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  • More Bailouts, Protectionism or Both?

    The government handed out billions of dollars in taxpayer money for General Motors and Chrysler to save jobs and become economically viable as fast as possible. No such luck with Chrysler. If returning to viability is the target, GM may have to turn to imports:

    General Motors is engaged in negotiating a reorganization that could increase vehicle imports from its plants in Mexico and Asia while closing factories and cutting the work force in the United States.

    That approach drew a sharp rebuke from the United Automobile Workers union on Friday. In a letter to each member of Congress, the U.A.W., which represents G.M. factory workers, argued that to qualify for more government assistance, the auto giant should be required “to maintain the maximum number of jobs in the United States.”

    The administration, however, appears to accept the proposition that to return to profitability as quickly as possible, G.M. must import a significant percentage of cars from its plants in low-wage countries, like Mexico and China, or low-cost countries, like Japan.”

    Using protectionist policies to save jobs will only delay the inevitable for GM. Americans made it clear they didn’t want to see their money go to failing businesses. While the UAW clearly doesn’t want GM to increase its reliance on foreign manufacturing base, it’s largely the UAW’s doing that GM is in this mess.

    GM is now up against a June 1st deadline to convince debt holders to forgive what’s owed to them, cut costly dealerships and negotiate new, cost-competitive labor contracts or the company will likely head down the same path as Chrysler into a Chapter 11 bankruptcy.

    $15.4 billion in taxpayer dollars later, bankruptcy is still the best option for GM to properly restructure and attain long-term economic viability. And it doesn’t have to be a government-funded bankruptcy. But forcing jobs to stay in the United States, on top of more government loans, could lead to retaliatory tariffs and quotas from other nations, and more pain for the American consumer.

    Posted in Economics [slideshow_deploy]

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