The auto industry: Does Detroit deserve a bailout?

“So it’s come to this,” said Robert Samuelson in The Washington Post. General Motors, “once the world’s mightiest industrial enterprise,” is on the verge of bankruptcy. Ford and Chrysler “may not be far behind.” The Big Three, which employ about 250,000 people, have been struggling for years, as they lost market share to foreign competitors. But the recession has brought the American auto industry to the precipice. Sales have collapsed. Cash reserves are dwindling, and credit has dried up. GM, the biggest and most vulnerable of the firms, is losing $1 billion a month, and may soon “be unable to pay its bills.” If one or more automakers fail, the damage to the already-sputtering economy could be devastating, turning a painful recession into something even uglier. This week, Congress heard the desperate pleas of GM’s Rick Wagoner and other industry chiefs who say that without a $25 billion loan, their companies could collapse. Lawmakers, said Tom Incantalupo in Newsday, are left with a chilling choice for one of America’s bedrock industries: “Bankruptcy or bailout?”

“In normal times,” said Jonathan Cohn in The New Republic, the answer might have been bankruptcy. “But these are not normal times.” With the economy in a tailspin, GM would have a difficult time surviving a Chapter 11 reorganization, as skittish consumers would likely abandon a company stigmatized with the “bankruptcy” label. If confidence in GM products evaporates, the company would have to liquidate its holdings and go out of business. An estimated one in 10 American jobs is related to the auto industry, and from parts suppliers and dealerships to shippers and marketers, total job losses could exceed 1.5 million. “The price of addressing such human misery with unemployment benefits, Medicaid, and other services would be huge, making a $25 billion loan seem like a bargain.”

Even a whopping government loan won’t save these fatally flawed businesses, said Michael Barone in National Review Online. For years, GM has been building uninspired, oversized cars that fewer and fewer people want. Saddled with lavish employee and retiree health benefits and rigid work rules that guarantee inefficiency, the company compensates its workers at the average rate of $73 an hour, compared with $48 for Toyota in its U.S. factories. How will a bailout erase that crippling disadvantage? It won’t, which is why bankruptcy is actually the best option, said Dennis Byrne in the Chicago Tribune. A court-appointed trustee would be empowered to “oversee a top-to-bottom reorganization” and essentially force GM to “start over” with new labor contracts and fewer divisions and models.

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True, but a bailout could also result in a makeover of the industry, said Douglis Olin in the Los Angeles Times. This crisis presents a golden opportunity to transform Detroit, which “has been on the wrong side of almost every environmental, social, and safety issue since the 1960s.” Any federal help could be conditioned on the companies’ commitment to take a big leap forward into the 21st century by turning out hybrid cars that get as much as 100 miles per gallon, and producing a fleet that dramatically reduces carbon emissions. If, on the other hand, Congress ultimately tells the auto companies to “drop dead,” said Bob Herbert in The New York Times, their executives won’t be the only ones to suffer for their stupidity. “Even when people set their own houses on fire, we still dial 911, hoping to save lives, salvage what we can, and protect the rest of the neighborhood.”