The Auto Bailout and Post-Partisanship?

I was shocked to find myself agreeing with Republican Senator Bob Corker as he questioned the Detroit automakers last week -- at least with his assessment of the problem, if not his conclusions. Corker put it in stark terms -- we wouldn't be in this particular mess if it weren't for General Motors, which is likely to go bankrupt by the end of the month without a federal bailout. Ford, on the other hand, borrowed billions of dollars last year at low rates and, if not exactly sitting pretty, is at least like to survive into next year. And Chrysler, the third leg of this dysfunctional troika, is owned by a private holding company, which is loaded with cash but reluctant to put another nickel into what is clearly the weakest link in a failing industry. The real shock is that the automakers, and other members of the Senate committee, pretty much agreed with the picture Corker painted.

The question, of course, is what can be done about this mess? Everybody in the auto industry is staring into the abyss -- the automakers, the unions, the suppliers, the dealers -- not to mention the government and the taxpayers. There's plenty of blame to go around -- including Hank Paulson and the Treasury Department for refusing to release a few billion in TARP funds to the auto industry while the banks are taking hundreds of billions in public money to pay dividends and make acquisitions. And Ron Gettelfinger brought up the excellent point that American trade policies which permitted countries like South Korea to export tens of thousands of cars to the U.S. while at the same time severely restricting imports of American vehicles. Unfortunately, issues of free trade and industrial policy get tabled while the government deals with the potential bankruptcy of our entire auto industry.

Dr. Mark Zandi, the chief economist for Moody's Economy.com, presented what is likely to be the shape of the eventual compromise. Zandi argued for an immediate $17 billion to go to GM and Chrysler (with nothing to Ford) and a strict set of benchmarks to be revisited by the end of March, when he predicted that the automakers would be coming back for more money. The eventual price tag for saving Detroit, Zandi estimated, could reach $75-$125 billion. Although he didn't say so, it sounded like Zandi was implicitly agreeing with Corker's assessment of the predicament, but wasn't willing to let the automakers fail in the midst of this crisis, since it could launch the economy into an even more serious meltdown. Zandi's compromise proposal, of course, raises the question whether this kind of halfway measure will ever work, or whether it is the beginning of a slippery slope, pouring good money after bad. In effect, that is the crux of Corker's argument.

What this latest iteration of the economic meltdown suggests is that we ought to be looking at the larger issues raised by the crisis in the American economy - indeed in global capitalism itself. Do we need big changes in our economic structure, or would that be overreacting to the present crisis? If we need big changes, do we need to make those changes immediately, or can the fundamental change be more incremental? Ultimately, how much control do we have over the fast-moving crisis? This last may not be a rhetorical question, since we may have more control than we think, once we figure out more clearly what the challenges are that we face.

Which brings me back to my shock at agreeing with Republican Senator Bob Corker's observations, if not his conclusions. Although Corker undeniably comes from a very different political and ideological perspective than I do, and his conclusions about what actions should be taken are also very different from mine, there is no denying that his assessment of the problem is dead on. This is the kind of honest, concrete discussion that has been missing for the past eight years of a Republican administration. It also bodes well for a forthright dialogue on our economic woes. I would expect that President-elect Obama will be equally blunt in his assessment of the scope and nature of the challenges, and will engage the American people and Congress in a refreshingly honest dialogue on the way forward. In the midst a very dire crisis, that is one hopeful sign.

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

Comments

[Oakland]

From Daily Kos:

Only in America are automotive companies being subjected to the disdain displayed by Congress and the country in recent weeks.

In Europe, Japan & elsewhere, the governments usually provide health care coverage for workers, and in some cases, they even own a stake in their auto companies.--snip--

Portugal & France have announced plans to craft aid packages for car and parts makers operating in their countries.

Other companies seem situated to receive assistance if they need it from their government owners. Lower Saxony, a state in Germany, is a 20% shareholder of Volkswagen AG. France, meanwhile, owns about 15% of Renault SA.

Even Chinese automakers are now asking for government aid to deal with the global credit crunch.

The European Automobile Manufacturers Association asked the European Union on Oct. 29 for 40 billion euros, about $50 billion, in a low-interest loan package "to help secure a sustainable market for current and newly developed fuel-efficient technologies." --snip--

The European Union also has set aside $6.3 billion of a $252-billion general economic stimulus package for the 27-country union to help European companies make cleaner cars.
--snip--

During testimony in front of the House Financial Services Committee on Friday, GM Chairman and Chief Executive Officer Rick Wagoner pointed out the advantages that Japanese automakers have had in the development of batteries for hybrid vehicles.

"It's not a coincidence that the leadership in battery technology today" is in South Korea and Japan, Wagoner said

[w8aminute]

Although Sen. Corker seems to making a name for himself during these hearings (he was just on CNN), there seems to be a little something he chooses to ignore. He objects using taxpayer money for the Big 3 and calls it a 'bailout' (as opposed to the Wall Street re-investment). But I wish someone would ask him the dollar amounts of the concessions that they gave to Volkswagon & Nissan to build in Tennessee. It doesn't matter if you call them 'concessions', 'bailouts' or 're-investments' - they all use tax payer money. The difference is when they were given the money. In the beginning the break is a concession - when it comes to saving between 3-3.5 million jobs it's called a bailout.

Re:VW - Tennessee officials have not released details of what it is giving Volkswagen.. but the additional support includes assistance for public infrastructure and job training....Tennessee officials in recent weeks approved $1.25 million for work at the Chattanooga site that was once part of an Army ammunition plant complex. State officials won't release the incentive package that was used as bait to attract Volkswagen.

I don't know what the equivalent in today's dollars would be for Nissan since they got their package in the early 80s, but it would be nice if someone would point these little things out to these Southern Senators. They are so proud that the transplants in their states weren't burdened with providing healthcare and other retirement benefits.

[leftLibertarian]

How about a Post-Modern Bailout.

Have Jacques Derrida declare (from the gave) that cars are modernist phenomena/events that are frivolous.

[Jp2]

Untill americans agree that built in america is good for america we will continue are downward slide into lower paying jobs with no benifits.Even Reagan thought it was important to save the last american motorcycle manufacture (Harley Davidson) by raising tariffs on imported bikes from 4.4% to 49.4%.If it wasn't for the credit market meltdown the big 3 wouldn't even be looking for a loan.Ask your buddy Corker when he and congress are going to take a haircut and ask him who exactly pays for his legacy cost.The U.S. is the only country playing by the rules in this so called global economy and we're dopes for doing so.

[freshnotbitter]

MSNBC is showing a runaway truck on TV and Huffie's headlines are the democrat Fitzgerald's indictment of the governor of Ill on corruption.

Must be hot dogs on the menu on capitol hill. the oj chase came on the Friday after Paula Jones gave her first Prime time interview on "Prime Time" on the preceding Thursday.

The solution to the Detroit big 3 problem is very easy. You apppoint Mitt Romney car czar and he takes the company through bankruptcy court while liaising with Congress to create legislation and emergency funds which will guarantee warranties for the big 3 with the full faith and credit of Uncle Sam. Mitt Romeny has already endorsed that plan and says it is fully workable.

end of story.

But there's a problem. Democrats want to lose seats in 2010. Thfore we move to plan B. We lie to the public telling them that unlike every other industry which has successfully reorganized under Federal bankruptcy laws, the big three must not get anywhere near bankruptcy court because people would not buy their cars. That means we are forced to bail out the big 3 so they can continue to operate at a disadvantage with other car makers and we pretend that everything is ok and we never hit that ice berg and there is not a hole in the Titanic.

How's the governor of Illinois doing?

[w8aminute]

Ay yi yi. Everyone that says bankruptcy is the answer to get the Big 3 out of these contracts seems to conveniently gloss over the consequences. Although it appears the slate will be wiped clean and they can start fresh - what exactly will happen to the promises made to the retirees and suppliers? Sure the courts will say they no longer have to pay their obligations, but who will get stuck with that bill? Those retirees earned their pensions - do we really need a higher percentage of elderly living in poverty? And the suppliers will be forced to go bankrupt in return when they can't pay their bills or employees either. Taxpayers will get stuck with much more of the burden, with less taxes coming into the treasury and more people out of work.

I'm pretty sure back in January when Mitt was promising Michiganers he would 'save Detroit' he wasn't stumping on leading them through bankruptcy. Can't wait to see if he wins Michigan in his 2012 run, or if he's counting on the population being much smaller so they won't matter as much.

[KillTheMessenger]

"American trade policies which permitted countries like South Korea to export tens of thousands of cars to the U.S. while at the same time severely restricting imports of American vehicles."

This is just another distraction. GM is not in this mess because of tens of thousands of sales that it might have lost but because of the millions of sales that it made AT A LOSS. So lets stay focused here.

"Zandi argued for an immediate $17 billion to go to GM and Chrysler (with nothing to Ford) "

Sounds like a good idea... not. So we are supporting the companies that are performing worst, while we are punishing the one that is doing the best. The prudent response would be to let either GM or Chrysler fail and the remaining two would pick up the business of the one that went bankrupt. In this case the preferable choice would probably be to let GM go and to send Chrysler back to Cerberus with a little warning that if Chrysler fails the feds will investigate the Cerberus board. That might get things moving at Cerberus rather quickly.

And I have to agree with your conclusion about Senator Corker. Maybe the lights are not completely out over at the GOP.

[Hoyt Hilsman - Huffpost Blogger]

Your point about letting GM or Chrysler fail is a good one, although timing is everything. I suspect that the result may be the one you predict, but whether it happens now or in three to six months seems to be the main question. I would prefer some kind of orderly dissolution of GM and/or Chrysler in an environment where their assets are not completely at fire sale prices. I also would like to see the economy and markets prepare for the inevitable losses rather than have them crash down on us all at once. But, as they say in Hollywood, "Nobody knows anything." That is certainly true in this financial crisis. Thanks for your comments.

[Jp2]

So Hoyt Hilsman you can agree that our trade policies are unfair.So your solution is to let G.M. and Chrisler fail rather than rethink our whole trade policy .We sure don't need more bright thinkers like you around we have enough of them in congress!!!!!!!!!