The Bailouts At Ten

In the decade that has passed since the financial crisis, we haven’t learned anything.
In the decade that has passed since the financial crisis, we haven’t learned anything.

General Motors just shared some very bad news: It is closing five factories in the United States and Canada, eliminating 15 percent of its work force (and 25 percent of its executives), and getting out of the passenger-car business almost entirely to focus on SUVs and trucks. President Donald Trump threw a fit, but GM shrugged him off. The facts are the facts.

What did U.S. taxpayers get for their $11.2 billion bailout of GM? About ten years of business-as-usual, and one very expensive lesson.

Bailouts don’t work.

Never mind the moral hazard, the rent-seeking, the cronyism and the favoritism, and all of the inevitable corruption that inevitably accompanies multibillion-dollar sweetheart deals between Big Business and Big Government. Set aside the ethical questions entirely and focus on the mechanics: Businesses such as GM get into trouble not because of one-time events in the wider economic environment, but because they are so weak as businesses that they cannot weather one-time events in the wider economic environment. GM’s sedan business is weak because GM’s sedans are weak: Virtually all of the best-selling sedans in the United States are made by Toyota, Honda, and Nissan. The lower and middle sections of the market are dominated by Asia, and the high end of the market by Europe: Mercedes, Audi, BMW. GM can’t compete with the Honda Civic at its price point or with the Audi A7 at its price point. Consumers like what they like, and they aren’t buying what GM is selling. It isn’t winning in the dino-juice-powered market, in the electric-car market, or in the hybrid market, either: GM is not exactly what you would call a nimble corporation.

So, things are grim for GM.

On the car front, anyway. GM has a much healthier business selling trucks and SUVs, a business that it now will focus its resources on — as it should have done long ago. Why didn’t it do that?

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See Also:

(1) General Motors Restructures

(2) Trump retweets item saying GM should pay back bailout money

(3) Trump must save GM’s Lordstown, Ohio plant, or he might be the next to lose his job

(4) Trump threatens penalties on foreign cars after GM plans U.S. layoffs

(5) Donald Trump faces fallout of stalling US car industry

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