Ford, GM and toyota

The issue of bailing out Ford and GM and Chrysler is one which shows clearly the effect of the banking bail out. It is hard to make the case that there should not be a bail out so the market can work once the governement has already jumped into the market in a big way to save the banks. There is no clear logical distinction between the banks and the car companies except this: the banks were not failing due to poor products, just poor market conditions. Since a big chunk of the poor market conditions was due to the products pushed by many of the banks, namely sub prime mortgages, this is a small difference in my opinion.

The better test as to whether or not to try to save the car companies is this: are these companies likely to survive on their own if the government gets them over the current crisis. The answer is much less than clear when considering the car companies as compared to the banks. GM has been slowly failing for the last quarter of a century. The first problem is that it gave too much to labor in a series of contracts which have basically pushed it to the brink of bankruptcy. It can only compete in good times, not bad. And there surely will be bad time again in the future. The second problem is that it has built products that relied on lower fuel prices which are not likely to return. Ford is in the same boat to a slightly lesser extent. I doubt if GM will survive even if it is bailed out. I would prefer, however, if the market made that determination.

My guess is that the government will bail out GM and that it will fail down the road.