribute to the growth of society. The abandonment of technological investment is a strategic concern. There are many historical examples for the value of science and technology. For example, after the French Revolution, which abolished the Académie des Sciences in 1793, the government and Napoleon reinstated parts of the Académie to continue important work, of which the establishment of the metric system is an example of the results.

Options

Of these three arguments, I believe, the weakest is the labor force. Consider, if any of these companies fail, the technology and the manufacturing assets are the only elements the companies can barter for their debt. That is, who would buy the services of the existing labor force at the cost the U.A.W. contracts require?

What the U.A.W. is effectively demanding is the government security of its labor contracts. While it would be a terrible cost to every unemployed worker, the cost to the government and taxpayers would be far less to pay unemployment benefits until employment is found. Allowing the collapse of any of the automakers would be much more painful at first, the pain or ripping a bandage off a cut comes to mind, but many of these workers would likely go back to work at any restructured company which emerges from a bankruptcy. Those who do not would still be paid unemployment at a lesser cost than the cost associated of the bailout.

Ultimately, the market for cars, if it is there, will allow a well managed, efficient automaker to step in and use the technology and factories most efficiently. If a strategic emergency should arise, the factories and labor force can be employed by government contracts and prizes. It is not unlike the aftermath of the French Revolution but without the Reign of Terror.

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About Terry Losansky

Terry Dee Losansky

I am a software architect, actively practice and teach martial arts and live in Snoqualmie, Washington. I have an amazing daughter who is the jewel of my life.

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