Claim of consumers’ fear of auto bankruptcy a canard in bailout debate
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.”