Today's Opinions, Tomorrow's Reality
Meddling with Disaster
By David G. Young
Washington DC, December 9, 2008 --
Government meddling through an automotive bailout won't help America's car companies. Bankruptcy offers the only hope for the future.
With plans emerging for a $15 billion first-round bailout of America's sickly auto companies, taxpayers are on the verge of being sold out to a powerful coalition of politicians, executives, and labor unions. The glaring problem with the congressional and White House compromise is political interference. In return for short-term loans, General Motors and Chrysler would have to accept government oversight in the form of a government-appointed "Car Czar" who would set the terms of the restructuring of the companies.1
This is superficially similar to what happens with Chapter 11 bankruptcy. In that case a company submits to the oversight of a bankruptcy court in return for protection from creditors. The court forces the company to make painful, often radical structural changes that executives are unable or unwilling to make on their own, yet are key to returning the company to solvency.
But there is an enormous difference between oversight by a bankruptcy court and oversight by one or more politicians. Bankruptcy courts are specifically designed to be focused and objective. Politicians, however, are the antithesis of focus and objectivity. Elected officials and their appointees have vested interests and most always pander to the wishes of constituents campaign donors.
Congressional Democrats, for example, made the deal conditional on car companies dropping lawsuits against states like California that have mandated stricter auto emissions standards than the federal government.2 A bankruptcy court would never make this kind of demand, because it's completely against the financial interests of the company. Yet it is just a hint of the kind of political interference that can be expected should the bailout plan go through.
Democratic politicians have also openly called for steering the auto companies toward green vehicle production as part of the bailout. This is certainly a fine goal, and it may even be in the companies' long-term interests. Yet focusing on green technologies in the short-term is unbelievably stupid.
The near-term market for green vehicles has all but collapsed. With the economic downturn, oil has dropped from a peak of $145 per barrel in June to only $45 per barrel today. With cheap gas returning to the pumps, and consumers tightening spending, there is no chance of widespread investment in new hybrid or plug-in vehicles. And with the auto companies desperate for cash, this is no time to make speculative investments for the distant future.
Detroit's acute problem is that it utterly failed to put away money for a rainy day during years of selling high profit sport utility vehicles. Now that its SUV market collapsed -- first with the oil price spike, then with the credit crunch, and finally with recession-induced fear of spending -- it is hemorrhaging money at a catastrophic rate.
The automotive bailout plan is inspired not by any rational thought, but by a seedy coalition of vested interests. Some congressional Democrats are beholden to big labor, and will do anything to protect juicy union jobs paying out an estimated $28 and $78 per hour.3 Other congressional Democrats are motivated by environmental politics, and the opportunity to impose their green ideology on desperate automakers. The White House is motivated by panic over its legacy. After 8 years of implementing one disastrous policy after another, the collapse of the American auto industry would seal the Bush administration's legacy as one of the worst presidencies in history.
Meanwhile, the auto executives and union leaders are simply looking out for their own skins. Any taxpayer money will be squandered between these folks -- corporate solvency be damned.
The only hope for stopping this malevolent deal rests with Senate Republicans -- Sen. Richard Shelby (R-AL) has already threatened to filibuster the deal.4
To be sure, killing the deal would not mean the end of the American automobile industry. Ford has already declined to take part in the bailout plan, insisting it is not in dire financial straits.5 GM and Chrysler, on the other hand, can simply file for Chapter 11 bankruptcy.
Those who argue that bankruptcy is not viable are disingenuous and should not be trusted. Consumers will not refuse to buy cars from a company in bankruptcy -- they will simply discount the value of the manufacturer's warranty. And if the credit crunch really is so bad as to prohibit bank loans to auto companies, there is nothing to stop the federal government from lending money should an objective bankruptcy court agree to a plan for a return to solvency.
Let there be no mistake -- there is no chance that a federal bailout can succeed in stopping the implosion of America's auto industry. The best hope for a partial recovery is via radical restructuring under Chapter 11 bankruptcy. It is only with objective oversight -- not with political meddling and taxpayer plunder -- that the American auto industry can hope to have any future at all.
1. New York Times, Deal to Rescue American Automakers Is Moving Ahead, December 8, 2008
2. CNN Money, Automaker plan in Bush's court, December 8, 2008
3. Ibid., GM Offers Buyouts to 74,000, February 12 , 2008
4. Fox News Sunday, Transcript: Sens. Shelby, Levin on ‘FNS', December 7, 2008
5. New York Times, Ibid.