Have the car companies done a good job of running their affairs? Broadly speaking, no. Ford has done better than GM and Chrysler, but overall it hasn’t been stellar. But it’s worth recognizing that the drop in sales experience by the big three has been seen for foreign manufacturers as well. The big difference is that the big three do most of their sales in the US where as the foreign makers are more diversified.

I agree with the basic premise that we can’t reward failure and that we need to avoid creating moral hazard but it strikes me as strange that everybody’s in a huge uproar over GM but we were cutting checks to banks without a second thought. We’ve put billions and billions on the line to try to get credit markets flowing with only modest success because those banks we gave money to aren’t loaning it out. In the end that’s more money, less effectively managed, and yet few complaints about it.

1. GM and Ford are the largest American companies aside from big oil and Walmart. Regardless of what you think of their cars, they still sell a lot of them.

2. Less than a decade ago, GM was earning record profits, earning up to $7 billion a year. That is about as much as Google earns today.

The question as I see it is not whether they are bailed out or not. If the automakers file for bankruptcy, we’ll still be bailing them out. When it comes to a company as far in debt and as large as GM, bankruptcy is an institutionalized form of bailout–taxpayers end up paying for massive unemployment, massive loss of tax revenue, and . The largest difference I see is that actually calling the company “bankrupt” may hit sales 10-20%, causing GM’s quarterly losses to double. Otherwise, is there a big difference between a legislature-driven restructuring versus a bankruptcy court-driven restructuring? I do not know enough about bankruptcy or this bailout to say. Neither appears to be much of a market-driven effort. The question we should be asking isn’t whether we should bail them out; it’s how can we drive the best outcome.

Instead foreign investors will be buying US bonds, financing the bailout. What’s the difference?

As soon as it’s viable for me, I intend to buy a car. Why? Because I don’t like spending three hours every day in commute to work just to get to the other side of town. If I had a car, the same drive would be 15 minutes. That’s not including the times that the bus is running 15 minutes ahead of schedule and I get to the stop just to see its tail lights.

Then there’s grocery shopping and laundry. Ever try to purchase more than a few days of groceries and get on a packed bus full of crazies and weirdos?

Next up is career. I’m woefully underpaid right now. (And don’t give me that “lucky to have a job” crap—my employer is lucky to have me and McDonald’s will gladly take me for a buck or two less per hour if the drama gets to me.) If I had a car, I could be looking for jobs an hour away by car. However, since I don’t have a car, I’m stuck in a dead-end job that doesn’t pay me enough to have a car.

This comes back on topic: if auto makers could produce an affordable all-weather vehicle, I would buy it. I don’t need something that can do 0-60 in 3 seconds. I don’t need something that can even seat 4 people. I don’t need to watch DVDs in traffic, and I don’t need a bass-pounding stereo system. All I need is something that can transport me and a few bags 10 miles per day in a blizzard. A 3-wheeled moped would do for crying out loud.

What you (and many others) are suggesting is, in this context, somewhat ignorant of the costs. The american carmakers may have run their industry not very efficiently, and not very well, but these are entirely remediable matters which can be begun to be resolved by the appropriate structuring of the terms of any loans that the government makes to them. However, at the same time, they offer workers better working and wage conditions, and a very large auxiliary industry depends on them. They also have a tremendous amount of invaluable institutional and technological knowledge built up which would be lost irrecoverably if they go under. It is a real mistake to allow such an industrial base to vanish for incompletely considered “free market” arguments. Especially when such arguments are applied selectively to automakers while the government turns surprisingly and generously socialist towards a bunch of bankers who created this crisis.

Finally, turning to the intellectual argument against bailing out the automakers. There are three parts to this argument: 1. Both the financial and auto industries are insanely inefficient, 2. Banks are too big to fail, so they need a bailout, while the same conditions don’t apply to carmakers, and 3. If the carmakers need a bailout, it is because they are not competitive with foreign automakers, and the free market should be allowed to dictate what happens.

There is an obvious contradiction between 2. & 3., since clearly the argument in case 2. implies that the “free market” does not work in the context of the financial sector. Secondly, this argument assumes that banks are “too big to fail” while the carmakers are not. It is not at all clear why this assumption is valid. I would think any industry which employs > 3 million people would be “too big to fail”. Also, giving a free pass to the bailout of the financial sector assumes that it was done in good faith, which in this case is patently false. The govt has, upto now, committed ~ $ 350 Billions of taxpayer money to the financial sector *without* getting anything in return, i.e the same incompetents and crooks who caused this mess are now spending the bailout money. On the other hand the $ 14 Billion baillout package for the automakers imposes relatively significant terms and conditions on them. I would expect that restructuring of the industries under such conditions would be better and less painless than allowing them to be completely bankrupt and broken up. Finally, there is a significant factor which affects domestic car industry and not the foreign one (which is why I think the “free market” argument is flawed). This is the fact that the domestic industry is unionized, while the foreign one is not. Unionization significantly affects relative costs, but also ensures better wages and working conditions. What you are suggesting, in part, amounts ensuring that these unions are destroyed, and that workers who get reemployed if at all, remain relatively impoverished. Of course, the same free market argument extends to make the case that unions inherently should not exist, since this reduces market efficiency. But why should one believe such arguments which are so selectively applied and which have been shown, especially by the recent crisis to be flawed and a intellectually dishonest means of maintaining concentrations of power and wealth?

I’m not sure where you find this easy credit, but I know my own family members are having trouble getting credit. My youngest brother is trying to get $15,000 from the bank he has used for over 15 years and which has $43,000 of his in savings and another $5,000 in checking. He has never defaulted on a loan. He paid off student loans 6.5 years early (to the same bank he is trying to borrow from), bought a car and paid off the loan (from the same bank he is now trying to get credit from) in 17 months, and as a single man earns well above average family income for where he lives in Florida. With never a bad mark on his record for missed or late payments or any defaults, a long damn history of paying off loans ahead of schedule, a 15+ year history with the bank, and significantly more cash available than he needs, he is unable to get a small (to him) loan to help improve his credit score for when he tries to buy a house in the near future. If someone with an excellent record of fiscal responsibility cannot get a loan from his own bank, how, exactly, is the rest of the country getting this easy credit you seem to be claiming is out there?

@auto-industry posters:

Thank you for the posts you have made here. I have been very wishy-washy on the auto-industry bailout, but really feel I still lack much information I need to properly evaluate the proposal. I will be doing my homework on learning more about what is happening, and this will help me form a wiser opinion.

@lessig:

Thanks for the post. The conversation in the comments alone makes it worth having, but I also like seeing the thoughts of someone who I respect intellectually. As noted in my auto-industry bit above, I will be doing more homework to get a better understanding and form a wiser opinion.

If these companies go into bankruptcy they will be bought by corporations and politicians… but from outside North America. This brings up the issue of human rights. Toyota (or [insert buyer here]) is not a friendly company when it comes to worker rights and it has no interest that is any different than the North American companies currently in trouble. This is Capitalism vs. Capitalism.

So, not providing a bailout means that North America collapses both financially and humainly. The world needs change and globalization is fact. Collapsing an industry because it is failing is just as pointless as bailing it out. It keeps the global economy on the same track, any company that would buy or replace these companies would contribute to the current global crisis of business run by people who only care about themselves. Is that the global economy your talking about? Is that the global economy you support?

These companies are failing because they tried to “be competitive” with the companies that are now in the position to buy them out. These companies are run in countries that are below Standard, never mind Example in human rights. Our companies are better companies as long as they are run on the principles that encourage a higher standard. They need to be run above the competition. People don’t need cynicism. People need the incentive to live beyond competition.