Companies, economists debate benefits of auto bailout

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    By Christopher Reed

    With the American automotive industry on the verge of bankruptcy, a debate has ensued as to whether the Federal Government should grant General Motors, Ford and Chrysler the $25-billion bailout they requested.

    Chief executives of the Big Three joined forces and asked for $25 billion in loans to keep their companies from going under.

    On Chevrolet”s Web site, General Motors posted a link to a video to persuade the public the government bailout is in America”s best interest.

    “One out of every 10 people in America is employed in a service that is related to the U.S. auto industry,” GM said. “If a plant closes, so does its suppliers, the local stores, the hot dog vendors, and the local restaurants.”

    Some estimates say as many as 3 million people could lose their jobs during the next three years if the Big Three go under.

    GM blames the current credit crisis for the auto industries” state of affairs.

    K.O. Murdock, owner of Murdock Chevrolet in Woods Cross, said he has mixed feelings on the issue.

    “We”ve had our leaders from GM ask us to support them on the issue,” Murdock said. “I guess I”d say that I do because we”re tied to them so closely. I wonder if we”d all be better off if they went through a chapter eleven. The question I still have in my mind is would bankruptcy be better or worse for the nation? The uncertainty of that is making me support the bailout. I don”t know what to think. I just see so many jobs being affected. Because we don”t know how it will affect the nation, I don”t know how to choose. I guess I would support the loan.”

    Opponents to the bailout are not few in number, and they are making their voices heard.

    “A managed bankruptcy may be the only path to the fundamental restructuring the industry needs,” said Mitt Romney in an editorial published by the New York Times.

    Romney, the former governor of Massachusetts and a candidate for this year”s Republican presidential nomination, said asking the government for help is not wrong, but automakers need to present a win-win proposition if the bailout is to succeed.

    “If General Motors, Ford and Chrysler get the bailout that their chief executives asked for… you can kiss the American automotive industry goodbye,” Romney said. “It won”t go overnight, but its demise will be virtually guaranteed.”

    Mark Tyacke, 54, owner of Tyacke Motors in Provo, said he feels the bailout should not take place, and the economy should be allowed to fix itself.

    In an article published recently by the Wall Street Journal, David Yermack, a professor of finance at New York University”s Stern School of Business, said the Big Three ought to be allowed to go bankrupt and disappear. He said time has shown these three companies are not a good place for American capital.

    Yermack contradicted arguments he said are being used to justify the bailout. One argument focuses on the large number of jobs that may be lost.

    “Americans are not going to stop driving cars, and if GM, Ford and Chrysler disappear, other companies will expand to soak up their market share, adding jobs in the process,” Yermack said.

    Yermack also countered the argument that a bailout would give the companies an opportunity to produce more environmentally-friendly vehicles.

    “Given their long track records of lobbying against fuel economy standards and producing oversized gas guzzlers, this suggestion seems ridiculous, sort of like asking cigarette companies to help with cancer research,” Yermack said.

    Jim Brau, 39, associate professor of finance at the BYU Marriott School of Business, said he has mixed feelings about the bailout.

    “I know people personally who own bonds in GM and Ford who would lose a lot of money,” Brau said. “I know people who work in Michigan who would be laid off. From a personal point of view I wouldn”t like to see them fail. As an economist I think the free markets need to kick in and a government bailout isn”t in order.”

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