The Peculiar Politics of Bailing Out Detroit

DETROIT -- As of this morning, it appears that the Bush administration and Republicans in Congress are perfectly prepared to let General Motors go into bankruptcy, and that President-elect Obama and the Democrats in Congress are trying to simultaneously reform and rescue GM. Since the auto industry has been, after Big Oil, the most faithful business handmaiden of the Republican Party, you might find this a mite peculiar. And since House Speaker Nancy Pelosi comes from the metropolitan area with probably the lowest percentage of Detroit-made vehicles of any in the country, it seems stranger still.

Let's be clear: The management of GM doesn't deserve to be bailed out, and it's not clear to me that a bailout would work -- certainly not as long as the company continues its "change as slowly as possible" pace. Tom Friedman put it caustically last week when he mocked the idea that a corporation should require federal assistance to "innovate":

I could not help but shout back at the TV screen: "We have to subsidize Detroit so that it will innovate? What business were you people in other than innovation?" If we give you another $25 billion, will you also do accounting?

But let's be clear about something else: GM's stock value last week was down to $1.5 billion not because it doesn't have factories and business relationships worth vastly more than that on the open market. It's because it also carries very large pension and healthcare obligations that, should the company go bankrupt, would actually fall on the rest of us.

So the choice facing the federal government is not whether to spend billions on a bailout. It's whether to bail out the company now, in the hope of rescuing it, or to bail out the medical, pension, and unemployment costs of GM retirees, workers, and suppliers after a bankruptcy.

And the media are back to their old tricks. You could read dozens of mainstream media articles quoting Republican Senators such as Richard Shelby on the evils of subsidizing GM without ever once being reminded that Shelby and many of the other Republicans ganging up against a bailout come from states that don't have GM, Ford, or Chrysler plants but do have German or Japanese transplants that would benefit greatly if GM went under.

A major goal of the Bush administration in pushing GM into bankruptcy is to get at the union contracts that provide middle-class wages in states like Michigan, Wisconsin, and Delaware. Breaking these contracts in a bankruptcy court, the Right reasons, would be another blow at the idea that workers ought to have living standards similar to those of managers -- what Barack Obama infamously called "spreading the wealth." GOP blogs make it clear that this is all about the United Auto Workers -- and who cares what it does to our economy.

But you'd never know that from the media.

Read More:

Should the Government Bail Out the Big U.S. Three Automakers? HuffPost Bloggers Weigh In

Comments

[philosopherkingtomas]

let them go into bankruptcy on Bush's watch, and then OBAMA will provide incentives to purchase high mpg cars from their stock ($10,000 credits), new govt fleet purchases, and require increase fleet mpg by 50% over several years.

its a tough remedy but the Republicans let the workers down again.

[Plank]

Let's clear the confusion. Unlike the bailout to the wall street bankers, this is a loan. Plain and simple.
If we can find $700 B for companies that push paper and $10 B/month for Iraq, we certainly can afford $25 Billion to help companies that build real products.

[RedneckDem]

Maybe some of you need to put some thing in perspective before railing against the car makers, especially against the workers.

4.5 million Americans out of work if they go down. 4,500,000 X $60,000= $270,000,000,000 hit on the economy (thats 270 BILLION). Do we need to add in all of the restaurants, stores, malls, etc... for some of you to get the point? The $60,000 number is low, but the end number is still huge. Everything starts to fall after that...

Am I happy about any of this, heck no! But, I'll surely bail out 4.5 million American autoworkers before I pay for another Wall Streeters bonus or extravagant retreat.

[legalclubs]

So where does this end??? DHL just failed, should be bail them out? My local chain of clothing stores (Mervins) just declared bankruptcy, should be bail them out?? Circuit City just filed -- should we bail them out?? There are thousands of companies in trouble, many very small, but many of significant size, and we only have a limited number of funds. Why should it go to support a company that can't produce products that any wants (at least not at a profit) or for employees of that company whose benefits make them twice as expensive as their competition.

The bailout of Detroit doesn't any fix the problem. It simply buys another 6 to 18 months, after which the money will be gone at we will be right back in the same situation. Either another bailout, followed by another and another and another in perputuity, or allow a bankruptcy. Let's get the pain out of the way now, instead of extending this problem to the future.

[RedneckDem]

The big three has more employees than everyone to date put together. Projected tax revenue losses paid to our gov't for first year are twice what the bailout would cost and future tax revenue would be affected due to ex-car makers finding jobs with considerably less pay.

[SallyRB]

America loves to shoot herself in her foot-- God love us. All I have to say is get ready to love your Nissan, Toyota and Honda-- and yes, Virginia, their prices WILL GO UP.

Yes to outsing bad exec's and greeeeeeeding union leaders. But not loan GM $$ to re-group, re-structure, and re-hire Americans! But to let GM or any of the big 3 go under and loss of milliions of jobs, billions of revenues that trickle down to the corner store-- ITS ALL LIKE THROWING THE BABY OUT WITH THE BATHWATER!!!!

God, all this reminds me of my sister-in-law-- just one bad decision after another!

[Diane Tucker - Huffpost Blogger]

Automotive journalist Peter DeLorenzo agrees with you. Here's the link:
http://www.huffingtonpost.com/diane-tucker/journalist-to-gop-youre-1_b_144481.html

[brodon]

You better believe this is about union greed and the auto industry that caved in to it.

What a just reward for the UAW who insisted on paying employees not to work.

[PigLipstick]

More urban legends like Trickle Down Economics and Privatization ? Yet another round of gangster capitalism supported by a corrupt Plutocracy !

[RedneckDem]

There are some aspects of the UAW that we may find questionable, but they are not the cause of this mess. And anyone who sits there and armchair quarterbacks fellow Americans who make a great living is just jealous or the typical Republican hypocrit.

The car builders are only as good as the technology, mgmt and materials will permit. Wages, health care and pensions represent about 8-10% of every vehicle, which is not unreasonable.
paying employees not to work is just a means to keep good workers alive until something more solid comes up (i.e. so they dont look elsewhere and you lose a good employee or dues paying member).

[legalclubs]

You must be joking. Then why doesn't everybody do that? You can't tell me that providing a full salary for workers to sit at home at watch television all day was the automakers idea. This was pushed by a greedy union, a union which will now have to decide...cut pay and benefits or everyone loses their jobs. That's reality.

[biskitdaddy]

Don't feel one bit of sympathy for 'em. They've spent the past 30 or 40 years getting fat by selling consumers disposable cars and now they want a bailout; I say no way, no how.

[Aemilia Scott - Huffpost Blogger]

Excellent piece. I didn't even think of the union-busting angle to the GOP push for the Bailout. It seemed all-too-convenient that the political bloc would support a bank bailout, and weeks later not support an automotive bailout. Here's my take, also posted on Huffington:

http://www.huffingtonpost.com/aemilia-scott/objects-in-mirror-seem-mo_b_143710.html

Hope the link works.

Aemilia

[ratail]

Here's are two out-of-the-box ideas for how the federal government could keep this part of the economy going:

#1 - Have the feds buy a whole lot of cars, trucks, and buses. I mean, $25-$50B of them. Pay for the vehicles in advance with a big cash deposit. Make Detroit build vehicles the federal government can use, for uses like the armed forces transportation system, the postal service delivery system, helping the the 3 million-strong federal workforce (perhaps you can deduct something from their pay in they take a federal car for a few years). With this order, make Detroit deliver vehicles that are incredibly fuel efficient, or that run on natural gas, or hydrogen, or battery power, or something else that would jump start some critical new sectors of the automotive space. Put a board together to oversee the purchase, and have them take 1-5 years to get delivery of all that is needed -- change the order as circumstances change.

#2 - Let GM and friends go Chapter 11, but have the feds step-in prior to the filing with Congressionally-approved $25-$75B in DIP Financing. Debtor in Possession Financing (DIP) is a special investment made, post filing, that ensures the DIP Financing repaid before all others. Put a special board in charge of the DIP program that would oversee the management of the credit line.
Mr, I'd rather we all chipped in and bought a lot of cars?

[Hoelder]

What is so big about the Big Three, if we have to bail them out? Republicans like to hang the unions of all evils, but forget about the fearless leaders that drove the Detroit three into the ground. I am torn among the arguments, presented to us. If the tax payers bail them out, should not the government own them? I know everybody is so afraid of government owned businesses that they forget to mention that companies that potentially impact the welfare of the people are most like better of to own the whole mess anyway. Since we have seen that the greed and self interest, caused a melt down of unseen proportions. What the current discussion left out, is to define the executives as the stewards of the employees they lead. But responsible leadership and encouraging innovation among employees is not part of the discussion. In reality it is time to rethink the hierarchical structure of many corporation and transfer responsibilities and power to the employees. Employees should be empowered to be guide their own fate. CEO are the highest administrator, but where are the other roles in IT, etc.

[poomplet]

Sorry, but it's just plain infuriating to see all this braying about management & using the bailout to leverage increased fuel efficiency while they ignore the #1 cause of this debacle; the UAW's stonewalling.

The average hourly income for the Big 3...including benefits...is $72 an hour vs. $48 for Toyota & Honda @ US plants. Add in that the Big 3's market share has sunk from 70% to 47% over the last 20 years, and you see how this crisis came to be.

Any bailout without compromise by the unions will do NOTHING for the long-term stability of these companies. The only question is...do Democrats, who are now in a position where they need to suck up to the unions who helped them take over Washington, have the ballz to demand that union contracts be renegotiated.

Breaking the union contracts is imperative for the survival of the industry, not a sneaky GOP end run.

[OrangeBananas]

So do you have a suggestion on what to do with the thousands of workers who would be out of a job if any one of the Big Three went down? Do you have a suggestion for the small business owners who's make a living in plant towns? Or do you just want to punish everyone because of mistakes made by management? Do you have a replacement model? Have you figured out a magical way to make the American economy work without the auto industry? Hey, maybe we could push more bad loans around!

Are you so bugged by SUV's that you think these people deserve to lose their jobs in a bad economy where good jobs are hard to come by? Are you so happy with your Toyota you don't care what happens to a big part of American heritage?

If the greedy criminals on Wall Street get a bailout then so should Detroit because we are talking about thousands of workers and American icons. The bailout should come with conditions of course, but we shouldn't ignore the needs of the auto industry when we have an opportunity to rebuild it.

[PigLipstick]

" Thousands of workers who would be out of a job". Japanese and Korean auto manufacturers with fill the void and give those workers secure jobs with a future.

If your upset about the job situation you should have gone after the Bush administration sometime in the last 8 years to stop the exporting of millions of manufacturing jobs to 3rd world countries.

16 years ago presidential candidate Ross Perot told us about the incompetency of GM Management as they openly attacked labor to drive up their bottom line and fill their pockets, another precursor of today's economy. Over the last 5 years they have closed manufacturing facilities and shipped manufacturing equipment to it's new location in China and other foreign locations. The responsibility of managing and funding the retirement system has been handed to the unions who have relied on Wall Street to build and maintain wealth in these funds, good luck now !

35 years ago, during the so-called oil shortage, U.S. auto manufactures had the opportunity to convert to battery power using the newly developed Lithium Battery from NASA. Ford Motor actually started development on two models of electric cars, within 3 years the auto industry had dumped the electric car and were back poluting the environment. We can no longer continue to support an industry that has abandoned it's former inovation and creativity for the sole purpose of boosting the bottom line for it's stockholders !

[legalclubs]

I can honestly say I am "so happy with [my] Toyota [that I] don't care what happens to a big part of American heritage" i.e. the Big 3. Keep in mind that most Toyota's sold in America and built right here in America providing very good jobs for Americans. In addition, they don't have their handout begging me, as an American Taxpayer, to bail them out every few years (not to mention all the other government perks -- like the billions to make "green" automobiles when the competition just does it).

The "greedy criminals on Wall Street" shouldn't of got a bailout either. Two wrongs don't make a right.

As for all the workers, I strongly suggest the workers apply for jobs at Toyota and Honda or other companies running successful auto plants. Alternatively, they can train for a new job outside the industry. It's an American tradtion to be flexible and adaptable.

[nevergiveup]

In the 1980s, the California's Air Resources Board and other state agencies required all automakers who sell cars in California to have a hybrid for sale by 2002--or you couldn't sell your cars here. The Big Three spent millions to fight this law in courts. The Japanese, however, took the law seriously and today there are hundreds of thousands of hybrids and EVs on the road. The Big 3 have whored their way around America for 60 years, with enormous management bonuses, millions to lobby Congress to evade fuel efficiency standards.

Is $25 billion going to matter. Probably not. Americas' auto industry is so corrupted, so mismanaged, so behind the curve that they will never recover because they were too arrogant when they had the chance to retool. They sent jobs to Mexico rather than retool US plants. They are typical Corporate Americans""we're too big to fail. If you're too big to fail, then your company needs to be broken up. Period.

I say we use that money to fund small companies who are already doing what the Big Three should have been doing 30-40 years ago.

[mheinznyc]

Detroit, and GM in particular have played a heavy hand in dismantling our mass transit system, that
we now desperately need. The US auto industry, has undermined the best interests of the American people for the last 50 years, in the name of corporate profit. We now find ourselves drastically behind
European countries in terms of mass transit systems, although our transit budgets are enormous.
Detroit has lobbied for this illogical distribution of funds, to keep highways open for more and more or their own product, and railways rusting and refused. No bail-out of this sort of shortsightedness is
at all reasonable. I applaud those in Congress who finally see the writing on the wall. The focus should be on those thousands of employess and their families who will lose their job. Use that money to get these people building trolleys, trains and rail systems. How many times do we need to hear that we have polluted the entire planet before our politicians do something to get us caught up
to our friends in Europe who know when to take the train to work....( because THEY HAVE ONE ! )

[BBackSoon]

Wouldn"t you think that Big Oil would have a stake in this also? If we loose all those jobs who will buy the Gas and Diesel?

Now that Nissan and Toyota are making full sized trucks the big 3 may not be missed.

I for one will morn the loss of the US auto industry for the Iconic cars they have made in the past but you can keep the current crop of cr@p they shove out the door. I worked in an auto plant and the mindset I saw was one of indifference. They were just cars and who cares if they are junk. People will continue to buy out of brand loyalty. Those days may be coming to an end, some people will buy Detroit to keep the money in the USofA but many will try to get real value for their hard earned money.

Perhaps as part of the Bailout, it should also be a Buyout and some of those mothballed plants should be loaned or leased to some of the Electric car companies that are in need of assembly line manufacturing. And some of the other could be retooled to produce solar panels, wind mills and the like? I for one would like to see a vehicle that gets 50+mpg or comparable, can carry 5 or 6 passengers, is crash worthy and costs under $10k. I also liked your idea to make trolleys and people movers at these factories.

[LunaNik]

Hear, hear! We must be the only industrialized country without decent public transportation. Where are our high-speed trains?

I often travel 95 North from Boston to where my daughter goes to college. Rush hour there is ridiculous, with 20-mile-long traffic jams. Look around, and 90% of the vehicles have only one person in them. Yet there is a commuter rail with park and ride facilities the entire route.

If we had a high-speed rail system, my 2-hour drive would be reduced to 25 minutes, and my stress level to zero.

[Nofoolhere]

Can anybody explain the logic and long term benefit from bailing out an industry that out sources the livelihoods of American workers? The Ford Motor Co, only a few months ago, sent 40,000 Michigan livelihoods to Mexico, thus devastating not only the workers and families themselves, but the entire economic and social infrastructure of the communities in which they live. THE CORPORATE OWNED AND OPERATED MSM REMAINS MUTE!

[Overd0g]

Neither management or labor deserve to be bailed out.

[Wiserone]

Sorry, but the Big 3 STILL just don't get it, but that doesn't stop them from having their hand out for a hand out. Let's not kid ourselves. When GM/Ford went to the government they asked for a BAILOUT, not a "loan". It was only until public controversy started about having any of the auto companies part and parcel of the $700 Billion bailout. That's when the auto companies 'restructured' (novel idea for them, I know) and approached the government for some sort of "loan" instead. All fine and good, right? But, tell me, how does one wrap their head around the fact that the Big 3 are going before Congress this week and this morning on TV was an ad for the NEWEST HUMMER!!! Nope, the auto companies are giving us now their version of a ponzi scheme and we, the tax payers are more than ready to play the game, one 'Mo time. When will we ever learn....