The U.S. Government Should Allow the Big Three Automakers to Go Bankrupt

To begin, I would like to say that the US Government could usefully learn from the lessons history has given us. Most recently, we have seen the US Government hand out vast sums of taxpayers' hard-earned cash to investment banks on the understanding that they would resume lending and do all possible to prevent mortgage foreclosures. However, the recipients of the money clearly had no intention on discharging their responsibilities and instead used the cash to feather their own nests. . http://www.dailymail.co.uk... Apparently, a banker's word is no longer his bond! In view of this, if the American motor industry is to receive state aid, it must be conditional and any settlement must be founded on something more substantial than the type of gentleman's agreement that was made with the banks. Certainly, the taxpayer must take a sizeable financial interest in the industry, so that when it recovers, its investment will be adequately rewarded. Furthermore, Government representatives should assume controlling positions on the Boards of Directors to ensure that taxpayers' money is spent on the restructuring and product development that it was intended for. If this was done, a financial aid package from the Government could rescue the American motor industry from oblivion. Once again, we can look to the history books for evidence of this. Without state intervention, many of Europe's most famous marques would not be on the road today. For example, there would be no Jaguars or Range Rovers (these brands were formerly part of the nationalised British Leyland motor company which was subsequently de-merged and privatised) and there'd be no Ferraris (Ferrari is part of the Fiat group which received state funding for many years but is now profitable) and there would be no Renaults (not that there are many in the US, but the company was in dire straits before it was rescued by the French government – it is now the world's 5th largest producer of vehicles). British Leyland . http://en.wikipedia.org... Fiat . http://eur-lex.europa.eu... Renault . http://en.wikipedia.org... . http://www.renault.com... However, in order to make the car companies successful, painful decisions had to be made. There were plant closures, out-sourcing, mass redundancies and asset stripping. Also, certain makes and models went by the wayside. For example, Rover, formerly part of British Leyland, produced millions of cars every year in the UK. However, unlike Renault and Fiat, they didn't invest in developing new models so customers went elsewhere. This resulted in the factories in the UK closing and the production rights being sold to companies in China and India, where outdated European models can still be competitive with domestic products Now the growth of the SUV and truck market in the US over the last decade has been nothing short of phenomenal, and for a while, US domestic products led the way. However, the European and Japanese manufactures were not slow to invest in rival products and now their more advanced models literally leave American offerings in their dust. Please compare two similar sized models: one home grown, one from Europe. HUMMER H2 Engine – 6.2l V8 petrol Power – 398 bhp Torque – 574 lb/ft 0-62 mph – 7.8 seconds Top Speed – 110 mph Fuel Economy – 17 mpg . http://uk.cars.yahoo.com... Audi Q7 Engine – 5.9l V12 twin-turbo diesel Power – 493 bhp Torque – 738 lb/ft 0-62 mph – 5.5 seconds Top Speed – 155 mph (electronically limited) Fuel Economy – 25 mpg . http://uk.cars.yahoo.com... The figures speak for themselves, but bear in mind also that the Audi is more dynamic, better built, more spacious and has higher residual values and it is easy to see why HUMMER sales are plummeting. . http://www.dallasnews.com... At the end of the day, the American manufacturers must move with the times. Fuel economy is now one of the most important factors when consumers decide what new car to buy. . http://www.caranddriver.com... However, while the Europeans and Japanese have been producing hybrid, electric, bio-fuel and diesel-powered cars for many years, the vast majority of cars produced by US manufacturers run on gasoline (petrol). My opponent suggested that the impact on the economy of allowing the "Big 3" to go belly-up would not be too severe as production would be taken up by manufacturers in the South, where labour costs are lower. They may be lower in the Southern States, but they are lower still in Korea, China and India, who would be happy to export even more modestly-priced cars to the US. Meanwhile, European manufacturers would be happy to ship over even more upmarket vehicles to meet any untapped demand. Unless the "Big 3" compete on technology, performance, reliability and overall value for money, they will ultimately fail. They need to invest in models that meet the future needs of the consumer and that takes billions of dollars and many years. Since they haven't got the cash to do this and cannot raise the investment privately, the Government is the lender of last resort. My opponent also suggested that a bailout would set a precedent, but I disagree. The only industries that any government would provide financial assistance to are the one's that are vital to the economic infrastructure of the country. They may include, agriculture, heavy industry and, as we have seen, banking. Without manufacturing industry and farming and banks to administer the finance, the US would be brought to its knees. The economy cannot survive on service industries alone: someone, somewhere has to produce the goods that are sold in American shops. The 5th, 6th and 7th points my opponent raised were related and suggested that the will of the markets should prevail and the only job of the Government was to pay for unemployment benefits and re-training schemes. In my opinion, the job of the Government in a laissez-faire economy such as that of the US, is to provide a framework within which commerce and industry can flourish. In a global marketplace this may mean regulating financial institutions in order to protect the economy or giving financial assistance to vital industries to avoid American jobs being lost to overseas rivals. After all, surely it is better for the Government to gain from workers' income tax receipts than it is to pay for unemployment benefits? In conclusion, the writing for the car industry is on the wall. Since no private investor is forthcoming, they will go belly up unless the Government steps in with a bailout. Given the choice between unemployment for all its members or a restructuring plan that will safeguard the jobs of most of its members, no union would cut its nose off to spite its face and oppose a restructuring plan that would result in lower labour costs, thus freeing up resources for investment in new models. If proper controls are put in place, a timely Government investment could revive the American motor industry and enable it to compete with foreign manufacturers in the domestic market. Who knows, perhaps one day American car companies could start exporting vehicles beyond Canada in meaningful numbers? We'll never know unless the Government gives them the chance.