Virtually everyone seems to be weighing on the proposed bailout for the Big Three automakers. First, former Massachusetts governor and presidential hopeful, Mitt Romney argued that what was needed was for Detroit to go bankrupt and renegotiate the high price of their organized labor after they've gone through Chapter 11. Romney's dad worked for American Motors and Romney points out that the cost differences between foreign brands and American brands is remarkably high. Romney writes,
...their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers. That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.
Now, Professor Matthew J. Slaughter of Dartmouth is arguing that the auto bailout would be terrible for free trade. The future, at least, for American manufacturing is to let the Japanese invest in the United States. In today's Wall Street Journal, Slaughter asks,
Will fewer companies look to insource into America if the federal government is willing to bail out their domestic competitors? The answer is an obvious yes. Ironically, proponents of a bailout say saving Detroit is necessary to protect the U.S. manufacturing base. But too many such bailouts could erode the number of manufacturers willing to invest here. The bailout's second global cost could hit U.S.-headquartered companies that run multinational businesses. In total, these companies employ more than 22 million Americans and account for a remarkable 75.8% of all private-sector R&D in the U.S. Their success depends on their ability to access foreign customers. They do this two ways. They export goods from their U.S. parent companies. And they sell goods locally through foreign affiliates. These foreign affiliates are built by direct investment of American companies in other countries. In 2006, U.S. parent companies exported $495.1 billion to foreign markets. That same year their majority-owned affiliates earned over $4.1 trillion in sales -- $8.33 for every $1 in exports.
... He asks again,
Will a federal bailout that politicizes American markets bolster foreign-investor demand for U.S. assets? Not likely. Instead, America runs the risk of creating the kind of "political-risk premium" that investors have long placed on other countries -- and that would reduce demand for U.S. assets and thereby the value of the U.S. dollar.
It seems those bailouts are inherently risky business, after all.
UPDATE: This was supposed to be published last week. Technical delay (i.e. operator error!)
Present situation may be for a few more months, once the economy gets stable, hope every thing comes to normal.
Rose.
Posted by: WheelScene | January 28, 2009 at 04:53 AM
This is for a while, Let's hope to see bright future.
Posted by: Wheels on Road | March 13, 2009 at 04:41 AM