Bailouts! Know When To Foldâ€™em!
By: Michael John McCrae
The chorus says â€œYou got to know when to holdâ€™em; know when to foldâ€™em; know when to walk away; know when to runâ€¦â€
Back in my home state of New Jersey, city of Woodbury, county of Gloucester, on state highway 45, during the 1960â€™s stood a fast food hamburger site called the â€œSteer Innâ€. The Steer Inn offered hamburgers for 19 cents, cheeseburgers for 23 cents, fries for 11 cents and soda for 10 cents. A person could put on a pretty good feed for 75 cents then walk three blocks to the Woodbury Theater to watch a movie for a mere 25 cents. One dollar went a long way during the 60s.
In time the first of several â€œMcDonaldâ€™sâ€ restaurants appeared on state highway 45. The pricing was in line with the Steer Inn but the food seemed to have a better quality and more flavor. It seemed a better product. In time the Woodbury Theater had to give way to the first of several multi-screen movie houses. Both the Steer Inn and the Woodbury Theater went through all the motions to remain in business but eventually had to raise their prices as their customer bases declined. Times were changing. Tastes were changing. The inn and the theater could no longer compete. Eventually both businesses went bankrupt and had to close.
I had friends that worked at both of those businesses. They applied for work at McDonaldâ€™s. They applied for positions at the multi-screen theater. They were hired and they continued to work for their new employers. This could be considered a happy ending to what was then a seemingly tragic circumstance.
Let me fast forward to 2008.
The â€œBig Threeâ€ American automakers are in Washington D.C. asking for money to keep their failing businesses operating. It doesnâ€™t matter to the automakers that recent history has proven they cannot compete with foreign automakers. The quality of the American product may be comparable to the foreign product, but the pricing and the marketing of the American product has not created a demand from the consumer. There has been a steady stream of debt and monetary loss for the Big Three.
The Big Three have failed to modernize their business practices with the changing times. They are cowed by oppressive unions that sap dollars for pensions, dues, salaries and benefits for UAW workers and union organizers that otherwise could be used to lower the value of their product through modernization of assembly plants and a streamlining of operations.
The automakers say there is a possibility of a loss of 3 million jobs should they not secure a major bailout from the government. They are asking for up to 25 billion dollars from the 700 billion set aside to bailout the mortgage and banking industries.
Here is a radical idea.
Know when to foldâ€™em!
Allowing the Big Three to fail would not be the end of the world. Bankruptcy would permit a reorganization of these businesses. Under reorganization the UAW could cease to be the major monetary drag on the auto industry and the automakers could come under new management that would support new business practices, modernization and industry streamlining.
Under reorganization, many of the jobs that were lost through bankruptcy would become available under renewed management. The salaries might be lower and the benefit packages might be more in keeping with allowing a business to remain solvent, but the jobs would still be paying a living wage.
The government should not step in to bail out these automakers. That would set a major precedent of which other large corporations would take advantage.
The government needs to know when to walk away from a situation that could easily snowball into government takeover and control of private business. When the Big Three fail to pay a return on a 25 billion dollar loan does the government foreclose and accept the loss to the taxpayer or does the government take over the business and continue to operate it at an even greater loss? Is the government responsible to guarantee payment of union dues and the lifetime health benefits that were negotiated with private businesses?
If a private business cannot compete for profit to remain a part of the marketplace then it should be allowed to close (no matter how it closes). One thing the history of business consistently shows us is that one business idea can replace another. The Pony Express was replaced with the telegraph. The single screen movie theater was replaced by the multiplex and I believe the failing American Big Three can be replaced by American automakers producing a quality product that is affordable and attractive to the American consumer.
The government in this case should â€œfoldâ€™emâ€ and â€œwalk awayâ€.