Nov 23, 2008

Big Three Bailout - Yes or No ???

There have been some discussion threads and entries about the pros and cons of assistance to the Big Three (This one for you Mark).

This got me thinking, at first blush, I am against a "bailout" (it is bad business planning and poor decision making, the company(s) do not deserve to be bailed out), and that is the fiscal conservative republican side of me. After all, if we bail out the auto industry, what is next, every struggling company will line up with the palms extended upwards (sometimes holding a bucket). Where do we draw the line?

Then there is the socially liberal side that looks at the impact to the people, the workers and families that were simply doing their jobs, and they may have to pay the ultimate price. How do we address that issue, do we bailout the companies, do we provide increased welfare and job training, do we do a packaged bankruptcy with government backing???

I can see, understand, and empathize with both perspectives. So, I decided to look at the business case perspective; what is better for the average taxpayer. Some facts/assumptions:

  • One Million workers potentially impacted.
  • Average weekly unemployment benefit is $359/week (assume 20 weeks)
  • Assume average salary is $60K/year, and that workers will be out of work for a year.

What is the burden to the taxpayer if do not provide some assistance? The unemployment benefits will cost $7.18 Billion. The lost tax revenue, assuming a 25% rate, will cost $15 Billion in lost taxes. So, without even considering downstream costs to other local businesses that lose sales, and without considering job training and placement assistance, we are at a greater than $22 Billion impact if we do nothing.

So, I say that some assistance package is necessary, for the good of the impacted workers and their families, as well as for all tax payers. I think that some guarantees of repayment (so the assistance is more like a loan) and harsh realities for the executives (no bonuses, reduced pay) are definitely in order. Longer term, we need to consider reduction in manufacturing in other countries, retooling for renewable technology, and some union concessions are in order to ensure the viability of this industry in our country.

I think that whenever we are faced with such a dilemma, we need to run the numbers, figure out what the business case is, and make our decisions based on facts, not emotion. When the number of impacted employees is around a million, the numbers do not lie; when the numbers are in the thousands, it is much harder to make the case.


  1. Well-thought out, as usual. The numbers don't lie.

  2. I understand that the big wigs that went to DC last week for help went in a private jet. Maybe a ride over on Greyhound would have made a better impression. They (the big wigs) need to have a plan for the future and give themselves a big time cut in pay. Linda in WA

  3. It just climbs all over the line between capitalism and socialism... the bottom line is "Can a capitalistic government survive?"

    Every great dynasty in history has had a shelf life. Have we reached ours? Where is the limit? Who else gets bailed out? Do we continue to reward poor decisions, greed and excess with governmental handouts?

    I'm asking. I don't know the answers. As I mentioned in my comment to Beth... I never took economics. I'm just a girl who survives from paycheck to paycheck...


  4. Ooh, Heather is a smart girl ... I remember back in the 80's folks were worried about the dawn of the Pacific century and that movement still haven't been stalled.

    The idea that the execs went in private jets shows how out of touch they are, is ludicrious. Made for good copy, and that is all. All hat and no cattle.

    Reading the Freep and talking with folks Downtown, I am uncertain in the current chairman's ability to get out of this mess. This isn't Lee Iaccoca, who was dynamic and will Chrysler back to life. The guys who are fronting the Auto industry, seems like shrinking violets ... that is why they can't step up and say, 'This is what's what, and what we are going to do.'

    Still, I think we'd be cutting off the nose to spite the face if we didn't help them out.

  5. You are absolutely right......numbers don't lie for sure!


  6. If they were to sell the private jets, imagine how much they could do with that money to help their own...unfortunately it won't happen any time soon. (Hugs)Indigo

  7. You know, I can't help but feel sorry for the workers. I don't feel sorry for the execs. Not sure where that leaves me.


  8. Hi Bucko,
    Wow ... I just left a long comment about this on Beth's blog. I think these U.S. auto companies are in desperate need of a complete overhaul ... it'll take a lot more than a tune-up to get them running efficiently. And corporate fat cats flying to D.C. in their private jets to ask for a hand-out just doesn't cut it with me. I say, don't just give them a bailout ... jettison the current management and essentially force them to become competitive. Otherwise, no money. I wonder how much the CEOs and their management teams would continue pushing for funding from American taxpayers if they knew their own jobs were on the line ...

  9. Dear Ken, yes some assistance plan is totally necessary..especially when you realize that there are so many side companies who make products for these guys!
    great entry and Thanks!

  10. Ken:

    I have lost 30% in my 403b, and at 62 who is going to bail me and all the other people who have lost money???? NO ONE !!!!!! I do not have time for "the cycles" to right themselves, by the time this comes full circle a lot of people will have lost trillions, and we as taxpayers are footing the bill for the corporations that made abysmal management decisions.


  11. my brother works for Honda in Ohio. Have you heard of Honda asking or needing a dime from a bailout? NOPE.
    My brother has been there 20 yrs...worked his way off the line to mgmt. Has a nice life. He is a Republican. What is Honda doing right that the Big Three obviously did wrong?


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