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

1 (a) Con claims, "the unions would have to accept the required restructuring measures in order to save their members' jobs." If that were true, the labor unions would have already made the required concessions. This has been a constant subject of negotiations for many years, and the unions have given a little, but the evidence shows that that the unions have not approached what is necessary. General Motors, worth $8 billion, has $85 billion in unfunded health benefits alone. GM has poured in over $100 billion into the pension fund in recent years. GM pension fund obligations are more than $25 billion per year http://findarticles.com... and they have been for many years. Yet the Union has not seen fit to substantially reduce the burden. If they had, we would not be having this debate. Earlier in this debate, Con claimed that management was short sighted. That is correct, management was short sighted in agreeing to contracts that could not be fulfilled while keeping the Big 3 viable. However, the Union has proved to be every bit as short sighted, demanding a contract that would put the company under and refusing to back down from it. A good guess is that GM is about two months from being forced into bankruptcy. It is far too late to suppose the Union will back down voluntarily. The first step in bankruptcy is Chapter 11, under which all contracts and obligations are canceled and the Court appoints a caretaker to reorganize the company. At that point, the Union can make a proposal to the caretaker as to what they think is a viable way forward. The caretaker can, however, ultimately arbitrate a plan. If no viable solution is found, then the company would proceed to Chapter 13, and all the assets would be sold off. The Union would get to keep its $100 billion existing pension fund. Bankruptcy remains the necessary first step. 1 (c) Con claims "In the final analysis, the overall cost to the economy of unemployment benefits or well-paid skilled workers being forced to take low-skilled, low-paid service sector jobs would far outweigh the cost of any investment in the industry, even if it failed to produce any substantial direct returns in the future." That claim is made without supporting data or analysis. We know that auto companies can manufacture profitably in the United States while paying wages and benefits that workers are willing to accept. We know that because the foreign-owned manufacturers are doing exactly that. Moreover, the likely result of bankruptcy is that there will be just as many skilled jobs in the US as before, because US auto requirements are so peculiar that foreign manufacturers have elected in large part to manufacture domestically. So what is at issue is whether the U.S. taxpayer should pay twice the wages and benefits to employees of the Big 3 to get the same number of jobs and automobiles as they would if they did not fund the bailout. Con agrees, "Regarding nameplate nostalgia, yes, my opponent is right, I do believe the public attach a value to this." However, I proposed that the bankruptcy have the provision of requiring the nameplates be preserved. If the Big 3 are reorganized successfully under Chapter 11, that would happen as a matter of course, the only change being that wages and benefits would be brought into line with those of the foreign-owned plants in the U.S. In chapter 13, the nameplates would likely be an asset rather than a liability. 2. Con asserts, "In the case of the "Big 3" this means streamlining and investment in research and development." I previously provided evidence that the reason the Big 3 were investing inadequately in R&D was that they had legacy costs that drained their capital. It would be extremely unwise for banks or Porsche or anyone else to take over legacy costs that made the operation inherently unprofitable. Benz tried that experiment by buying Chrysler, discovered the situation was hopeless, and gave up. Chrysler is in a better position than GM. The problem is not with banks or investors being unreasonable, the problem is that there is no economically viable solution until the legacy costs are erased by bankruptcy. Con asks "Does a patriotic American really want to drive around in a Lincoln Shantytown Car or a Jeep Goatherder or a Pontiac Firebird Transvaal or a Ford Mule GT or a Cadillac de Favela or a Chevrolet Former Yugoslav Republic of Macedonia?" One might as well as if patriotic Americans would drive Toyotas, Nissans, Hyundais, or Volkswagens. We know the answer: Yes, in very large numbers. The highest probability is that a Chapter 11 reorganization would keep the production lines in place with the same nameplates. If that fails, Chapter 13 would provide the cars made in the U.S. with new corporate ownership and management. I think it is possible that nostalgia for traditional car manufacturers may be greater in the U.K. than it is in the U.S. However, Con previously cited European bailouts as being successful. Clearly, according to the data Con presents, bailouts in the U.K. were not successful in keeping manufacturing in the U.K. The bailouts just wasted taxpayer money in postponing the inevitable. Apparently, the cost structure in the U.K. is not competitive. As of now, U.S. costs are competitive, but only when not burdened by legacy costs. Therefore, the hope for retaining the jobs in the US is to eliminate the legacy costs through bankruptcy. 5. Con states, "Perhaps Pro is unaware that under the United States Farm Bill, American agriculture receives over $55 billion per year in Government subsidies? If market forces HAD been allowed to prevail, American farmers would be poorer and food would be cheaper." You must understand that American farmers are not, in any substantial numbers, families tending small plots of land. They are mainly large corporations running highly automated production of corn, wheat, and the like. Rice is planted by airplanes flying low -- things of that nature. Indeed, there are some subsidies, but those are a mistake. For example, the US used to subsidize sugar to 23 cents per pound when the world market was four cents. That was ended, yet sugar production in the US did not end; it shifted from cane sugar to beet sugar. My point is that providing producers with subsidies is a mistake because it leads to higher prices, and it prevents shifting resources into profitable areas. In farming, labor-intensive farming shifted to automated farming. Con asks, "No, some vital industries need to be supported ... if the power companies went bust, should the Government let the lights go out?" No, in that case the government should put the power companies into chapter 11 bankruptcy and operate them under court supervision until they are reorganized or sold. But is there any possibility that Americans will not be able to get enough cars? There is no chance of that whatsoever. Production lines will continue under Chapter 11, and in the worst case production would be shifted to other manufacturing plants, probably in the South. 6. The point of facilitating transition is to minimize acute hardship. That ought to be done whether the industry is key or not key. The argument about preserving "key industry" is a separate one. I can see an argument for not having electric power companies owned by, say, the Chinese, on the grounds that ideology might trump their desire to make money. However, I do not see a problem with Europeans or Japanese owning power companies in the US. It is simply a source of capital, and they lose their money if they fail to sell power. We use foreign oil, which is far more key. We could use foreign-made autos if US manufacture here became infeasible. There is no good reason for taxpayers to pay double to favor Michigan workers, when bankruptcy would yield the same jobs and the same production at lower cost. I urge voters to support the proposition.