Catch-22 situation

As much as the automakers bailout is welcomed by the industry, it is constantly under fire. Governments often find themselves in a Catch-22 situation -- to let auto companies fail without intervention would exacerbate the recession; but to pump taxpayers ' cash into the industry, which many believe is doomed to fail, could just turn out to be a waste of money.

Many doubt if the U.S. car industry still has a future, as it has been struggling for survival even before the recession. Mounting labor costs, unsuccessful business model and mismanagement have made the once glorious U.S. vehicle manufacturers lose more and more market share to their Japanese competitors in North America.

"What needs to be done is to help the automakers get a fresh start and allow them to focus on producing good cars rather than trying to juggle their books to meet past obligations," 2001 Nobel Economics Prize winner Joseph Stiglitz wrote in an article published in Financial Times earlier this month.

"The U.S. car industry will not be shut down, but it does need to be restructured. That is what Chapter 11 of America's bankruptcy code is supposed to do," Stiglitz said.

Princeton University professor and New York Times columnist Paul Krugman believes the governments are acting because there is "a correct lack of willingness to accept (responsibility for) the failure of a large industrial sector ... in the midst of a very, very severe recession."

"In the end these companies probably will disappear," Krugman said in early December when he was in Stockholm to receive this year's Nobel Economics Prize.

Double-edged sword

In the case of the U.S. auto bailout, even if the current plan works well -- people can make an initial assessment by March 31, the deadline for the automakers to prove the effectiveness of their restructuring plan -- it will inevitably have a double-edged impact in many aspects.

As the most extensive government intervention in the U.S. industry in years, the bailout set a precedent for using public money to save a dying industry. If the economic situation keeps worsening, which is most likely to happen in the coming year, other manufacturing sectors or loss-suffering businesses may also cry for government aid and similar taxpayer-funded bailouts.

And because the auto bailout plan failed to pass Senate and had to be covered by the existing 700-billion-dollar TARP, which was designed to buy bad assets of financial institutes, many are now wondering what the U.S. government shall do if more people, like state and city governments or non-financial companies, line up for a scoop of the remaining 350 billion dollars.

Government aid to a specific industry may also arouse concerns about unfair competition and subsidized exports, leading to trade disputes or fueling trade protectionism.

All these problems are now left for President-elect Barack Obama, who will be inaugurated next month. And one thing for sure is that he will face a growing bailout fatigue among American taxpayers.

And the strong advocate for change has made his stance clear: " With the short-term assistance provided by this package, the auto companies must bring all their stakeholders together -- including labor, dealers, creditors and suppliers -- to make the hard choices necessary to achieve long-term viability." Even though this goal can be achieved, it seems to be just the first step on a long path.

(Xinhua News Agency December 25, 2008)