In defense of domestic car company bailouts

Author: Dan Searles and John Stohlman
Posted: Sunday, June 20, 2010

As every American knows, Presidents Obama and Bush took the highly controversial step of bailing out two of our iconic car companies, GM and Chrysler. This move has been widely criticized as a disastrous first step in socializing all aspects of our industries. While we agree that bailing out industries is dangerous and should usually be avoided, we believe the car industry bailout was an exception to the rule for two reasons:

First, in the case of the U.S. car companies, the government broke them, so the government should fix them. Yes, many of the U.S. car companies’ problems were caused by State and Federal policies.

For instance, do you know that due to highly punitive state laws that date back 50 years or more, to a time when GM, Ford, Chrysler, and Studebaker held over 80% of the market share, it is almost impossible to close down a car dealership in the U.S?  As a result, as the U.S market share dwindled downward, domestic dealers began feeding on each other. So Cadillac has 1600 dealerships and sells the same number of cars as BMW, which has only 350 dealerships. Therefore, BMW dealerships are quite profitable, while Cadillac dealerships are often close to each together and compete against other Cadillac dealers. This drives down the profitability of dealers as well as the price of the cars.

Did you know that the Japanese Government grants huge research and development dollars to their automakers, while the U.S. has, until very recently, not given any research money to domestic manufacturers? This puts us at a big disadvantage in technology breakthroughs.

Japan and Germany have government healthcare. So car makers in those countries pay nothing for health insurance, while domestic makers, until bankruptcy, paid over $1,200 per car just for healthcare costs! Again, these are dollars that otherwise would have gone into research and development.

Until recently, every foreign-made car sold in Japan had to go through a Japanese inspection process that involved actually taking the cars apart and reassembling them. This supposed “safety measure” was actually a way of jacking up the cost of foreign makes. Therefore, a Chevy Impala sold in Japan costs twice what it costs here in the States. Obviously, very few foreign cars are sold in Japan because the Japanese have created an unfair playing field.

Reason number two: The U.S. Government needed to bail out the domestic manufacturers because domestic makes such as Ford, GM, Chrysler and the new Fisker, Tesla, and Aptera car companies support U.S. jobs big time. According to the Level Field Institute, Ford (Lincoln, Mercury) employs, “87 Americans for every 2,500 cars sold,” followed by GM (Chevrolet, Buick, Cadillac, GMC) and Chrysler (Dodge, Jeep, GEM Electric Cars) at 78 and 66, respectively. Among the foreign automakers, Honda leads with 44 American workers for every 2,500 cars made, followed by Toyota (42), Nissan (34), and Hyundai/Kia (15). Buying a Ford, GM, or Chrysler product supports a lot more American jobs than buying a foreign car. Case in point, buying a Ford supports almost six times more American jobs than buying a Hyundai.

They go on to say: “Secondarily, autos assembled outside the U.S. by companies based here support significantly more U.S. jobs than autos assembled here by companies with most of their engineering, design and headquarter jobs located overseas. For example, a Ford assembled in Mexico this year will likely support approximately six times more U.S. jobs than a Hyundai assembled in Alabama. It will also contain more U.S. and Canadian parts than Hyundai’s assembled in Alabama.”

All these facts lead us to believe that Presidents Bush and Obama were correct in their assessment that the loss of our auto manufacturers would have been a severe blow to our economy and that bailing them out was the right thing to do.

Dan Searles and John Stohlman, of Medallion Financial Group, are CFP®’s and Registered Representatives with over 25 years of experience in the financial industry, offering securities and advisory services through National Planning Corporation (NPC), member FINRA/SIPC, a Registered Investment Adviser. Medallion Financial Group and NPC are separate and unrelated companies. They manage over $250 million of client assets. For further info, questions or comments regarding this article, Dan and John can be reached at 1-800-878-9704 or Dan.Searles@natplan.com.

 

All information is believed to be from reliable sources; however, National Planning Corporation (NPC) makes no representation as to its completeness or accuracy. NPC is not to be held responsible for and may not be held liable for the accuracy of information available.

Categories: Money Matters

Tags: U.S. car bailouts,financial advice

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