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Bailouts for Auto Companies

Nov 13, 2008

The problem with government bailouts is that they are not handled equally but by preferential treatment. Of course, we have a long history of this, because it is a long established tradition to help those in need with money that does not belong to the government but to the people.

The auto manufacturers up until recently were trying to present a positive picture of their companies in order to stop their share prices from going down further. But then with the $700 Billion bailout in late September, they realized that they ought to switch tactics in order to get their share of the pie. As long as Congress was in a generous mood, they might as well belly up to the bar.

So that is what is behind the sudden turnabout, where we are now seeing the news about bankruptcies among the automakers. I have read reports about the coming bankruptcies for at least two years, but the CEO's would not admit it in public. So only now is it hitting the news.


President Bush does not want to throw money at the automakers, because it would not solve the problem. Such legislation would only put the automakers on a giant welfare program. They are going through billions of dollars each month. To throw money at the problem, in order to keep the workers working, would only serve to keep making autos that no one can buy (or wants to buy).

You can't keep making a product that people won't buy. If sales are off, production has to slow down as well. Otherwise, you end up with acres of cars sitting there, and in another year's time they all become a year old and are worth thousands of dollars less. They depreciate with age, not just by mileage.

President-elect Obama, on the other hand, wants to bail them out in order to "keep America working." It would actually make more sense to get people working on infrastructure projects which we can use, rather than on cars that can't be sold. But meanwhile, much work continues to be outsourced overseas, where foreigners are making the products for Americans to buy. But we are fast reaching the point where Americans won't have the money to buy those products, even at reduced prices. That is the point where the world economy collapses.

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Category: News Commentary

Dr. Stephen Jones

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