Big Three bailout unnecessary

January 27, 2009 — by Andy Tsao

In the recent Congressional debates, the “Big Three” bailout, a proposal to pump $14 billion into the American auto industry, has been heavily discussed. The Big Three auto companies, GM, Ford and Chrysler, announced that it wouldn’t be long before they had to declare bankruptcy. While an influx of government money could certainly postpone this crash, it is completely unnecessary when considering other, more cost-efficient methods to save the Big Three.

It is a little-known fact that the Big Three companies once filed for Chapter 11 of the Bankruptcy code, stating that if an endangered company was needed alive, the debtors would be allowed to continue running the company, provided that it is overseen by a federal bankruptcy court, which makes sure that the company runs to the benefit of its creditors. Usually, this process involves a lot of company restructuring to maximize efficiency, but the Big Three haven’t reorganized yet. Rather than bail them out, the government should exercise restraint and let Chapter 11 pull the Big Three from the endangered zone.

By cutting down on its bulky union contracts and benefits, the Big Three would save the government billions of dollars while providing for a much-needed reorganization of the companies. It is true that company shareholders would take some losses, but those losses are small fare compared to the $14 billion the government would lose trying to bail these auto companies out.

The government must also be aware of the number of jobs that would be endangered in the course of saving the American auto industry. Almost as many Americans work for foreign auto industries as they do for American auto industries, and by saving the American Big Three, we could in turn be working against auto companies like Honda and Toyota, along with the jobs of all of the Americans who work there.

The Big Three bailout may seem like an enticing option in lieu of the recent Wall Street bailout, but the banks in Wall Street contained the investments of countless Americans in addition to the many employees who work for Goldman Sachs, Morgan Stanley, and others, making it suicidal for the United States to allow them to go under. Instead of wasting money on the Big Three, government bailout should be treated only as a last resort. Using programs like Chapter 11, the government can achieve the same result at a much lower cost.

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