Way back when (1980) when Chrysler was asking for a government loan, many of the same arguments were made as are being made today: let them fail, the business will go to other manufacturers, the free market works in sometimes painful ways.

However, then, as now, the cost of unemployed workers is greater than the cost of making loans to the manufacturers. The workforce in the auto industry, along with all of the dependent subsidiaries, cannot easily relocate if plant closings in one location result in hiring increases in others.

Bankruptcy for goods like autos is not like bankruptcy for things like cereal or even airlines. While most consumers have no problem buying a box of cereal from a company going out of business, or buying a ticket on an airline in bankruptcy protection, they know there is little risk from the financial troubles of the maker. Regardless if General Mills closes its doors, that cereal will be good to eat until the expiration date on the box. If Fly By Night Air goes out of business, that ticket will still most likely get the traveler somewhere on another airline or the travel will be completed before the airline stops flying. If General Motors closes its doors, warranty service and parts support in the years that vehicle is in service becomes very questionable. There are many more risks in buying a car from a bankrupt company than just about any other product. Anyone want to buy a Daewoo??

Ford GM and Chrysler all made bad decisions. They were flush with cash and instead of planning for building a diverse fleet, they concentrated on those products that made big bucks quickly. The Ford Excursion with its choice of V10 gas or huge V8 diesel sucked fuel, did not fit in most garages or parking spots but made thousands of dollars per vehicle. Chrysler took its engineering prowess for granted, designed some ugly middle-of the road cars and nearly ignored the low end of the market. Even Toyota and Nissan put their vehicles on high-fat diets, making them bigger and bigger. The compact Toyota and Nissan pickups are no longer compact, even the Honda Accord grew three sizes and can now be taken home with V6's and "road hugging weight". Fuel efficiency did not increase but power, weight and performance sure did. Part of that was due to building stronger, safer cars but fuel economy was never a big concern. A good example is the VW Rabbit. Back in the early 1980's a two-door Rabbit weighed in at under 2000 pounds. Today's Rabbit is over 3000 pounds. Sure it has airbags everywhere and doors that can withstand a side impact from a Suburban, but it only gets 30 MPG on the highway. Why not 40? or 45 MPG? I had a 1989 Lincoln Towncar that got 24 MPG on the highway. Why does this little car only get a few more than that big boat?

Toyota, Honda, Nissan and the rest are hurting too. Their sales are down but at least they have some decent smaller cars although financing even good customers is tougher than ever. Funds for leasing has dried up because it is so hard to determine the future value of vehicles in today's market. (Leases are based on the difference between the price of the car today and the selling price 2 or 3 years from now. In 2005 that was relatively easy to determine; today even the best actuaries have a hard time finding a value that can be relied upon).

Ford says it is about a year away from marketing some of its good vehicles currently sold in Europe. Those cars have to be tested and modified to meet US crash safety and emissions requirements, plus the cost of re-tooling North American assembly plants as building small cars in Europe and shipping them to North America is not cost-effective.

It takes the manufacturers 2-4 years to design, test, tool up an assembly plant and get a new vehicle to market. There are some good cars in the pipeline on tap for 2010 and 2011. If the manufacturers fail now, the cost of tens of thousands of unemployed auto workers, managers, parts distributors, delivery company employees, and suppliers would be greater than the cost of making loans (not give away money, but loans to be paid back). Closing manufacturing plants is not like closing the local Staples Office Supply; those workers cannot easily find work where they live and they cannot sell their homes. When a big employer in any town closes, retail suffers, restaurants suffer, construction, services, finance, gas stations, tire stores, even barbers see revenues decline.

I don't like seeing incompetence rewarded. However, if any of the automakers fail they will take thousands down with them. I also note that republicans generally oppose loaning automakers money and democrats support it. Auto manufacturing, steel mills, and support industries are concentrated in states that supported Obama. Go figure.