Thursday, January 01, 2009

Should we have bailed out the U.S. car companies?

January 2009 - My stance on the government bailing out companies is simple. If the company is failing because their products or business practices are inferior, let creative destruction destroy them.

However, if the company is at an unfair disadvantage due to government policy, then it's the government's job to ensure said company is compensated. Here is an example to help explain.

When I was a young man my family would go to the local Ben Franklin's and gawk at toys. They seemly had everything. Guns that looked like real guns (I was a big fan of "Cap Guns"). Dangerous, plastic knives. The ever-popular Green Machine Big Wheel. We never got half of the stuff we wanted, but it was fun to look.

As I got older, the annual slobber fest moved to Pamida. Pamida - Your Home Town Store - was like Ben Frankin's on steroids. The building was huge! Their toy isle was double that of a kid's imagination. After Pamida, we went to Shopko because Shopko was better than Pamida.

Albert Lea - the large town near my small town - no longer has a Ben Franklin's or Pamida. As a side note, I see they are both still in business which was a pleasant surprise while researching this piece. Shopko is still around, but has competition from Wal-Mart and Target.

Ben Frankin's and Pamida were run out of town because Shopko, Target and Wal-Mart offered more for less. That is, they offered more value. The people are better off now than they were before.

If the local government would have "bailed out" Ben Franklin or Pamida, Wal-Mart or Target would have stayed away. The poor kids would have been left with an isle or two of antiquated toys instead of dragging their parents across entire departments at the likes of Target. Wait, now that I'm a parent, maybe that wouldn't be half bad....

I think you probably get my point. Creative destruction - letting Ben Franklin and Pamida fail - allowed new, fresh, better companies to move in. And someday Shopko, Target and Wal-Mart will be challenged by newer, fresher, better competitors. With, they already are.

Back to the car companies. I bought a Honda because I feel Honda's quality and value are better than Ford's. It's my opinion, that U.S. car companies have failed to keep up with their International competitors. Honda engineers are producing a better product, and so it's my feeling that we should let the U.S. car companies go into bankruptcy. Moreover, instead of using the money to bailout corporations, government should give it to the employees to help retrain the millions of people affected.

This is easy for me to say as first, I don't work for the car companies. I'm sure if I was an engineer for Ford, I'd have different feelings. Second, I don't have enough information on the fairness of the environment. That is, is a Hyundai cheaper because the South Korean government pays Hyundai's medical bills? If so, then I'd be more understanding of a company bailout, rather than an employee bailout.

My gut feeling is that we have a combination of environment unfairness and inferior products. That is, International companies may be getting some added benefits from their government. And U.S. cars are probably slightly inferior, as a whole, to Honda, Toyota and Hyundai. Hopefully the government brain-trusts have looked at all the factors and bailed out the car companies based on unfairness. If not, then we've just chocked off creative destruction and we'll all be worse off for it.

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