Steel vs. Auto: Let them fail and they will succeed…

For years, the steel industry has been struggling without government help to stay afloat against a foreign competitor that is more efficient. In order for a company to survive they must reorganize and become efficient. This is what the auto industry needs to do. Here is more information from the International Herald Tribune:

“If they were allowed to go under, their partisans warned, the consequences would ripple through the economy at a cost too high to bear. The old saying, “As steel goes, so goes the nation,” was as much a threat as a boast.

The Detroit automakers are using the same argument as they seek a $25 billion bailout from Congress. “What happens in the automotive industry affects each and every one of us,” a General Motors Web site declares, warning that the consequences of a shutdown would be “devastating.”

The steel industry was beginning its long stumble when it turned to Washington for help in the late 1970s. The Carter administration responded by committing $300 million in loan guarantees to five struggling companies. Nearly a third of the funds went to help Wisconsin Steel, a Chicago outfit that had been around since the 1870s.

Thanks to a strike at a key customer, Wisconsin Steel promptly went under. The company locked its gates one winter day without even bothering to notify its 3,000 employees that their wages were history.

So was most of the government’s money.

Despite this fiasco, Jimmy Carter’s successors tried to deliver on demands for relief. In 1984, Ronald Reagan imposed import quotas to stem the tide of cheap foreign steel. In 1999, Bill Clinton guaranteed $1 billion in loans to beleaguered producers, and the following year imposed punitive tariffs on some imports.

It was never enough, particularly after the rise of low-cost mini-mills. By late 2001, their industry reeling, the steel makers wanted more from Washington: further protection from imports, pressure on other countries to reduce their steel-making capacity, and billions of taxpayer dollars to relieve the burden of their employees’ retirement costs.

They got a temporary tariff from President George W. Bush, but not much more. And so the steel industry – what was left of it – shuddered and collapsed.”

This example is an important read through of what could happen and what will probably happen if we bail out these auto companies. Now, without government help, the steel industry is back. Taxpayers do not need to throw money for companies that are going to fail just because there are a lot of jobs.

Companies can only survive downturns only by changing and restructuring. They must become more competitive to be efficient. Free money doesn’t make anyone efficient. It won’t make your teenager efficient and it won’t make a business efficient.

The rest is here.



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