Tuesday, October 28, 2008

Bailouts for Everyone

The big three had been lobbying the government, and it appeared successfully, for a bailout ($25 billion in subsidized loans). But this is rich, GM wants $5 to $10 billion from the gummint to assist it in buying out Chrysler. Once it does this, it will axe most of the Chrysler workforce save those that manufacture Jeep products and their minivans and pocket the $11 billion cash Chrysler has on hand. I am not a fan of bailouts in general, and with respect to the auto industry there seems to be the least compelling case for a bailout.

If Chrysler or GM goes under, it would in fact hurt Michigan, and the autoworkers. But in the place of the corpse known as Chrysler or GM a "foreign" automaker such as Hyundai, Toyota, or Honda will simply build more plants in the South, increase shifts at existing plants, and churn out more cars which are better and affordable.

What also makes GM's claim to federal assistance for a merger less compelling is that Nissan appears willing and eager to acquire a stake in Chrysler. If one's concern is for the autoworkers, a Nissan merger would seem to be vastly preferable as there is significantly less product overlap between Nissan and Chrysler than between GM and Chrysler. Thus, Nissan would probably be less likely to cut as many workers as GM.

I find this type of thing noxious because it reeks of economic nationalism. That there is some support for such a bailout/merger seems grounded in the desire to keep an American manufacturer from being consumed by those awful "Feriners". However, with the auto industry this is especially stupid as where a company is headquartered has little relevance any more. A Toyota Corolla is every bit as domestic, or more so, than an F-150. It is designed here, the supplies manufacture here, and the car assembled here. So indeed, the Toyota Corolla is a "Japanese" car, but just as much as it is a product of Alabama or Texas or wherever else in the South they produce them.

Update: The $25 billion in loans to the big three have in fact already been approved. The $10 billion GM is requesting is in addition to the bailout they have already received. This is absurd. There is a reason the big three are in dire straits, they are run like a pension company with a side business in cars and their side business is piss poor.

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