Hey Big Three : No bailout for you!
All week long, we've been hearing about how the U.S. automakers "need" some of the bailout funds. The frontrunner in the race to see which automaker(s) can receive money seems to be General Motors. The arguments in favor of bailing out the company? 100,000 jobs will be lost at GM. The company's 1,300 suppliers will be put at risk, along with their employees. Retirees stand to lose pension and health care benefits.
But why should the government bail out an industry that makes no sense? More cash for GM is like flushing money down the toilet. Sales are plummeting and the cash reserve is dwindling. Why? Because American car makers have cost structures to their businesses that are no longer viable. Between union pay, benefits, and retirement plans, the cost for GM (or either of the other domestic makers) is simply too high to be competitive.
The fallout from a failure of the U.S. automotive industry would be a bitter pill to swallow for many. But mark my words: It's inevitable. Bailout dollars will just prolong the pain, and cost taxpayers a whole lot of money.
Believe it or not, I'd actually be more in favor of taking the $25 billion that's being requested by GM, and instead using it to help the 100,000 displaced workers and GM's retirees. Let GM fail, if that's its destiny, and lets move on to helping people and companies with a shot at long-term survival and prosperity. That seems like a much better investment to me. (I'd rather not hand out $25 billion of taxpayer money at all, if that's an option, though.)
The idea of the U.S. government propping up certain industries is ridiculous. Subsidies, tax breaks, and handouts are not the way to develop a sustainable and vibrant economy. Those things only protect bad businesses. Let the market work. Let those companies that are competitive and innovative reap the benefits of doing the right things. Don't reward companies that have done all sorts of bad things (to the point that they aren't even close to being competitive) survive on the taxpayer's dime.
Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.