This really makes for an interesting case study. The largest US automaker GM has only enough money to last until Dec 2008. Banks don't want to lend money and the commercial paper market has dried up making it impossible for GM to raise money from the market.
Here are some of the facts:
1. GM employs 266,000 people. Together with its subcontractors employ close to 500,000.
2. For each car GM sells it loses about US$600 (vs Toyota which makes $700).
3. Because of unions, the hourly pay for GM workers is US$78 per hour. The US autoworker is paid in 2 days the monthly salary of a Thai worker on the Toyota assembly line in Thailand.
4. If GM goes bust, the estimated cost to govt in terms of lost taxes, unemployment benefit payouts etc is $200B. GM needs a bailout of $20B to remain a going concern.
The best thing to do according to George Bush is let it go bust - GM is has an uncompetitive business and it should be allowed to fail. Rescuing GM using tax payer's money will be a moral hazard - other uncompetitive businesses will want govt bailouts. It is not fair for the govt to use tax payers money to help some people (like overpaid autoworkers) and not others. The Democrats argue that it does not make sense to let GM fail because it will cost the economy 500,000 jobs and tax payers more money. Many analysts suggest the best and most practical way forward is to bailout GM and squeeze its unions and management for pay cuts and concessions...force a restructuring of the company to make it competitive again. Letting it go bust is just too horrendous to consider for the US economy which ia already falling off the cliff. However, if GM remains uncompetitive, it will need more infusions in the future. IMHO, whether to bailout a business depends on whether it will eventually become competitive. A positive example is Chrysler's bailout of US$1B in 1979. Under the leadership of Lee Iacocca the company turned itself around and repaid the govt ahead of schedule. For a negative example we don't have too look too far. Chartered Semiconductor received billions through Temasek but can't get to the level of competitiveness of its Taiwanese rivals and after years of red ink and cash infusions, Temasek is looking for someone to buy this company....and the losses to Singapore taxpayers all part and parcel of Temasek's investment process which ordinary Singaporeans are told not to be too concerned about.