Remember the CEOs of the big three Detroit US automakers flew in to Washington on their private jets to seek federal money to bail them out. This caused much disquiet in both the public as well as sthe Senate and the House. At the end, some $17 billion were dished out to prevent the collapse of GM and Chrysler. It was justified that if these company were not bailed out, millions of jobs will be lost and the cost will even be higher for Washington. But this sum was only a temporary relief and was just to delay the eventual bankruptcy.
But Washington was compell to offer more money if these big 3 can come up with a restructuring plan. From the political perspective, President Obama has no choice but to bailout these companies. It is a matter of how to justify to the taxpayers and making it palatable to Senate. A task force for the restructuring of the auto industries in now in place to work out a viable plan to include all parties including the unionised workers. Another $22bn is required to prevent the collapse of the big 3.
But by bailing out or subsidising the auto industries, the US will violate WTO rules. The US has been a consistent complainant against China and European Unions in recent years, arguing that government-backed loans and tax breaks to industries were illegal subsidies. Those cases are pending or were settled. These will have repercussions on free-trade agreements or risk giving in to a protectionist backlash in the US. US will lose the moral high ground to lecture the rest of the world on free market.
In the long term, even if the automakers are bailed out, the future will continue to be mired by its ability to compete with the rest of the automakers especially Japanese and Korean. Unless it can restructure its production and cost components, produce more efficient cars and priced competitively yet remained profitable, the US automakers will continue to be a liability to the US taxpayers.
--------------------------------------------------------------JFK
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