The intellectual arguments against an auto industry bailout are well established. Taxpayers should never be forced to subsidize any company, let alone a poorly run company. Subsidizing the Big Three would be tantamount to subsidizing failure. That’s bad policy.
Corporate bailouts are clearly unfair to taxpayers, but they are also unfair to the successful firms in a particular industry, who are implicitly taxed and burdened when their competition is subsidized. In a properly functioning market economy, the better firms—the ones that are more innovative, more efficient, and more popular among consumers—gain market share or increase profits, while the lesser firms contract. This process ensures that limited resources are used most productively.
Some iconic U.S. automakers are now in dire straits, but the car industry itself is not in crisis. Even if one or all of the Big Three failed, there would still be plenty of strong auto companies operating throughout the United States. The Big Three currently account for slightly more than half of all light vehicle production and slightly less than half of all light vehicle sales in the United States. The rest of the U.S. auto industry includes Honda, Toyota, Nissan, Kia, Hyundai, BMW, and the other foreign nameplate producers who manufacture vehicles here. These companies employ American workers, pay U.S. taxes, support local businesses, contribute to local charities, have genuine stakes in their communities, and face the same cyclical contraction in demand as do the Big Three. The difference is that they have been making more products that Americans want to buy and will endure this recession without any taxpayer assistance because they have more efficient cost structures.
The decline of the Big Three is hardly a recent phenomenon. Detroit has been losing market share for decades. It has not produced a top‐five selling passenger car in years. Detroit’s once‐popular SUVs and large pickup trucks have fallen out of favor with consumers. The Big Three failed to sufficiently diversify into reliable, efficient, and aesthetic passenger cars when they were earning big profits and had the money to do so. Their bloated cost structures have given non‐Detroit competitors a $30‐per‐hour advantage in labor costs.
Want proof that automobile production remains alive and well in the United States? Just look at the success of Honda’s operations in Ohio, Toyota’s in Kentucky, Nissan’s in Tennessee, BMW’s in South Carolina, and Hyundai’s in Alabama, as well as the proliferation of new plants across the country, such as the new Honda facility in Indiana and the new Kia plant in Georgia.