Friday, August 22, 2008

Don't Bail; Let Them Fail

Don't give me a hard time for the title; I'm not very creative.

It seems that GM, Ford, and Chrysler (who I will not call American, because they're not very, and I won't call the "Big Three", since they're not as nearly as big as they used to be) are seeking $25 billion in loans from the federal government, at 1/3 the interest rate they would get from private lenders.

I've said it many times to my students: Business failure is a feature, not a bug. The threat of going out of business disciplines firms, and the failure of a business shows other businesses what not to do. Let them fail. Yes, many people may lose their jobs in the short term. Many of them will get new jobs at the other auto manufacturers who pick up the slack. Others will into non-automotive businesses. More importantly, bailing out these automakers just makes them and other companies more likely to do the things that cause failure (and job loss) in the future. Bailing them out is a tempting short-term fix that isn't worth the long-term consequences. I'm guessing some kind of bailout will happen, though. It may be disguised as research subsidies for alternative-energy engine design, but it's too politically attractive to turn down.

In completely unrelated auto news, this little Ford Fiesta looks pretty nifty. Even better would be the Mazda 2 (Mazda's version of the same car). Better yet, a Mazdaspeed 2. One of the nice things about everyone wanting more small cars is that the more intense competition for that market results in better cars.