In a famous quotation from his 1986 address to the annual White House Conference on Small Business, President Ronald Reagan quipped that “government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
The Detroit bailout bill that passed the U.S. House of Representatives last night — agreed to by the White House and Democratic leaders but at this point apparently without enough Republican support to survive a filbuster in the Senate — is unique in that it fulfills all three of the government actions Reagan describes in one fell swoop. All it once it not only subsidizes U.S. automakers, it subjects them to heavy regulation as well that have nothing to do with profitability and everything to do with fulfilling “environmentally correct” objectives.
Existing mandates can in part — but only in part — explain some of Detroit’s downfall. As CEI’s Sam Kazman wrote recently in the Detroit News, the Corporate Average Fuel Economy (CAFE) standards are a “$100 billion research and development burden” that “have long been a noose around the industry’s neck. CAFE ignores the market, in which consumers balance their demands for fuel efficiency against other needs such as size, and forces automakers to sell models of cars, so that the “average” car meets a ceratain miles-per-gallon.
Over the years, CAFE has led to the abandonment of popular models such as the family-size station wagon. It has also meant, as Kazman points out, a reduction in traffic safety as consumers have been forced into smaller, less crashworth cars. The National Research Council estimates that CAFE has caused 2,000 additional traffic deaths per year.
Yet Congress accelerates these efficiency mandates that are deadly for the industry and, literally, for drivers, as a condition of providing the money to “save” it. As Wall Street Journal columnist Holman W. Jenkins Jr. writes, “To become ‘viable,’ as Congress chooses crazily to understand the term, the Big Three are setting out to squander billions on products that will have to be dumped on consumers at a loss.”
The bailout conditions the dollars the federal government would hand out on the industry largely adhering to an emission standard from California that is much stricter than that of the federal government and based on faulty science. As Jenkins writes, this mandate would mean “an even more massive auto wreck” that “would render most of [the industry's] auto designs, profit centers and tooling unsalvageable.”
If Congress really wanted to provide immediate help to the auto industry it would repeal the costly CAFE, or at least get rid of the “two fleet” rule that mandates that smaller cars have to be made in the U.S., not in Europe where they are more profitable. This mandate is another expensive demand that autoworker union muscle had enacted that is now dragging Detroit down. Congress should also suspend antitrust rules to make cost-saving mergers or joint ventures easier.
In the meantime Detroit — the vast community including the parts makers and others that work with the auto industry — should really ask itself if bankruptcy would be any worse than the price of becoming an appendage of Washington in a bailout. A Chapter 11 bankrupty gives the car firms a chance of being restructured into lean, profitable companies. This bailout would not only squander billions of taxpayer dollars, but put the foot on the pedal of government regs driving Detroit into “reverse.”
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Right on and to the point. Who's next? The newspaper industry? The boating industry? This needs to stop…now. Government doesn't create jobs, it simply redistributes wealth to favored entities through raising taxes. The best way to revive the economy is to cut government spending and lower taxes, especially the corporate tax.
I have bought cars from American companies since my first vehicle (a Chevy Cavalier).
If any form of a government bailout passes, that will be THE LAST TIME I purchase a vehicle from an auto company headquartered in America ever again. I have written to the “Big Three” to let them know that, and plan to also email the UAW…
Yes, a Chapter 11 bankrupcty would hurt many, many people. But a bailout will, over time, hurt us all as individuals and also as an entire country.
If the American Auto industry is interested in vindicating the government for their ridiculous “environmental†standards, most of which have nothing to do with the environment, the car companies should consider SUING THE EPA.
Better yet, maybe the government should force EPA (per the “Car Czar (??)” –could thay have come up with a more idiotic phrase?) to submit to “Economic Impact” research and release an “Economic Impact” statement for every single decision they make.
Let's face reality. The car makers certainly haven't. Someday we WILL run out of oil or enough to satisfy everyone. The real market is for cars that run on alternate energy or much less of what it already runs on. If they don't wake up to this fact, they are already dead in the water. The biggest race is on for more sustainable and non-polluting energy to get us where we need to go. Anyone who ignores that fact is living in the dark ages. And they've already lost before they get their shoes on.
I hate to say it, but nothing will really happen. Those who are old enough to remember the oil crisis of the late 70's remember that the government was leaning on the auto industry to produce fuel efficient vehicles at that time. However when the economy started to change no one leaned anymore.
The same will be true this time. Yes the government has to protect its position. It has to look good in the face of the public. But when the people start forget the promises the government made they will let the auto industry return to their staus quo.
The auto industry will get their bailout. The government will place regulation, at the beginning. Time will pass, people will forget and everything will return to the way it has always been.
Don't expect change, at least not a last change for improvement. Sorry to be cynical, but at my age I have seen too many unfulfilled promises from tooo many politicians.
Today the world is experiencing global financial crisis. The economy has definitely created financial chaos. It doesn’t matter if you’re an entrepreneur or a plumber; you are going to feel some of the economic tension one way or another. Even two major Detroit newspapers, The News and the Free Press, are in need of extra cash and have significantly cut back on their daily home delivery. Just like any other business, the newspaper industry is dependent on the economy and advertising dollars. However, we are all aware of the importance of newspapers. Therefore, there must be away to keep the industry above water.