From porkulus spending and financial bailouts to saving the American automobile industry, the federal government has racked up over $2.306 trillion in bailout money over the past year. If you divided this payment equally among the 156.3 million American taxpayers, you discover that the average American would pay approximately $14,754 to the federal government in hopes of stabilizing and improving the national economy. This is an astounding figure equal to nearly four semesters of in-state tuition and segregated fees here at UW-Madison. Let's take a look at where a portion of this superfluous spending is being directed: saving the American automobile industry, specifically the Big Three.
Who are the Big Three? The news has talked a lot about these three companies. Actually, the term ""Big Three"" depends on the country to which you are referring. In the United States, the Big Three are General Motors, Ford and Chrysler. These three companies approached the federal government at the end of last year for loans to keep their respective companies out of bankruptcy.
In the end, the only two companies that accepted the initial federal aid were GM and Chrysler, which received $9.4 billion and $4 billion respectively. Ford opted out of federal aid to avoid the restrictions placed on the funds. These restrictions included the creation of a short- and long-term comprehensive plan to ensure the company's longevity. Each plan had to be presented before Congress and get approved before the company received any additional aid.
Both GM and Chrysler submitted their restructuring plans in mid-February with added requests for federal aid. This would bring the American taxpayers' bill to $39 billion if the request were granted. According to these plans, the earliest that the Big Three would possibly even begin to show a profit would be in 2010. In light of this fact, many economists and financial auditors suspect that even with additional aid, the outlook for the Big Three is bleak. Looking at it from a historical perspective, the United Kingdom experienced a similar situation about three decades ago with the former British Leyland Automobile Company. Before eventually going bankrupt in 1975, British Leyland managed to receive $16.5 billion in aid from the British government. It seems that the United States might have its own British Leyland on its hands.
A contributing cause of the Big Three's current state is the United Auto Worker union. The union has been squeezing the collective throats of the Big Three, and as a result, the UAW finds itself lobbying its members right out of their jobs. For example, the average UAW worker pockets $50 per hour in wages and benefits, compared to $28 per hour for workers at U.S. factories operated by foreign automobile companies. Because of the heightened upfront costs of manufacturing, the domestic automobile industry's competitiveness with foreign manufacturers becomes greatly inhibited.
Therefore, two prominent problems have presented themselves: 1) The Big Three are not going to be profitable for the foreseeable future, and with the current exception of Ford, the federal government will continue to provide loans to keep each company ""solvent,"" and 2) The Big Three are at a significant competitive disadvantage to other companies in the industry.
If the federal government is going to continue providing loans, why not give the money as an incentive for the Big Three to collaborate on certain programs? Better yet, why not propose consolidating all three companies into an ""American Automobile Corporation?"" This model would allow the three companies to pool resources, cutting costs far more quickly together than in isolation, while permitting the individual companies to continue honoring their commitments to retired workers. This would also increase the likelihood that the domestic automobile industry will become profitable by 2010. In addition to these obvious benefits, a consolidation into a single company would alleviate the current contracts to the UAW, which are currently suffocating the industry. This would allow the industry to renegotiate contracts with the UAW, decreasing the upfront costs of manufacturing and ultimately increasing the domestic automobile industry's competitiveness.
In today's economy, the following nationalistic motto could hold true for many industries, with particular pertinence to the Big Three: ""United we stand, divided we fall.""
Sean McMaster is a junior majoring in biochemistry and mathematics. Please send responses to opinion@dailycardinal.com.
