The Meaning of Change Will Be Tested by the Auto Industry Bailout
On Meet the Press yesterday, Tom Brokaw presented the two sides of the proposed $25 billion auto bailout debate. Sen. Carl Levin, Democrat of Michigan, argued that it was essential to help the car manufacturers survive, since not to do so would mean the loss of millions of jobs. Sen. Richard Shelby, a Republican of Alabama, responded that the government should not be in the business of propping up failing companies, and that a Chapter 11 filing might be the best thing for an organization like General Motors that has been so poorly run. (You can read the transcript here.)
Both of them made solid points, even as they were both coming from exceptionally tainted places. (Shelby was espousing a right-wing, markets-cure-all philosophy that has been discredited by the current economic crisis, while Levin has been a central player in the group of Michigan members of Congress who have protected the auto industry from any environmental or other federal regulations, helping to cause the current state of failure for the three companies.) Levin is correct that in the current economic climate, the loss of millions of jobs would be catastrophic. And Shelby, too, is right that the bailout would be throwing money at an industry that has been exceptionally poorly run.
But, to me, the Levin-Shelby argument is like two passengers fighting for a deckchair on the Titanic. No matter who wins, the ship is still going down.
Both of the senators on Meet the Press missed the larger point, viewing the issue in a short-sighted manner. They failed to address the 35-year history of this country not adopting a sound energy policy to combat the dangers of relying on foreign oil imports. The Levin-Shelby smackdown on Meet the Press (which correctly portrays how the battle seems to be shaping up on Capitol Hill now) demonstrates a "same old" approach to this enormous problem, with one side fighting for its special interest and the other side mindlessly clinging to an outdated ideology, all while the larger, politically thornier challenge goes ignored.
Didn't we just have a presidential election that was built on the idea of change?
This country faces an energy crisis that will have a profound effect on our future fortunes in myriad ways. Economically, the swings in the oil market can wreak havoc on the day-to-day fiances of average Americans, as we saw when gas prices soared to more than $4 a gallon. From a foreign policy standpoint, our dependence on oil from the Middle East has forced us to engage in the region in ways that have not served our national interests. And from the point of view of global warming, if we don't do something to lower the level of carbon that we release into the atmosphere, all of the other problems we're facing could become moot if the very habitability of the planet is called into question.
Simply put, after 35 years of sticking our heads in the sand, it's time to address the overall energy situation, rather than running to address crisis after crisis resulting from a lack of a sound energy policy. Or, as Barack Obama put it on 60 Minutes last night, "We go from shock to trance" when gas prices go up and down, and that kind of approach has to stop. (You can read the transcript of the interview, or watch it, by clicking here.)
Since Obama campaigned on a message of change, I was hopeful that his take on the auto industry financial woes would reject the Levin-Shelby view of the issue and adopt a broader point of view. And on 60 Minutes last night, Obama delivered. He said:
"For the auto industry to completely collapse would be a disaster in this kind of environment, not just for individual families but the repercussions across the economy would be dire. So it's my belief that we need to provide assistance to the auto industry. But I think that it can't be a blank check. So my hope is that over the course of the next week, between the White House and Congress, the discussions are shaped around providing assistance but making sure that that assistance is conditioned on labor, management, suppliers, lenders, all the stakeholders coming together with a plan what does a sustainable U.S. auto industry look like? So that we are creating a bridge loan to somewhere as opposed to a bridge loan to nowhere. And that's, I think, what you haven't yet seen. That's something that I think we're gonna have to come up with."
I liked that Obama wants any solution to take into account what "a sustainable U.S. auto industry" will look like, because the big three U.S. car manufacturers have not demonstrated that they have a plan to survive in a 21st century energy environment. I took his statement to mean that for these companies to be sustainable, they have to be part of a national energy policy that looks to wean the country off of its addiction to oil.
Obama and the increased Democratic majorities in Congress do not come into power until January, and it is, apparently, not certain that General Motors can last that long without aid from the government. But if George W. Bush and the current Congress decide not to act, and the company survives to next year, the fate of the U.S. auto industry could provide the new president and Congress with their first test of what change really looks like.
I do have confidence that President Obama will propose that any assistance to the car manufacturers be part of a larger plan that changes the way the United States approaches its energy use. I have less confidence that such a plan will find enough support in Congress to pass, especially in the Senate, where it would take only 41 Republican votes to keep any legislation from moving forward.
If, come January, the debate over aid to Detroit is framed strictly as a Levin-Shelby showdown, we have all lost, no matter which side prevails. Such an outcome would demonstrate that despite the best intentions of a President Obama, the power structure in Washington is not really open to fundamentally changing the way business is done, and, more importantly, is unable to tackle the real problems facing this country.
The question shouldn't be whether or not to bail out the U.S. auto industry. Rather, the debate should be how assistance to the car manufacturers fits within the larger national energy plan that is greener, self-sustaining and economically positive.
Sure, David Brooks is correct that the U.S. auto industry has no right, based on its track record, to be propped up by the government. And Paul Krugman was correct (as he discussed on This Week yesterday) that the effect of the U.S. automakers going out of business in the current economic climate could be devastating to the economy. But, in the long run, what really matters is that the U.S. develop an energy policy that not only ends our dependence on foreign oil and combats global warming, but also provides an engine for 21st century economic growth. And in doing so, that plan would provide aid to the U.S. auto industry that is consistent with this policy, addressing the concerns of both Brooks and Krugman.
Obama was elected because Americans wanted change. I take that to mean that the American people are ready for big solutions to big problems. I hope that the crisis in the U.S. auto industry provides the first chance to address a big challenge, rather than ignore it and battle over an issue that is merely a consequence of a much larger problem. I believe Obama is up to the task. The question is, will Congress let it happen?
Read More:
Should the Government Bail Out the Big U.S. Three Automakers? HuffPost Bloggers Weigh In
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So the first 25 billion isn't enough? Now they are asking for another 25 billion! Who's going to pay for this and when does this stop? Bailing out the auto industry is not something the taxpayers want. We have already seen how ineptly congress handled the financial bail out and our children's, children will be paying on that debt and the 10 trillion we already owe. If a business can't make a product people want at a reasonable price then they will go under that's how it works. Bankruptcy is a better solution for these relics that can't compete not tax payer funded bail outs.
Why is every billion dollar corporation and its mother that makes grevious financial errors entitled to a bailout and us pions who have lost and are losing homes have no such entitlement to our free tax money?
We must first make absolutely sure we make the auto industry accountable before bailing them out.
We strongly recommend that you get a script to Democracy Now Tuesday 11/18 program from 12:00-1:00am on channel 22 SF22 San Francisco CA. In fact we suggest that you watch all their programs and check out their web site. We trust their words more then we trust politicians words. They inform us of some criminal activity going on regarding the execution of the bail out plan, and other serious matters. The Democratic party has been weak in making the Bush administration accountable for criminal activity. This will certainly cause serious problems for the Obamas presidency, and will probably limit him to one term, if this issue is not resolved. The American people are fed up with our Government Officials committing, or are part of serious crimes, and get away with it.
In 2006, my small business became the victim of our Industry's Leading Competitor--with Private Equities monies behind them, ownership interests in Cisco and Sun Micro etc......and DeFacto Monopoies in various products and Search Engine collusion, we as a company failed. We lost our abilities to conduct business within our only affordable marketing and sales venue--The Internet.
When we filed our complaints within Local and State Official's Offices, (21/2-years and counting) we were told.........."Your problems are money and of "Civil Action"--we only prosecute Criminal Actions". Eventhough we argued Anti-Trust Legislation, "Fair Competition Rules" and even DeFacto Monopoly claims which included Identity Theft and violations of our 9th Amendment (Privacy), none of our Publicly Elected Officials did diddly-squat to prevent us from Financial Catastrophe. We lost our home, our savings and my wife (a 20-Year Veteran) is now filing for Bankruptcy.
Where the hell is or was our "Bail Out"? I was in-business for 14-years and fell victim to a Corporate Conglomaration of Private Equity Investors with ties to the PTO and U.S Commerce Department which allowed our Competitor to revive a 14-year abandoned Trademark which ruined us and others.
Ford, Chrysler, and GMC simply overpaid their Executives, wrote-off huge Advertising Expenses which all could have been used for Capital Reserves--that which we as Small Business Owners never had as we struggled daily to live the "American Dream". So, what's my opinion? Take a guess.
Excellent post, Mitchell, but where's the policy recommendation?
Here's one: $15 billion for the Big 3--not a loan, but a grant, $5 bil available per Big. One simple condition: 90% of the money must be spent on the development and roll-out of plug-in hybrid vehicles. Auditable.
I think it would be consistent in every way with Pres-elect Obama's requirements.
A problem with "assistance to the car manufacturers (that) fits within the larger national energy plan that is greener, self-sustaining and economically positive" is that free market worshipers, and there are many, won't like this at all.
Seems to me that said worshipers see the advantages of free market capitalism, but fail to see its disadvantages and shortcomings.
One shortcoming is short-term thinking, driven by the need for short-term profits. Another is that the only incentive in capitalism is money. The invisible hand of the free market provides public good if public good is defined in monetary terms. Capitalism provides no incentive to not pollute, or to move towards a future that's "greener, self-sustaining and economically positive" for the country as a whole. Left to individuals acting in their own self-interest (the foundation of capitalism), participants will pay no heed to what lies outside the bounds of the economic system.
Enter an oversight body - this would be the government - whose job it is to see that the economic system works positively within the geopolitical system and the ecologic system. (The ecologic system, by the way, will have the final say - we have no power of decision on what the natural laws are).
Whether government can do better than free market is a valid question. If a greener future - with less dependence on fossil fuels and development of alternative forms of energy - is a good thing, Western Europe, with their governmental imposition, is ahead of us.
These seemed to say it's not about whether we do or don't bail them out and then goes on to focus on what kind of conditions should be tied to assistance (taking the side of a bailout...or the Levin side). A Shelby side wouldn't be asking about preconditions for assistance because there is no assistance. In my opinion, I don't think we should bail out an industry that doesn't play a role in the credit market. And if we did, do you really think imposing more energy-efficiency mandates and cafe standards on the auto companies are going to keep them in business? That's like giving some water to a dehyrdated man in the desert and telling him he can only have it if he promises to pour salt in it first.
A Better Bailout Plan
For years, Detroit automakers have been unable to produce cars competitively, largely because they have to buy their employees" and retirees" healthcare through private insurance, whereas workers in all other industrialized nations are covered by cost-effective national healthcare plans. Even the foreign manufacturers who produce here undercut Detroit by recruiting a younger, healthier workforce.
Now that the bottom has dropped out of the market for SUVs and light trucks, the Big Three are facing certain bankruptcy and need a bailout, possibly for loans to fund the $51 billion they owe to the VEBAs they promised to set up for their retirees" healthcare. However, the VEBAs will purchase health insurance through private, for-profit providers, which skim off up to 30% from the top, as compared to Medicare, with only a 3% overhead. It would be far better for Congress to allow the UAW workers and retirees to be the first to enroll in a program based on the Conyers-Kucinich Bill (H.R. 676), an expanded Medicare with no premiums, no deductibles, no co-pays, and no hassles. Like Social Security, the H.R. 676 program would be funded by a payroll tax of 4.5% from employers and 3.3% from employees.
Will this save money for Detroit? You bet. If we"re going to bail out the Big Three, let"s do it in a way that solves a real problem that is strangling U.S. manufacturing: the burden of private health insurance.
1. "For years, Detroit automakers have been unable to produce cars competitively, largely because they have to buy their employees" and retirees" healthcare through private insurance."
No, it's not that it is PRIVATE insurance, it is that their benefits/pension are unrealistically large for their level of skill/education compared to other car companies. It's not about private/public health care.
2. "Even the foreign manufacturers who produce here undercut Detroit by recruiting a younger, healthier workforce."
That's not undercutting, that's just smart management. Why should not being inept be called "undercutting?"
3. "It would be far better for Congress to allow the UAW workers and retirees to be the first to enroll in a program based on the Conyers-Kucinich Bill"
So UAW workers are somehow more special than all other American workers that they should receive subsidized health care to keep the UAW from crying about making concessions to their uncompetitive legacy costs? This plan would inevitably have to dip into other tax revenue sources. Why not instead just renegotiate health benefits and pension (and wages) to make balance books more manageable and the company viable in the long run? And if they don't want to negotiate, let them sink. There are many other innovative automakers in the U.S. They'll buy up the pieces of the Big 3.
Don't give them money. Don't even lend them money. Instead, use some of those billions to purchase hybrid vehicles from them. Congress should enact legislation which bypasses the federal purchasing morass and funds the replacement of all government automobiles more than 2 years old with new HYBRIDs. The advantages of this are: (1) It ensures the money will go towards keeping the assembly lines running and the employees working . (2) It provides a product for the funds. (3) It shows the government's commitment to decreasing foreign oil dependence. (4) It produces demand for products from "downstream'" suppliers to automakers. (5) It provides an incentive for retooling to hybrid lines. Not enough business to keep them afloat? Add a modification to the military budget specifically for purchasing high-mileage autos to replace those over 2 years old. Full budget credit for qualifying autos purchased in 2009. Add a State cost-sharing program. Rebate 30-40% of the cost of qualifying 2009 purchases to the states' vehicle fleets for replacement with high-mileage vehicles. No money after 2009. Still not enough? Add a "Green Rebate" program. $2000 directly to consumers who buy a 2009 auto getting 30+ mpg to help offset the cost difference of hybrids.
Like the ideal welfare program, assistance to American manufacturers shouldn't be a handout, but a chance to be self-sufficient. If they can't make it after a program that artificially brings them business, then they should be allowed to go out of business.
A Better Bailout Plan
For years now, Detroit automakers have been unable to produce cars competitively, largely because they have to buy their employees" and retirees" healthcare through private insurance, whereas workers in all other industrialized nations are covered by cost-effective national healthcare plans. Even the foreign manufacturers who produce here undercut Detroit by recruiting a younger, healthier workforce.
Now that the bottom has dropped out of the market for SUVs and light trucks, the Big Three are facing certain bankruptcy and need a bailout, possibly for loans to fund the $51 billion they owe to the VEBAs they promised to set up for their retirees" healthcare. However, the VEBAs will purchase health insurance through private, for-profit providers, which skim off up to 30% from the top, as compared to Medicare, with only a 3% overhead. It would be far better for Congress to allow the UAW workers and retirees to be the first to enroll in a program based on the Conyers-Kucinich Bill (H.R. 676), an expanded Medicare with no premiums, no deductibles, no co-pays, and no hassles. Like Social Security, the H.R. 676 program would be funded by a payroll tax of 4.5% from employers and 3.3% from employees.
Will this save money for Detroit? You bet. If we"re going to bail out the Big Three, let"s do it in a way that solves a real problem that is strangling U.S. manufacturing: the burden of private health insurance.
Buying new cars for all of the beloved Washington beauracrats and pols on the tax payers dime? That would go over really well for the public. Instead of using the money to provide some liquidity to credit markets so you can buy that house or car or go to school....we're buying new cars for Washington. Don't worry, it's in the name of being Green ;)
Yeah, I see your point about the "beloved Washington bureaucrats and pols". But the clowns in charge would probably still retain their limos and drivers, though we'd all love to see a senator being chauffeured in a small fuel-efficient car. The bulk of the tens of thousands of federal cars are used by worker bees - the USDA field reps, FEMA folks, State Dept. gofers, etc. The point is, IF there are going to be funds used to help the auto makers, it shouldn't be "modernization grants" or "low interest loans", but something that primes the system from the assembly line up. Early next year, some assistance program will almost certainly be implemented. It won't be a choice between that and providing liquidity to credit markets. It will be a question of how the automakers get assistance. Want to make them a loan, even with guarantees and preconditions? Want to buy some land in Florida?
It has been said before, but here I go... IF the govt "loans" the auto industry anything there should be one requirement; within five years max... all cars produced by detroit be capable of at least 100 mpg... unrealistic? then let the oil companies pony up, they can use some of the unparalleled profits to keep their main use going...
Ford already makes a car that gets 65mpg in Europe. They are due to be sold here in 2010. The UAW has already taken over control of the health care to which GM is supposed to fund through 2011. Oh and I dont call a $25,000 a year pension after 30 years of service big bucks. Its based on wages and years of work. It amazes me how uninformed a lot of people are about the big 3.
What a great way to help dying auto companies....impose unrealistic mandates that not even Toyota can live up to.
If they want to sell the cars that they have on lots now then they should start drastically lowering prices, nothing else will do the trick.
There should be no bailout for the Auto Industry without preconditions. If allowed to continue building private Automobiles, they should be forced to dedicate at least half of their Manufacturing plants to building a new mass transit system. This system will be designed to rid our inner city areas of all privately owned vehicles by no later than 2012. The rest of the suburban areas by no later than 2017. All the rest of the urban and rural areas should be electric or hybrid entirely by 2022. They can't be allowed to continue in the manner that they have been any longer. Not on our dime. If they won't go along with that then to hell with them.
Mitchell Bard I agree we need a energy policy that gets of off foreign oil.So where has Shelby and all his buddies in congress been for the last fifteen years.It gets really old listening to the republicans bash the unions when they are just fighting for a living wage and healthcare for their members.With the economy in the shape its in (citigroup to layoff 53,000 workers) I don't think we can withstand another 2-3 million people losing their jobs.I think Obama's got it right with helping GM and Ford to become the leaders again in the auto industry.I also don't see whats wrong with telling other countries if you sell in are country,you build a plant her and hire American workers.That way everyone is playing with the same rules.No more minipulating your currency same enviromental laws,same labor laws ect.John McCain said that every one billion in exports equals 22,000 jobs if thats true with our trade deficit I caculate we have lost app. 14-16 million jobs.Mostly higher paying manufacturing jobs.
Barack Obama's approach to the auto industry meltdown is the only sensible one.
Existing management has discredited itself in the most convincing way possible, by steering the industry to the edge of bankruptcy. Therefore whatever reorganization is proposed, it should NOT include the present executive echelon. They must be invited to leave with not even the mention of any golden parachutes. In fact the Big Three's shares should be held in trust until the reorganization is complete. Alternatively the existing shareholders could be paid off in bonds and sent home.
Don't forget....all the car parts aren't made in Detroit or America.
Most of this money will probably be used for them to try and sell their inventory.
If the dealerships go under, who will sell the cars. Plus the fact , the auto workers
this is supposed to benefit usually can't even get a break on the price of the cars they make.
If they go to a different kind of efficient car, what is supposed to happen to all the cars
that need to be sold at the dealerships....maybe they can scrap them and sell the scrap to China.
Maybe they can be auctioned off and let the big 3 use that money to start their new line of cars,
which probably won't happen soon because they probably don't even have a plan.
So, in the meantime the gas guzzlers will still be on the road because most people can't afford
a new car anyway.
Maybe the government can give each family money to purchase a new car... yeah right...
Who killed the electric car?
Why, the AUTO INDUSTRY!
Just think, if it wasn't for the dinosaurs at the Big Three, we could have fleets of electric cars on our roads right now. How's that for "energy independance"?
Hell if we want to turn the clock back even further, we could have adopted Jimmy Carter's plan and be TOTALLY off foreign oil by now. But no, we got Reagon who encouraged us to keep sucking off the Saudi teat.
This Machine,
I agree with you.
Let these guys file bankrupcy and reorganize in a GREEN fashion.
I'll be damned if my tax $ dollars should bail out these gas guzzlers.
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