Problems With Not Saving the US Auto Industry
... at a time when we’re talking (as we should be) about spending hundreds of billions of dollars on a stimulus package to get the economy moving again, it’s the very definition of being pennywise and pound-foolish to put tens or even hundreds of thousands of jobs at risk. It’s possible, of course, that the automakers would be able to go into Chapter 11 and still keep the assembly lines running, but there’s also a good chance they won’t....Letting them go under will do far more than twenty-five-billion-dollars worth of damage to the markets, to the economy, and to the federal budget.
Some sort of bankruptcy-like rescue, which wipes out the stock and bond holders may be necessary. But that might be dangerous too. The WaPo reports that
...many financial institutions hold bonds issued by the automakers. Moreover, an estimated $290 billion in credit-default swaps, which are contracts that function like insurance policies, have been written on that debt, according to the leading clearinghouse for such trades....bonds issued by General Motors, Ford and their lending companies make up about 10 percent of the high-yield bond market and that automakers represent one of the largest sectors in finance for banks.
Ouch.
Then consider the parts suppliers. If, say, GM goes bankrupt the suppliers may not be able to sell parts to GM, as it might not be able to get credit. The suppliers than wouldn't be able to get credit. If GM were a fully integrated operation this wouldn't be as much of a problem as it is.
Because, you see, the companies that supply GM also supply Ford, Chrysler, and the various foreign marks made in the US.
This is a problem. What happens to the Honda plant in South Carolina if it can't get parts? It may be making cars people want at a price they'll pay, but if it can't get parts it can't make cars. So it shuts down.
If we don't let GM, et alia, fail, then we're just enabling further problems, or maybe just delaying the inevitable. Although this may be a good time to delay the inevitable. Let them fail next year (or the year after), after the rest of the economy begins to recover.
And what about the workers? Eventually a million or so of them are, one way or another, going to lose their jobs. Jobs which won't come back. The rest will see cuts in pay and benefits. People being replaced with machines (I used to write industrial automation software.)
What do we do with these people? The ones whose jobs are being replaced with machines, but who don't have the type of intelligence to get office jobs like the ones we all have? Half the population is, by definition, of below average intelligence. Do we put them all to work at Mall-Wart at minimum wage? Enlist them all in the Army and send them to Iran? Some sort of make-work jobs, paid for by those of us who can do the jobs available in the modern post-industrial economy?
No answers here. But lots of questions...
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