Jeff Polhill

In Sunday’s 11/23 Mesa Tribune Newspaper,  Bill Steigerwald had an excellent commentary on whether the “Big 3″ US automakers deserve to be bailed out.  He did an interview with Dan Ikenson, the associate director of the Cato Institute’s Center for Trade Policy Studies.  The following is an excerpt of the article.

Does the auto industry deserve a bailout?  Ikenson answered with an emphatic “no.”  “They definitely do not deserve a bailout.  Taxpayers, first of all, should never be on the hook to bail out private companies that have made terrible decisions time and again.  And that’s what describes the Big Three: They’ve made bad decisions with respect to the products and they’ve made bad decisions with respect to their labor relations and the capitulations to the unions over the years that have really landed them with an uneconomic cost structure that makes it virtually impossible for them to compete going forward.”

As far as what is the worst thing the auto industry has done to put itself in the fix they are in, Ikenson replied, “Well, I don’t know how to rank them, in particular.  But two things strike me as particularly problematic.  On the product side, management demonstrated an egregious failure of leadership by never envisioning the day when SUVS and big trucks would fall out of favor. … The other problem is they agreed to these ridiculous work rules.  At GM, you can’t really lay off a worker and therefore reduce costs commensurately.  Ikenson went on to say that a laid-off worker still receives 90-95% of their pay not to work throughout the contract period.  Doesn’t this sound like farmers being paid by the government not to farm their land.

When asked if there was anything the “Big 3″ could do to right the ship, Ikenson replied, “I don’t know if there is anything they can do in the short run.  If they are going to ask the government to do anything, they should ask it to make sure that the unions don’t get violent when the Big Three tell them they are severing their contracts. … You can’t pay people not to work.  The average compensation at GM is $75 an hour; at Toyota it’s $47 an hour.  If that fundamental issue is not addressed, there’s no point in thinking much further into the future.  There’s just no way they are going to compete.”  Ikenson thinks the $25 billion bailout would be “a complete waste of money” that doesn’t cure the problems.

Ikenson also answered the question of why it’s OK to bailout Wall Street but not GM or Ford Motor Co.  He stated, “My easy answer to that is that it wasn’t OK to bail out the insurance giant (AIG) and the financial firms and the banks.  I was opposed to that, as were my colleagues.   Even though Ikenson was not in favor of the Wall Street bailout he did put a distinction on why it would be more important to bail out financial institutions than the auto industry.  He feels the country could get along without the auto industry, but he thinks “… we need access to credit and I think that we need banks.  So in that regard I think that industry is more important to us than the auto industry.”

Of course we are reading and hearing daily about if the “Big 3″ go, there would be an economic catastrophe: millions of jobs lost, not only with the automakers but with the suppliers and related jobs.  Ikenson answers this argument, which he calls “massive hyperbole.”  He disagrees that if one of the “BigThree” goes, all will go.  This takes me back to my Viet Nam days and our Government’s assertion that if South Viet Nam goes then all of Southeast Asia will fall to Communism, which simply didn’t happen.  Ikenson asserts that “If one of them goes down, yes, some of the parts suppliers that supply one of them exclusively, GM for example, will be in trouble if GM goes down.  But the parts suppliers that supply Ford and Chrysler will suddenly see their orders increase.  So I don’t buy the linkage that lands us in this situation where we lose 3 million jobs.”  Ikenson concedes there will be some job loss and economic pain, but … “this is an economic recession that we’re entering.  That’s what happens when economies recede.  Congress, the president, can not insulate every American from every form of pain. … If the government stays out, this will be sorted out.  There will be some pain but the pain will be more short-lived and the solutions will be determined more quickly.”

Asked what Ikenson thought the government would do, he ventured, “They’re going to want to do something, and in my view there will likely be a bailout.  But I wouldn’t call it a bailout.  It’s not a bailout. It’s simply tossing money down a pit.  The beneficiaries of that will be Nancy Pelosi, Harry Reid, the Michigan congressional delegation, Gov. Granholm.  They’ll be able to say, ‘Look, we went to bat for you.  Now do what you can with it.’  Ikenson feels that in a few months the auto industry will be back for another handout, and his hope is that then President Barack Obama will not … ‘capitulate to these left-wing labor politics and say, ‘No, we’re not doing this.  You were here four or five months ago.  We gave you $25 billion.  You just used it for operating expenses and prospects aren’t good.  Let’s introduce you to the bankruptcy process.’