Had the government allowed GM and/or Chrysler to fail the total number of cars sold in the United States world have been approximately equaled to what was sold with the bailouts. While this may surprise Progressives, demand is created by consumers. The only difference would have been that Ford, Honda, Hyundai, Toyota and other successful auto companies would have sold more vehicles, most of which would have been made by American workers, but not United Auto Workers (UAW). In addition, the companies that supply parts and sub assemblies to the auto industry would have also sold similar quantities, although divvied up to different suppliers. In other words, the poorly run auto companies would have suffered and well-managed ones would have benefited. That is the way capitalism is supposed to work to create efficiency and the finest products at the lowest prices for society.
The government’s bailouts of GM and Chrysler distorted the market by allowing poorly managed companies and their workers to benefit at the expense of the better run auto firms and their workers. In addition, it took funds from the same taxpayers who rejected GM and Chrysler products to keep these same companies afloat. But this is only the start of the disruptions to the market as bailouts are gift that keep on taking.
After the GM and Chrysler bailouts, the U.S. government held (still holds) majority ownership interests in them. This fact only increased the government’s motivation to continue propping up these poorly run companies, a perverted conflict of interest in any capitalistic system. That led to the Cash for Clunker program in which the government paid purchasers $4,500 to buy vehicles they would have purchased anyway, but at a future time. In simple language, the government took $3 billion from some taxpayers and gave it to others.
Cash for Clunkers is another government boondoggle that keeps on taking. You see, the government also destroyed perfectly good used cars to prop up their investment. That has led to a shortage of used cars, raising their prices. Edmunds.com estimates that a three-year-old automobile today costs close to $20,000, a 10% increase in the past year. Therefore, those less fortunate will not be able to afford the better used cars, an example of the unintended consequences of governmental meddling in the economy.
Yesterday’s Wall Street Journal reported on another perversion of the government’s intervention in the auto industry. About $10 billion of taxpayer money bailed out Chrysler. As part of the bailout, the U.S. government brokered a deal whereby Fiat of Italy gained managerial control of Chrysler. Now Chrysler has announced that it will introduce the Fiat 500 subcompact in the United States through its dealer network. This car’s engine will be manufactured in the U.S., but the car will be assembled in Mexico. So let see, instead of letting Chrysler go under with other American manufactured cars being sold instead, the U.S. government bailed out Chrysler who will make these new cars in Mexico. Unbelievable!
Perhaps the most outrageous part of the auto industry story is that the Obama Administration now claims the bailouts to be an example of their economic programs’ success. Wow, have they set the bar low!