Even Liberal Washington Post Casts Doubt on Auto Bailouts

Great post by Hans Bader of The Competitive Enterprise Institute Blog.

"“Only 16 percent of executives in the auto industry” support the Chrysler bailout, according to the Washington Post’s editorial today. I think the bailout was a bad idea, for the reasons I list in my own commentary at this link, where I also chronicle how the Obama administration has deceived the public about the cost and consequences of the bailouts, and disseminated misleading claims by GM about allegedly repaying taxpayers.

As the Washington Post editorial board, which has not endorsed a Republican for president since 1952, noted, the bailout sent a harmful “message” that the automakers are “too big to fail.” And the bailouts might not have been necessary to save most auto jobs, since even “If GM and Chrysler had failed, their profitable parts would, eventually, have been bought up and put to work by others … expanding production and hiring workers in the process. Government dollars spent propping up the two automakers might have created jobs elsewhere.”

Even if a bailout had been a good idea, the Obama administration did not handle its execution well. As the Post notes, it is questionable whether having “decided to aid the industry, the administration chose the best way of doing so. The administration … did not press the United Auto Workers, its political ally, for even deeper labor cost reductions” needed to maximize the automakers’ long-run chances of survival. Moreover, bailing out Chrysler was harmful to GM, since “propping up Chrysler would saddle GM with additional competition, thus complicating survival for the larger, stronger company.”

Moreover, the automakers’ recent profits may be ephemeral: the Post notes that “a remarkable 29 percent of executives told Booz & Co. that a U.S. automaker could fail within the next 24 months.” Reuters earlier reported that “Car sales sputtered in May, slumping to levels that were much lower than expected as higher vehicle prices led consumers to put off purchases in the face of a weakening economy. Tightening supplies of vehicles after the Japan earthquake emboldened many companies … to raise car and truck prices, a strategy that analysts and investors said had backfired. U.S. automakers … reported sales on Wednesday that fell short of expectations as the industry experienced its lowest sales rate in eight months.”

The unemployment rate shot up to 9.1 percent in May, suggesting that consumer purchasing power may not increase enough to provide a robust market for automobiles."