Auto bailout: lemon or lemonade? Will a bailout of the Big Three automakers--General Motors, Ford, and Chrysler-refresh the auto industry or further sour the economy?(ECONOMY)

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With the total tab for Washington's bailouts in excess of $8.3 trillion and with one economic sector after another looking for handouts, it is perhaps not surprising that the struggling automobile companies would have gotten in line. What is surprising, perhaps, is the amount of media and congressional attention devoted to the $14 billion auto bailout compared to the total bailout tab for all economic sectors. Not only is the total tab still growing, but there appears to be no end in sight.

Not that $14 billion is insignificant. Regardless of who's being bailed out, transferring wealth to a politically favored sector can only be done at the cost of hurting the economy as a whole. It rewards failure (successful companies do not get bailout money), encourages more bailouts, and results in more government control. The bailout of the auto industry is no different.

Financial Troubles

There is no question that the Big Three automakers--General Motors, Ford, and Chrysler--are in financial trouble. The Big Three are burning through billions in reserves just to continue operating, even as they face a tightening credit market, plummeting share values (between 70-and 82-percent drops over the last year, with GM currently worth less than toy maker Mattel), and a dramatic slump in sales--the worst in decades. In addition, sales of the highly profitable but gas-guzzling SUV's have been in steep decline since the surge in gasoline prices, dealing another revenue blow to the beleaguered automakers.

One of the most frequently blamed culprits in this debacle is the United Auto Workers, which for decades has been demanding all sorts of benefits and salary requirements that made the Big Three much less competitive than their foreign or non-union counterparts. The average total cost of a unionized employee is over $70 an hour, while the total cost for a non-union autoworker is usually less than $50. If Michigan were a "Right to Work" state, where each worker would be able to choose whether or not to join the union, the union would not have had as much clout and the discrepancy would not have been as great. But because the federal labor laws make union membership in a union shop compulsory (except when a state opts out via "Right to Work" legislation), the UAW was in effect able to exercise monopoly control of the workforce to win concessions that have not only damaged the Michigan-based automakers' ability to compete, but have ultimately put the workers' jobs in jeopardy.

In the past, the American auto giants could just pass all the added expenses on to the consumer, but with competition in the industry becoming increasingly more fierce and international, contracts that were agreed to in better years seem to be unsustainable if the Big Three hope to remain competitive.