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AUTO INDUSTRY BAILOUT CONUNDRUM (USA)

Posted by Gilmour Poincaree on November 27, 2008

20 November 2008 at 12:20 pm

by muddledblog

The political tides keep changing for and against providing the auto industry with government loans to keep them from bankruptcy. The U.S. auto industry thinks that a $25 Billion no strings attached loan should be enough to solve their problems. Personally, I doubt it. It has become fairly apparent that the U.S. auto industry has been badly managed and bloated and that they will need to get even more money to keep themselves from bankruptcy in the future. There are two options, use bankruptcy to allow the companies to reorganize or give them loans and hope they figure out how to be competitive in a global market place. None of these seem to be good options. One of the first things to go in bankruptcy would be the pension and health care benefits of their retirees which seems unfair. Further, the more profitable sections are likely to be auctioned off leaving a company with very little to compete with. On the other hand, the loans are also unlikely to result in a competitive company. The issue is that these companies have way too much liabilities in their union contracts, pension and health care benefits for retirees, and contracts with dealerships to be able to become competitive without some sort of renegotiation of those liabilities.

What I find interesting is that if the government passed a universal single payer health care insurance system, then the one of the major liabilities that prevents the U.S. auto industry, in fact the U.S. manufacturing industry as a whole, from being globally competitive would be removed. I wonder just how much it would cost compared to just giving out billions of dollars in loans. Sure our taxes would go up, but so would our pay checks since our employers would no longer have to pay huge health insurance premiums.

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PUBLISHED BY ‘MUDDLED BLOG’

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