U.S. Auto Makers - Turn out the lights. The party's over.

We certainly have had our share of bailouts this year. Now momentum has gathered to add the U.S. auto industry to the list. For 2008 sales of new automobiles are down 14.6%. Adjusted for population growth, levels of new car sales have not been this low since just after WW II. GM and Chrylser employ about 145,000 people and 600,000 retirees depend on them for pensions and health care. The auto makers cannot get credit from banks, they cannot raise the money from stocks, and their bonds are trading at between 20 cents and forty cents on the dollar. But the question we must ask ourselves is what exactly do we want from another government bailout? Do we want to save the U.S. automobile industry? I’ll go out on a limb and say the answer is yes. The next question is, in order to insure that we do this correctly, how much of a bailout is needed. The answer is zero. Nada. Not a dime.

If you want to truly save the U.S. automobile industry, you must let the free market do it. If we briefly look at the other bailouts we will find that, left alone, the markets will adjust to whatever challenges are presented. Regarding mortgages, Bank of America, JP Morgan, Wachovia, IndyMac, and others have all begun to renegotiate with mortgage holders to allow them to navigate their way through these tough times. These actions were easy to predict. Banks do not want your house. They want the loan payments. In addition, before FDIC limits were increased, consumers were shifting their money from troubled institutions to healthy banks. Again, this behavior was easy to predict. Given the opportunity, consumers will act in their best interests to safeguard their savings.

Getting back to the U.S. automobile industry, their problems go back to the 1970s when they did not shift to making smaller, fuel efficient cars, like the Japanese. Now, even in the most ideal conditions, it will be difficult for them to compete because of their unsustainable commitments to their retirees. If we look at other industries, historically, when companies go bankrupt, former rivals buy the assets at drastically reduced prices, hire some of the workers back, and fill in the vacuum left in the market place. Simply put, if the U.S. auto makers go under, all that will happen is that Honda, Volkswagon, or another automotive company will buy their plants and equipment to produce cars in the U.S., save themselves the shipping and handling, and build some of their cars here. Toyota builds many of its cars in the U.S. Many will still lose their jobs, but, even if GM and Chrysler would merge, it is estimated that 40,000 employees would lose their jobs. There is no easy fix. By contrast, a bailout only means prolonging the inevitable. These problems have been building for decades, and no amount of hope or money will solve them.