America was dealt a pretty hard blow Monday as its largest company filed for bankruptcy protection. The fall of General Motors was a long time in coming, and reached its terminus after four years of the company not turning a profit. Now with the government proposal to prop it up with new management and an additional $30 billion on top of the $20 billion the feds have already bet on the cause, its future hangs even more in the balance. Many Americans don’t want to see any more wasteful debt spending, but also don’t want to see the death of a company so ingrained in American culture. We will be taking a bet that a demand remains for tens of thousands of American heavy industry workers. We don’t have a crystal ball to see if there is a place for GM in the future, even if the resuscitation is successful. The debate also rages as to whether or not the government has any place interfering so deeply in the business cycle. This has great potential to become a failed investment, one into an industry in which America has no future.
All in all the bailouts of Chrysler and GM will cost close to $100 billion, about $325 per person. For the common citizen this is a substantial bet on an industry that has been in decline in the U.S. for decades. GM’s market share has dropped from 45 percent in 1980 to about 19 percent currently. And with surveys showing younger car buyers are not even considering buying American brands, we can expect this percentage to continue to decline. This evidence indicates America is no longer the leader in building reliable, attractive cars for the future. The odds on this high-stakes bet are not favorable.
Much of the political opposition to the bailouts for private business arises from concerns that this meddling is associated with a socialist trend in American politics. Multiple opposition groups have dubbed the new GM “Government Motors.” Obama stated he doesn’t want to run the company, only to get it back on track. But to do that, such meddling puts other companies in the business, such as Ford, at an unfair disadvantage. Ford has staved off bankruptcy and the need for government aid by improving company management and its products, only to see its main competitor rewarded for doing neither. Such meddling is also completely unconstitutional, but all the bank bailouts in the past have shown that is of no concern of both the Bush and Obama administrations.
The White House’s new agreement with U.S. automakers to increase fuel efficiency over the coming years came at a particularly unusual time. Ford, the most reluctant to accept the deal, also is the only one of the ‘Big 3’ that have not accepted government aid money. But with sales lagging this year, all three may soon be in bankruptcy together. It is possible accepting this deal could have been a condition of sorts for future government aid money, with any disagreement placing the future of the company at risk. At the same time, we must question the wisdom of this deal, as it is likely to raise the cost of new vehicles by at least $1,300 in the coming years, a time of uncertain economic stability. The added cost of this deal may turn car buyers away from new cars at a time when the economy needs their business the most. Hampering an industry’s flexibility, then investing in it on behalf of the public, is yet another questionable decision.
For now, petroleum-fueled automobiles will remain the standard means of transportation worldwide. This puts the receding American automakers at a conundrum of sorts. Currently there is not a market for next-generation transportation technologies, but they are losing out in the current-generation technology. The government is betting we can prop them up for the time being, hoping we can once again become the leaders in transportation technology once the market changes.
The big picture emerging in this economic downturn comes down to the fact that America is no longer the industrial leader it once was. The primary driver in a nation’s relative prosperity is its ability to export a product for which there is worldwide demand. Take a look at China, the nation has boomed over the past couple of decades through its success in the export market. China has become the leader in manufacturing and heavy industry, leaving America in the dust. Right now it seems the industry America is best at is military technology. This becomes obvious once you see how upset American politicians get when they see other nations, such as North Korea, try to catch up. Continuing to find new ways to take over the world and kill people should not form the base of our prosperity. America must now harness its innovative potential and find something new, something with a profitable future. Rather than prop up the past, we must let the free market decide what the future stores.