Let the Big 3 automakers go bust.
President-elect Barack Obama is in favor of bailing out the Big 3 car makers - Ford, GM and Chrysler. That comes as no surprise because the Union workers support the Democratic Party. They are his "customers" and politicians behave like entrepreneurs. That is why I call them "votrepreneurs".
One argument is that the US must save the the Big 3 or it will no longer have an auto industry. This is nonsense because Honda and Toyota are employing 113,000 workers in the US. If you include dealerships and spart parts suppliers, Toyota alone created 400,000 jobs in the US. Of course, if the Big 3 fail, then the US is left with foreign owned car companies.
One reason why the Big 3 are failing is that they are Unionized. The United Automobile Workers has demanded and got for its members generous pay packages including expensive health care benefits. Another reason is that the Big 3 are making cars that people no longer want to buy - like SUVs and trucks which guzzle fuel. Making things worse is the higher cost of fuel.
So why should the US taxpayer be made to shell out an estimated $50 billion to bail out the Big 3 so that Obama's voters can continue to earn high salaries to make cars that Americans do not want to buy? Once again, votrepreneurs must buy votes with taxpayers' money.
The benefits to the few UAW members are high while the cost to each individual taxpayer is low. So the votrepreneurs hope that the cost of the bail-out will not be noticed. In this way, inefficiently run companies survive making everybody on the whole poorer. This includes car workers in the long run.
Ironically, statistics show that non-Unionized workers are catching up and in some cases overtaken UAW members in pay and benefits. In its largest American plant, Toyota paid its workers in its Georgetown plant an average of $30 per hour as compared to UAW workers who got $27. In the long run, an efficiently run company is in every body's interest - including its assembly line workers.
Also a government bailout will likely come with strings attached. Some Congressional leaders insist that the price of a bailout includes that the Big 3 build environmental friendly cars so that they can satisfy their green voters. Perhaps, GM's Chevrolet Volt is for the purpose of giving the Congress the excuse for a bailout and not to make profit. GM's Vice Chairman Bob Lutz has acknowledged that they won't make money out of the car. Who is going to pay for the votrepreneur's desire to stay in office by keeping their green voters happy? Taxpayers of course.
But economic logic will be trumped by political logic as votreprenuers do the sums. The worse outcome would be for Obama to bail out the Big 3 while imposing trade restrictions on Japanese cars and using its clout to force the Big 3 to make cars that the public do not want.