Why the public rejects car firm bailouts
WE are almost there. Barring a last minute hiccup, General Motors (GM) will enter into bankruptcy today. Like Chrysler, it will be using section 363 of the US code, which ought to allow it to reemerge in a few months having shed assets, liabilities and shareholders, and with the government owning the bulk of the business and unions and creditors the remainder. Many of its factories, brands and dealerships will be shut, and there will be vast job losses. In Europe, Opel/Vauxhall are being sold to a consortium led by Magna, the car component firm, as we explain on p4, with some job cuts inevitable in Britain.
All of this restructuring had long been necessary; but unless GM is sold again quickly, it will end up being used as a political football, with huge pressure on Barack Obama to prop up unprofitable parts of the business that deserve to be shut down. Taxpayers are already reeling, mainly in America but also in Germany. GM has racked up $100bn in losses over the past four years and has already been bailed out to the tune of $19bn. It is no surprise, therefore, that a Rasmussen poll at the weekend showed US voters at odds with the pro-bailout view of much of their political class.
Rasmussen found that by 67-21 per cent, voters “oppose a plan for the federal government to give GM an additional $50bn to buy 70 per cent of the company.” Only 18 per cent told the pollster that the government will do a good job of running GM, which confirms that American voters retain their common sense. Even when presented with the choice between government funding or letting GM go out of business altogether, only 32 per cent support the bailout. No fewer than 56 per cent say it would be better to let GM go out of business. This should not come as a surprise, given that the majority opposes bailouts for finance companies, banks, homeowners struggling to repay mortgages, the crisis-ridden state of California and insurance companies.
Remarkably, British voters also don’t support the bail-out of Vauxhall, just as they in the main opposed handouts and loans to the banking industry. A recent PoliticsHome.com poll discovered that 50 per cent of the electorate oppose using public money to rescue Vauxhall, with 33 per cent supporting the idea. All of which confirms a fascinating and partly contradictory shift in Britain and America: while many have lost trust in some institutions of capitalism, with much anger directed at bankers, most people are far less corporatist and far more supportive of allowing the market to do its job and letting bad businesses fail. The public has become both more and less pro-market as a result of the credit crunch.
The real hero of the car industry debacle is Ford. It has retained its independence, it is not seeking government cash and it is staying well clear of the bankruptcy courts. This is giving it a boost, especially in America: 51 per cent say they are more likely to buy a car from Ford because it did not take funding from the state, and the firm is now viewed favourably by 64 per cent of Americans. Ratings for GM and Chrysler are much lower.
So here is my advice for British consumers: if you don’t like the fact that a bank (or any company, for that matter) is being bailed out, shun it. Put your money where you mouth is and only do business with firms that have resisted the urge to pick our pockets.
[email protected]