Loan not good idea for U.S. car makers

The Chrysler emblem at company headquarters


Scott Jagow: Time to visit with our economics correspondent. Chris Farrell. And the topic this week is the auto industry. There's talk of a loan to help GM and Chrysler complete a merger, or some other direct assistance to American car makers. But Chris, based on the e-mail you sent me, I know you think the government should keep its hands in its pockets this time. Why?

Chris Farrell: Well for one thing, I mean this sounds harsh but if GM and Chrysler disappeared, we'd still be able to buy as a consumer, we'd get cars from Ford, Hyundai, Honda, Toyota. There's plenty of car makers out there, so the consumer's not going to get hurt. And secondly, it's a competitive market. GM and Chrysler have made a lot of strategic mistakes, management has made some terrible decisions. And finally, I mean if you just look at Chrysler, it's owned by Cerberus Capital Management, it's a private equity firm. So the American taxpayer is going to bail out a private equity firm?

Jagow: Well, there are a lot of jobs at stake here, Chris.

Farrell: Yes. So my notion is, let's not give the money to Chrysler and GM and the management. Let's give it to the workers. Now if I do the calculation right and we're talking about $10 billion, that's about $70,000 per worker. As a voucher, workers can use it to retrain, workers can use it to move to a different part of the country. And of course some of it might be wasted, but it is a waste of money to put it into the companies themselves. We've seen disaster after disaster, whether it's in the steel industry in the past, where companies have not done what we expect them to the do with the money. What I would prefer is look, go into bankruptcy. We don't need a taxpayer bailout, so just declare bankruptcy. But if the politics are such that we are going to do some form of bailout, let's not direct it to the companies. Let's protect who we're really worried about, which is the worker.

Jagow: All right, so are you basically saying to give up on the American auto industry?

Farrell: Whoever can survive, survives. Seems like Ford's going to be around, right? And maybe a smaller GM or a smaller Chrysler, or maybe Chrysler disappears, a small GM -- I don't know how it's going to shake out. But as far as I know, there's lots of auto plants here in the U.S., there's no shortage of cars. We have a lot of auto workers, they just happen to be working for companies with names like Toyota and Hyundai and Honda. Yeah, we're going to have a shrunken industry, which by the way, has been shrinking. Let the bankruptcy system deal with it.

Jagow: All right, Chris Farrell, our economics correspondent. Thanks.

Farrell: Thanks a lot.

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Instead of a direct bailout, have government take over the health care responsibilities of GM, Ford, and Chrysler. Make everyone now covered by their employee health insurance plans eligible for Medicare. At a stroke the car companies' expenses would be slashed at a near-term cost to government much less than that of the proposed bailout. Any US automakers that can't compete with foreign automakers after leveling the playing field in this way deserve to fail. Besides, we all know we're going to have some form of universal health care within a few years anyway; this would serve as a limited test case of one version of it while simultaneously giving an important industry some assistance.

Yes, this companu does NOT deserve to be bailed out.It is time that all automakers who fail to realize we need smaller safer economical vehicles and GM/Chy has failed miserably in this regard. I agree giving the workers something, but would like to see a program that does serious career/financial counseling along with giving money. I am not optimistic anything as rational as this would happen, but one could hope. By they way, EVERYBODY VOTE!

Incredible Mr. Farrell! One in ten jobs in the US is in some way, shape or form related to the domestic auto industry. It is manufacturing. If any one of the big three is allowed to fail, countless jobs will be lost. And not just in the US I might add. Due to the global market and today's penchant for out sourcing, huge numbers of people the world over will be thrown onto the street. It cannot be allowed to happen.

Chris Farrell head the nail on the head!
As an avid Consumer Reports Magazine subscriber, I have known for at least the past 20 years that GM & Chrysler products have the worst reliability ratings. I have steered away from, and have encouraged others to do the same, purchasing their products. Not only reliability, but their constant financial struggles, should be reason enough NOT to put any more $ in to a failing product.

Thank You Chris Farrell,
I agree.....do NOT bailout GM..What ever happened to 'Take responsibility for your own actions"? Bad management non forward thinking etc etc, focused on quarterly reports as opposed taking the LONG view...survival of the FITTEST not survival of the STUPID & GREEDY at MY expense.
And I extend the same ethos 'across the board' to perspective home owners who thought they could live in a 'Mc Mansion' on a Mc Donalds' salary.
Sincerely, Grandma Winnie


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