Bailout or Handout?

An article in The Wall Street Journal is talking about GM seeking 16.6 Billion more dollars in U.S. aid. The question arising in my mind is with them already receiving a portion of the pre-allotted auto industry bailout, why do they need more? It seems that companies are using the United States Stimulus package as a bargaining chip. GM has announced that they will be cutting 47, ooo jobs, they are going to be cutting 3 lines of vehicles (Saturn, Saab, and Hummer), these things are all being said to justify them asking for more. With talks of all this money floating around it seems to me that companies are using this as a time to recoup everything that they have lost over the past decade. They are looking for handouts, “U.S Giving away free money”, seems to be the viewpoint of many industries right now. With companies using threats to create wide spread panic for jobs, the government will be forced to take some kind of action. (The Wall Street Journal: Wednesday, February 18, 2009 “GM Seeks $16.6 Billion More in U.S. Aid”)


Luke said...

GM should not be getting money to fix their dysfunctional company. A company that has gotten themselves into that much debt is obviously doing something wrong and needs to be found and changed instead of being bailed out. They needed to cut Hummer since it is one of those luxury vehicles that are more for show than functionality. They shouldn’t be creating gigantic vehicles that require huge amounts of gasoline, because with gas being upwards to $4 per gallon people are less likely to be purchasing these types of luxury vehicles. With them having to cut failing vehicles, they are making steps towards solving the problem.

Victoria said...

I think GM should not get 16.6 billion more dollars in U.S. aid. I agree with that it seems that companies are using the U.S. stimulus package as bargaining chip. I think concern about what they already have is important.

Gracie said...

I agree with your concern that companies are, "looking for handouts, 'U.S. Giving away free money.'" That has been the problem with many programs the government has tried to implement. President Obama has been slightly careful to include tax incentives in the stimulus package. I think this is a better approach to avoid companies taking advantage of the system.

Dr. Tufte said...

Part of the problem with any sort of government welfare package is that it provides an incentive to put yourself in a position to collect on it.

Make no mistake - a big part of the stimulus package is corporate welfare.

But ... a big difference between corporate and individual welfare is that individuals have pride and shame that mitigates their willingness to accept it. Corporate managers don't. In fact, they may have a better chance of keeping their jobs and perks if they are more over the top in pursuing "their share".

Luke: have you noticed the price of gas recently?

Anonymous said...

Dr. Tufte, isn’t the objective of a corporation to maximize shareholder value? If this is the case, I would think putting a company in a position to receive government funds would be a failure of that objective. I know the value of my Bank of America stock sure hasn’t been helped by any stimulus package. A manager should be judged based on how well they do managing their respective company, not how well they fail and are able to receive government assistance. If managers were held more responsible and not rewarded for failure, the whole economy would function better, and those corporate managers who can’t perform would be flushed out of the market to make room for better qualified individuals.
I am also concerned that the worst companies are those who are first in line to receive handouts. If we are going to bailout companies, why don’t we at least give our tax dollars to companies who have been hurt during this recession, but who are in a position to succeed down the road? I don’t agree with giving money to GM, because they have proven over the last few years that they are incapable of competing in today’s market. This would be like rewarding a scholarship to a failing student, just so he or she would stay in school. To me it just does not make any sense. I hate the connotation “too big to fail,” obviously there is a reason these companies are failing and perhaps it is because they are too big, at this point, there is no doubt they aren’t efficient. I think the economy would be crippled if each and every one of them failed, but is Lehman Brothers the only company that wasn’t too big to fail. Of course, the economy would be severely hurt for a time if a company like GM was to fail, but in the long run, I think it is best that we allow non-competing companies to stop competing.

Caleb said...

The auto bailout is one of the stimulus money cases that just boggles my mind. No one is questioning the fact that our economy and many businesses are having a lot of problems. So isn't the point to fix the problems, not give the problems loads of cash to continue? While I don't doubt that there would be some serious consequences if GM, Ford, or Chrysler went under, especially for the greater Detroit area, helping them to continue with so many problems is a mistake. If you let them go away, you will eventually have new companies spring up in their place. It may take 5 years, or 20. But it beats the alternative of giving the Big 3 auto companies another couple of billion dollars in 20 years when they run into problems again.