Should the Big Three car manufacturers be bailed out by the US government?

The Pro:

Much has been said about the impact of the credit crisis on U.S. auto makers, and whether or not the government should assist the industry during this extraordinary financial turmoil. In these discussions, many critics simply ignore the substantial changes that U.S. auto companies have already made — changes much like those the critics are calling for as part of any aid package…

The auto industry may be historically anchored in Detroit, but it reaches into every state and community in our nation… GM, Ford and Chrysler last year purchased $156 billion in parts, materials and services, supporting jobs in all 50 states…

The future of the domestic auto business is critical to the health of the U.S. economy. It is a vital engine of economic growth and a foundation of economic stability. It remains a path of upward mobility for millions of American families. For America to compete in the global marketplace in the 21st century, it needs a strong manufacturing base and a vital domestic auto industry…

Short-term government support to bridge the current financial crisis will enable GM to continue as an engine for prosperity and as a creator of vehicles and technologies that America needs. Such assistance will save millions of jobs now, and produce enormous benefits for years to come.

The Con:

I believe bankruptcy is better than a bailout for American consumers and taxpayers…Bankruptcy would help GM and Ford become more competitive by abrogating significant parts of their labor contracts with the UAW. One of the greatest needs would be sizable reduction in their health costs through sharp increases in the deductibility and co-payments, and a reduced coverage of medical procedures. Bankruptcy should also help bring the wage rates of GM and Ford in line with those of foreign producers in the US. Some of their pension liabilities may be shifted onto the Pension Benefit Guarantee Corp, but even that would be preferable to an overall bailout…

Is GM ‘too big’ to fail? I do not believe the company is too big to go into a reorganization — which is what bankruptcy would involve. Such reorganization would abrogate its untenable labor contracts, and give it a chance to survive in long run. A bailout, by contrast, would simply postpone the needed reforms in these labor contracts, the business model of GM, and its management.