Posted by
Jim Hunt on Tuesday, November 18, 2008 7:00:00 AM
I think it is now safe to say that the country is in a recession and it threatens to be a bad one. Certainly the economy is in the worst shape since the Carter presidency although we are still MUCH better off than we were in 1979. (Remember 13% inflation, 21% mortgages, and 11% unemployment?) All the talk in Washington these days is about bailouts; $700 Billion already for the finance industry, and now the debate is over $25 Billion more for the auto industry.
The finance bailout is already done, so I won’t go into that one now, but why are we looking to bailout the “Big Three” automakers? I can see an argument for assisting GM and Ford since to some considerable extent the government caused their problem (more in a moment) and there are millions of US stockholders who stand to lose if they file bankruptcy. But Chrysler is privately held and recently purchased by investors who theoretically knew what they were buying; I don’t see any legitimate reason to assist them.
Why are GM, Ford and Chrysler in so much trouble today while Honda, BMW, Mercedes, Toyota, Mazda and others seem to be able build cars in the US profitably? I see two reasons: 1) the government has forced GM, Ford and Chrysler to build cars that are not in their “sweet” spot and target markets. They have done this through CAFE (Corporate Average Fuel Economy) regulations that led to the creation of such exciting vehicles as the Ford Aspire and the Chevy Metro. The American consumer looks to the big three for large, safe, comfortable, reliable cars and trucks. When they want high economy, they look to the Japanese manufacturers, when we want high performance, great handling cars we look to the European manufacturers. Cadillac is still the luxury leader, Ford is still the family car and the work truck, Jeep is still the offroad adventure. That is what the market wants. Who wants to be caught dead in a Ford Aspire (the odds being pretty good if you actually drive one)?
The 2nd reason is self-inflicted. The management of these companies did not have the courage to stand up and tell the UAW where to get off during contract negotiations and they have been pushed into unsustainable and ridiculous union contracts to the point where the highest single cost of any vehicle is not the engine or computers or any physical part but is the cost of union benefits (the second largest cost is taxes, more on that in a minute).
Bankruptcy would allow the companies to renegotiate these absurd contracts, end the “job banks” where employees sit around and get paid while waiting for something to do, and would allow the kind of restructuring that is necessary. GM would be better off without Pontiac, Ford could lose the Mercury brand. Would anyone but my Dad miss Buick?
With all this talk of bailouts, let’s try a bailout that would actually put real money in the economy and, by the way, in the pockets of the taxpayers. It is time to repeal the 16th Amendment and implement the FairTax. Let the people decide how much tax they want to pay. Let’s take the United States from having the 2nd highest corporate tax in the industrial world to having the lowest and then watch the money flow back to our shores. Enough is enough, the market will work if we just get off its back.
God Bless America