Ballooning Auto Bailout

The initial $17.4 billion cost of the auto bailout will merely be a down payment. Witness that less than two weeks after its introduction, the government is providing an additional $6 billion to GMAC and GM to help stimulate auto lending. And unless the Obama administration is tough with the UAW and requires auto workers to receive market wages and benefits, we should expect the bailout costs to balloon and never be fully repaid.

Chrysler reported that its sales for December plunged 53%, much more than the other auto makers. Although it is very difficult and inappropriate for the government to be in the business of picking winners and losers (then again, it is inappropriate to bailing out these companies to begin with), the government can limit auto company losses by pulling the plug on Chrysler and letting it fail.

There is vast excess capacity in the auto industry, which means factories need to close to return the industry to financial health. And since Chrylser continues to demonstrate, as it has for decades, that it is the weakest of the major auto makers, its demise would bolster GM and Ford and give them a better chance of succeeding.