General Motors has once again approached the
federal government with its hand out. It should not be forgotten that in
September of 2008, Congress gave the "big three" automakers a loan
totaling $25 billion. Now they are back. This time they say that with a mere $50
billion they can turn things around and become profitable in the future. The
management of GM and Ford as well as the UAW have been meeting with Nancy Pelosi
to arrange a deal. GM claims that if the government does not give them the money
they demand it will spell doom for the company and thus the entire
Let's consider the impact of GM ceasing
to exist — highly unlikely even if they declare bankruptcy. Hypothetically, GM
would close its doors and all 266,000 workers would be unemployed, never to find
work again, or so GM would have the public believe. GM maintains that it is
really in the best interest of the country and economy to continue to support
their failing business model. After all, in what kind of a world would the
government allow a company that employs 266,000 workers to fail?
Descending into an abstract economics lesson
about shifting resources to marginally more productive activities may be
ineffective; therefore, I will approach this issue from a more philosophical
angle.
The basis of GM's claim is essentially that
they are too big or too important to fail due to their massive labor force. But
how massive is their labor force relative to other American companies? It may be
surprising that the following companies employ a larger number of
workers than GM: Target, AT&T, GE, IBM, McDonalds, Citigroup, Kroger, Sears,
and Wal-Mart. It is also worth noting that Home Depot, United Technologies, and
Verizon all employ nearly as many workers as GM.
The question must be posed: Should the
government bail out all 12 of these companies and, if so, at what cost? I doubt
that if Wal-Mart, with their 2.1 million employees, went to the
government or the American people and demanded a bailout that they would receive
much sympathy, let alone money. But if we are going to base worthiness of
bailout on number of employees alone, then Wal-Mart is almost 7 times more
worthy than GM.
(I have largely neglected Ford, whose
executives are also demanding a bailout. I believe that it is enough to simply
state that Abercrombie & Fitch employs almost 7,000 more workers
than does Ford. Would the failure of Abercrombie & Fitch's threaten the
economy? I think not.)
It is unethical to force taxpayers to pay
billions of dollars in order to bail out a company with a failing business
model. After all, they cannot even claim, as banks did, that it is an
industry-wide problem. Because if it were industry-wide,
For years GM and Ford have produced a product
that consumers do not value as much as the product provided by their
competitors. Rather than changing their products or business model, they instead
spent small fortunes on lobbyists. If the government does bail out GM, rest
assured that this will not be the last time. But even if the government gives GM
a check every week, there will come a time when no amount of government money
will be enough to save them.
What is the best solution? In a word, bankruptcy.
By filing for bankruptcy protection, GM can escape the death grip the UAW has on
the business. Bankruptcy would allow for restructuring on an unprecedented
scale. There is a good chance that a highly competitive company could rise from
the ashes of what we today call GM. Even if GM itself was unable to survive
bankruptcy, the resources freed from its grasp could be hugely beneficial to
other automotive companies that make products that American consumers value
more. As taxpayers, we have a right to object to this misuse of our
money.