Eli, in answer to the blog post you phrased as a question, the argument from the individual you heard, echoed by other Big 3 execs, is not a valid point in support of a bailout.
Their claim that consumers won’t buy from an automaker in bankruptcy is a specious argument. Yes, some won’t, but many consumers also are not going to buy cars from companies perceived to be so weak that they have to beg for a bailout from the government. A company’s clutching to a government lifeline to keep from going bankrupt wouldn’t be that much different for many car buyers than an actual bankruptcy.
This is particularly true if the government forces the companies, as a condition of the bailout, to make “environmentally correct” cars that no one really wants. A company emerging from a Chapter 11 bankruptcy, by contrast, has a chance to win consumers back by making products that they want.
I also addressed your argument that “If the manufacturer no longer exists, then the car parts might not” in a previous Open Market entry (that was cited in a brilliant Washington Times editorial on Thursday). That entry noted the thriving reproduction parts industries for DeLoreans and Studebakers, both made by automakers long defunct (DeLorean went bankrupt in the ’80s and Studebaker folded up shop in the ’60s). The fact of these industries’ existence cuts in favor of consumers in a Big 3 bankruptcy. Given that there would be millions more Big 3 cars on the road than DeLoreans and Studebakers, entrepreneurial firms would rush to acquire the intellectual property rights that a bankruptcy court could easily award so that new parts could be made for consumers. Warranty claims could also be given priority by the bankruptcy court, as the Times editorial noted, and those are usually backed up by the insurance company of the warranty issuer, anyway.
It looks like to tide the companies over, Congress is going to vote this week to let them use money already appropriated for “green cars” for general operating purposes. From a free-market perspective, this action is neutral and may even be a net positive, as it reduces the promotion of a state-directed “green agenda.”
But when Congress comes back next year, bankruptcy must be on the table for both big automakers and big banks, as it is for small businesses every day. Otherwise, the economy may never get out of “Reverse.”
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I live in Detroit and my father-in-law recently retired from Ford where he was a UAW electrician. However, I disagree with the auto bailouts. I disagree with them on principle (government should not be bailing out private enterprise) and I disagree with them on tactic (I don't like having a gun held to my head). That brings me to my questions. The news here in Detroit has been beating the drum of massive job losses if the Big 3 were to fail (somewhere north of 1 million). I don't doubt that if all three US automakers fail there will be a lot of lost jobs in the US, particularly in Michigan, Ohio, Indiana and Illinois. I am wondering, though, if there are any economic models that would show a longer term picture. If all 3 automakers fail there will be a lot of manufacturing and R&D facilities as well as labor available for new automakers or even other businesses to buy up and use. Is there anything that will give us a longer term view of what will happen should the Big 3 fail? I am tired of the myopic doom and gloom scenarios.
Dustin, I applaud your conservative principles, but a bigger issue even in the medium term is the total lack of consumer confidence. Until people buy homes and cars we won't be re-introducing any of these lost jobs. I have to agree with Paulson though, this is not an auto industry problem at root, this is a housing problem first and foremost
I have worked on my own cars for several decades and have never found it necessary to buy an OEM part. Nearly any part needed can be bought from a parts store like AutoZone, made by a third party supplier. I'm sure in some cases the third party actually makes the OEM part as well. There a a few parts that can't be had from the parts stores, such as the engine computer, tail light lens, body parts. In these cases, one resorts to a junk yard.
I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.
Sharon
http://www.autoloans101.info