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Argument: Automaker bailout unfairly disadvantages competition

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Supporting quotations

Daniel J. Mitchell. "Commentary: Say no to the auto bailout". CNN. 13 Nov. 2008 - a bailout would be bad for the long-term health of the American auto industry. It would discriminate against the 113,000 Americans who have highly-coveted jobs building cars for Nissan, BMW and other auto companies that happen to be headquartered in other nations.

These companies demonstrate that it is possible to build cars in America and make money. Putting them at a competitive disadvantage with handouts for the U.S.-headquartered companies would be highly unjust.

Daniel J. Ikenson. "Don’t Bail Out the Big Three". The American. 21 Nov. 2008 - Corporate bailouts are clearly unfair to taxpayers, but they are also unfair to the successful firms in a particular industry, who are implicitly taxed and burdened when their competition is subsidized. In a properly functioning market economy, the better firms—the ones that are more innovative, more efficient, and more popular among consumers—gain market share or increase profits, while the lesser firms contract. This process ensures that limited resources are used most productively.

Some iconic U.S. automakers are now in dire straits, but the car industry itself is not in crisis. Even if one or all of the Big Three failed, there would still be plenty of strong auto companies operating throughout the United States. The Big Three currently account for slightly more than half of all light vehicle production and slightly less than half of all light vehicle sales in the United States. The rest of the U.S. auto industry includes Honda, Toyota, Nissan, Kia, Hyundai, BMW, and the other foreign nameplate producers who manufacture vehicles here. These companies employ American workers, pay U.S. taxes, support local businesses, contribute to local charities, have genuine stakes in their communities, and face the same cyclical contraction in demand as do the Big Three. The difference is that they have been making more products that Americans want to buy and will endure this recession without any taxpayer assistance because they have more efficient cost structures.

Daniel J. Ikenson. "Don’t Bail Out the Big Three". The American. 21 Nov. 2008 - The Big Three failed to sufficiently diversify into reliable, efficient, and aesthetic passenger cars when they were earning big profits and had the money to do so. Their bloated cost structures have given non-Detroit competitors a $30-per-hour advantage in labor costs.

Want proof that automobile production remains alive and well in the United States? Just look at the success of Honda’s operations in Ohio, Toyota’s in Kentucky, Nissan’s in Tennessee, BMW’s in South Carolina, and Hyundai’s in Alabama, as well as the proliferation of new plants across the country, such as the new Honda facility in Indiana and the new Kia plant in Georgia.

If one or two of the Big Three went under, people would lose their jobs. That’s what happens in an economic recession, when less competitive firms are forced to contract. But the number of job losses wouldn’t be anywhere near as large as Detroit is telling us. Realistically, the failure of one or two major auto producers would improve prospects for the firms and workers who remain in the industry. If GM fails, the market shares of Ford and Chrysler (not to mention those of the foreign nameplate producers) are likely to increase, as they compete for GM’s former customers and best workers.

The bailout sought by Detroit would interfere with the adjustment process, while doing nothing to make the Big Three more competitive. A $25 billion infusion for companies that are losing $6 billion each month is not a rescue plan; it’s an expensive way of kicking the can down the road.

Funneling $25 billion to the Big Three would amount to a waste of taxpayer dollars and also a tax on the successful auto companies, such as Honda and Toyota. Indeed, bailing out Detroit would discourage the successful companies from opening new facilities in the United States.

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