Bush’s vow to rescue Detroit

What happened

The Bush administration, auto executives, and union leaders scrambled this week to cobble together a bailout package for Detroit automakers in the wake of the Senate’s rejection of a $14 billion bailout plan last week. The Senate defeat left bailout proponents racing the clock to fend off bankruptcies by General Motors and Chrysler, and looking to draw on the dwindling cash available in the original, $700 billion financial bailout package, which would not require congressional approval.

Congress’ bailout plan foundered in the Senate largely due to opposition from Republicans, who demanded more extensive wage and benefit concessions than the United Auto Workers would grant. Though General Motors and Chrysler have been slashing jobs and costs in recent weeks, both companies said they would soon collapse without an immediate cash infusion. Chrysler says it needs $4 billion, and GM $10 billion, to operate through March. Ford, while stronger, depends on common suppliers whose fate is tied to its competitors. Citing the industry’s “fragility,” President Bush this week said he was committed to crafting a bailout, which will likely require the industry to restructure under supervision of a government “car czar.”

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What the editorials said

“By refusing to write a blank check to Detroit, Senate Republicans have started to reclaim some credibility on fiscal policy and the role of government,” said The Wall Street Journal. No bailout will succeed without a dramatic restructuring of the car companies—including a reduction in union wages and benefits. But that’s exactly what the autoworkers’ union “and their Democratic protectors want to avoid.” A Washington rescue will also give the Obama administration and Congress “huge leverage over the cars Detroit builds”—a power environmentalists have dreamed of for decades.

Letting the car companies collapse to punish the unions would be unconscionable, said the St. Louis Post-Dispatch. The Big Three pay only about $10 an hour more in wages and benefits than Toyota and other foreign carmakers in the U.S. Detroit’s labor costs are much higher simply because it’s been around longer, and has hundreds of thousands of retired workers receiving pensions and benefits. So what point, precisely, would be made in letting GM and Chrysler die, and putting up to 3 million more Americans out of work? “In that context, a $15 billion federal loan hardly seems unreasonable.”

What the columnists said

Detroit may need a quick burst of government funds to catch its breath, said Joseph Stiglitz in the Financial Times. But ultimately bankruptcy is the best option. The companies’ stockholders will take a bath and their bondholders “may lose substantial amounts,” but Chapter 11 will free the automakers from debilitating interest payments and let them “focus on producing good cars rather than trying to juggle their books to meet past obligations.”

The real agenda behind this argument, said John B. Judis in The New Republic Online, is the conservative obsession with destroying labor unions. In the Senate, Tennessee’s Bob Corker, Alabama’s Richard Shelby, and South Carolina’s Jim DeMint demanded that autoworkers “agree to a reduction of wages and benefits to the level of those paid by Japanese companies that have plants in those senators’ states.” In other words, they want Japanese companies—all of which negotiate with strong unions back home—“to dictate the wages and benefits” of American workers. How patriotic.

Reducing union wages won’t save the Big Three, anyway, said David Leonhardt in The New York Times. Even if Detroit pays its workforce the same as the nonunion workers in the South, it will reduce the average cost of its vehicles by only $800. Considering that Detroit’s cars often sell “for about $2,500 less than equivalent cars from Japanese companies,” that won’t make much of a difference. Detroit and Washington must recognize that a significantly smaller car industry is inevitable. If Americans “had wanted to preserve the Big Three, we would have bought more of their cars.”

What next?

With support from President Bush, congressional Democrats, and President-elect Barack Obama, a short-term rescue of the automakers appears inevitable. Long-term bailout legislation “will be left to the new president and Congress,” said Paul Ingrassia in The Wall Street Journal. While the current emergency would seem a time for all parties to make concessions to aid the industry, that’s not necessarily how the process will work. “Every automotive interest group,” Ingrassia said, “will be lobbying hard to shape the deal to minimize its particular pain.”