A bailout would be worse for the auto industry than automakers filing for bankruptcy, explains banking and bankruptcy expert Todd Zywicki, a law professor, in the Wall Street Journal. Indeed, by enabling automakers to get rid of expensive union contracts (such as $70 per hour compensation) and red tape, a “Chapter 11 bankruptcy filing will likely result in a stronger domestic industry.” “Chapter 11 also provides a mechanism for forcing UAW workers to take further pay cuts, reduce their gold-plated health and retirement benefits, and overcome their cumbersome union work rules.” It would also help them get rid of redundant auto dealerships that should be terminated but aren’t because of state dealer franchise laws that milk automakers for the benefit of dealers (GM has vastly more dealerships than Toyota, even though Toyota has more sales worldwide than it does).
In the New York Post, professional investors who own shares in the Big Three automakers argue that a bailout would be counterproductive and that the Bush Administration fundamentally misunderstands and is mismanaging the current financial crisis.
The proposed auto industry bailout is similar to the British government’s unsuccessful auto bailout in the 1970s, which utterly failed despite a cost in the billions.
There are inexpensive ways to help the automakers that would do more for them than a bailout, like getting rid of costly regulations and red tape, such as burdensome CAFE mandates that downsize cars and thus cost thousands of lives yet are less effective at conserving fuel than a simple gas tax. Moreover, the Bush Administration’s proposal to divert financial system bailout money to bail out the automakers is likely illegal or unconstitutional.