More Krugman

I don’t exactly know where this comment was made, but it seems right on to me: Krugman: US Auto Industry Will Probably Disappear

The essence of this issue is that the American auto industry is in bad shape not because of the current economic slump, but because it is horribly uncompetitive. It makes awful products that the world market does not want and relies heavily on the local US market for its survival. It is encumbered with union deals that are so onerous the industry cannot compete on price. And it is hampered by having to cover health care costs that its worldwide competitors do not have because they are all in countries with nationalized health care systems.

We must all keep in mind throughout the discussion of the auto industry that cars will still be made in America even if all three of the big Detroit car makers go out of business. Honda, Nissan, and Toyota all have successful and profitable factories here. So it is possible to make cars in the US. Those cars are unlikely to be made by American firms however.

We must also look at the auto market here. There will still be heavy demand for cars. It is highly likely that one or more of the big foreign auto makers would be interested in buying the operations of GM or Chrysler, once those operations have shed the burden of the union contracts and the current management has been eliminated.

So the bail our loans being proposed are unlikely to save the industry. But they may buy time for a restructuring to take place or for a foreign buyer to step forward.