Bailing out GM/Ford. Would you Bailout the Clippers?

The Los Angeles Clippers, along with the Arizona Cardinals, Cincinnati Bengals, and Detroit Lions all hold the unofficial title as worst sports franchises. To make this clearer, prior to 2006, the "Clippers" hadn't won a playoff series EVER. The franchise did win a playoff series 28 years prior, when they were called the Buffalo Braves. Likewise, the Arizona Cardinals couldn't manage a home playoff game until this year. The last time they did that, they were the Chicago Cardinals playing at Comisky.

So what's the point of this franchise hating? Well, I'll pose the question to you. If you had an extra billion in your pocket, would you give it to the Clippers? The Lions? The Bengals? Likely not. Economist's call this the opportunity cost of money. Surely, you could spend that money on something more profitable.

Likewise, I can't understand why the Federal Government seemingly spearheaded by President-Elect Obama (while Bush is somewhere on a ranch in Texas. Which is fine by me), wants to bail out GM and Ford. Why bail out the Bengals, when you can use that money for better causes? GM and Ford have consistently created non-efficient, poor handling, high mile per gallon, and overly ugly vehicles for the past 30 or 40 years. While GM was adopting army vehicles, the size of a mack trucks for ordinary consumers (i.e. the Hummer) , foreign automakers were creating less costly, better fuel efficient vehicles, that felt fun to drive and actually looked good. GM and Ford are partly to blame for the high MPG, fuel cost expenses we found this past year due to their inability to compete on the world stage. Instead, of creating more innovative cars and efficient vehicles, they created the trend for big and unsafe sport utility vehicles. In the US, we see Daddy's girls riding solo in their GM Suburban (here), while Europe and Asia have been trotting out smaller fuel efficient cars (okay, this is too much).

So why are we rewarding GM/Ford/Chrysler with billions of dollars (note, they've been losing money so fast that $30 billion won't help them out of this crunch)? GM/FORD have been whining for so many years due to the contracts with unions that call for high pensions/health benefits that they say make their vehicles more expensive then their foreign counterparts. Wouldn't it make sense to go bankrupt, sever those contracts and start all over. Bankruptcy doesn't mean the end of US manufacturing of cars. It just means that someone (whether its Toyota or a smaller line of GM cars) will create more profitable US made cars in the future.

The caveat to this argument is that the bankruptcy of these companies would create enormous job loss. However, the entire auto manufacturing industry is only comprised of approximately 250K workers. (to put this into perspective US has a labor force of about 150 million). First, not all these workers would be laid off in the event of bankruptcy. Secondly, giving these companies billions of dollars does not guarantee these same workers will keep their jobs. To the contrary, GM/Ford would still be running at negative profits due to a decrease in sales, which would still require layoffs.

Finally one last point. To be fair, GM/Ford and other American automakers are now actually creating their best cars. They are smaller, fuel efficient and becoming more attractive. In fact, experts say that these cars rival even the best foreign made cars. Unfortunately, they still have that darn Chevy or Ford emblem on the front of them. And I for one, can't get that Oldsmobile Delta '88 out of my head to make me buy another American car.

Lets do something better with that money (education, giving it to the laid off workers, etc), instead of investing it in the Clippers.