One of the most controversial discussions over the last few years has been about the bailout of General Motors and Chrysler Corporation. I’ve heard arguments from those supporting the bailout as well as those strongly opposing it. Both sides of the aisle present valid points. But here’s my take.
In a truly capitalistic society, some businesses thrive, others fail. And the government stands on the sidelines and allows the free market to balance itself without intervention. If a company makes the right decisions and prospers, they are rewarded by earning a profit. Conversely, if a company makes poor decisions, they fail and are usually dissolved. This is a cut and dry policy.
However, once in a while we are presented with extraordinary circumstances that force us to reevaluate our policies. Such is the case with the auto bailout. Technically, the federal government should have required that both General Motors and Chrysler Corporation file Chapter 11. Another company or investor should have acquired their assets and made a decision whether to dissolve the companies, break them up, or try to bring them back to profitability.
Initially, I was totally against the bailout. My feelings were that neither GM nor Chrysler should have anymore privileges than Joe’s Pizzeria. A corporation has the right to succeed or fail, and the government has no business sticking their nose where it doesn’t belong. But then I took a step back and looked at the situation from a different angle.
If you know anything at all about how our country operates, you know that the automotive industry is the backbone of the economy. It isn’t just about building and selling cars. Think about the number of industries that rely on the auto industry to survive. The automobile industry touches so many other industries that if we had let GM and Chrysler fail, the consequences would have been devastating. Think about all the auto dealerships across the country that would be out of business. How about the glass industry, the plastic industry, the steel industry, the tire industry—just to name a few. If the federal government would have allowed GM and Chrysler to go belly-up, it would have been a crushing domino effect. Thousands upon thousands of Americans would have lost their jobs and the recession could have easily turned into a depression.
As they say, hind sight is 20/20. Based on the fact that both GM and Chrysler are now profitable, and that GM has paid back the bailout money a few years ahead of schedule, I think we made the right decision. Hopefully, we won’t be faced with a similar situation anytime soon.