Garrett Coman: Don't fall for the Big 3's doomsday predictions - they're unlikely

Nancy Pelosi has said that she is willing to tap into the $700 billion financial market bailout fund to make sure the Big Three do not go into bankruptcy. This is against public opinion and against the best interest of the American citizens and long-term viability of the Big Three.

General Motors' corporate Web site states that three things will happen if the U.S. government doesn't bail out automakers. First, nearly 3 million jobs would be lost in the first year alone - with another 2.5 million to follow over the next two years. Next, the cost to local, state and federal governments could reach $156.4 billion over three years in lost taxes and unemployment and health care assistance. Last, domestic automobile production - even by international automakers -would more than likely fall to zero due to supplier bankruptcies.

In all actuality, not one of these three events is likely to happen. GM's estimates are fundamentally flawed. The estimates are based on the Big Three ceasing production of cars. This will not happen; domestic auto production will never fall to zero. The investments in skilled labor, manufacturing plants and distribution networks are far too valuable to let the industry disappear. One of two things will happen: either the Big Three will declare bankruptcy and reorganize, or foreign automakers will start producing more cars in America. Both of these scenarios mean work for suppliers, high employment and tax revenues for the government (while the Big Three are losing money, they aren't paying any income tax).

The question that Americans should be focusing on is: What is the best way for the Big Three to return to profitability? - not what is the easiest plan or the fastest plan, but the best plan for long-term profitability. The answer is Chapter 11 bankruptcy, and here are several reasons:

Contracts with the United Auto Workers union put the Big Three at a competitive disadvantage. Health care alone costs domestic producers $1,200 per car sold, while Toyota pays only $216. The average worker at Japanese-owned plants in America makes $80,000 per year, while those working at domestic owned plants make $130,000, with seven weeks of vacation. There is no way that the Big Three can be competitive without being able to pay competitive wages, and the concessions the UAW has made are not enough.

The Big Three cannot produce cars that Americans are willing to purchase for "Toyota money." American cars must be steeply discounted as compared to foreign autos because they are not perceived as having the same value. The reason that the Big Three don't produce competitively designed and produced cars is not because of a lack of talent in American engineers. Bad management of the Big Three's resources is the culprit; they are not able to create a business environment where innovation and personal responsibility rule, such as at Toyota. (Think government bureaucracy.)

Finally, the Big Three must get out of debt (they may be close to insolvency), which calls for going through bankruptcy. Chapter 11 can get the Big Three out of debt, realize the market value of the companies, get them out of their union contracts, find new management that will realize the resources and talent in the companies and give the Big Three a fresh start.

Bankruptcy is what the Big Three need - not a bailout that will let them limp along for another few years, bleeding taxpayer money on uncompetitive high wages and inefficient business models while delivering below-par cars to the American consumers supporting them.

Garrett Coman of Boise will graduate from Pepperdine University in May with a degree in economics.