Issue of the week: Detroit begs Washington for more
Should taxpayers bailout Detroit's Big Three?
Most presidential transitions are consumed with what the next administration will do. But when President-elect Barack Obama met this week with President Bush, said Jackie Calmes in The New York Times, the prime topic of conversation was what the current president could do to rescue Detroit’s auto manufacturers from imminent collapse. Obama urged the president to set aside part of the $700 billion financial-industry bailout, passed by Congress in October, to aid General Motors, Ford, and Chrysler. Congress has already authorized a separate $25 billion measure to help the companies retool to build more fuel-efficient vehicles, and Obama wants to double that aid. But now Detroit is seeking still more money “simply to meet payroll and other expenses.” Bush indicated he would consider bailout legislation that emerges from this month’s lame-duck congressional session—if Congress ratifies a controversial free-trade pact with Colombia. But since both Obama and Democratic congressional leaders oppose the Colombia deal, they “may decide to wait until Obama assumes power on Jan. 20.”
There’s no question that Detroit’s Big Three are burning through cash at an unsustainable rate, said Lori Montgomery and Michael Shear in The Washington Post. GM said this week that its cash could run out in 2009, an admission that helped drive GM stock down to $3.36, “its lowest level in about 60 years.” Without a federal lifeline, bankruptcy might be the next step, said Ken Thomas and Tom Krisher in the Associated Press. A bailout might be less costly to taxpayers, “because of the magnitude of the pension obligations the government would face in a bankruptcy and the potential for massive job losses.” Those considerations all but ensure that Detroit will get the help it seeks.
“I am as terrified as anyone of the domino effect on industry and workers” if the Big Three were to go under, said Thomas Friedman in The New York Times. But how infuriating that Detroit is demanding a $50 billion taxpayer subsidy to pursue innovation. “What business were you people in other than innovation?” In truth, of course, the auto industry has long been far more interested in defending the unsustainable status quo. So instead of designing fuel-efficient cars, Detroit “threw way too much energy into lobbying and maneuvering to protect its gas-guzzlers.” Instead of adapting to new economic and environmental realities, its executives denied the existence of global warming and never supported national health-care reforms that would have eased its crushing health-care burden. And now this “visionless management” wants a handout?
That’s why any bailout package must include strict conditions, said Paul Ingrassia in The Wall Street Journal. “In return for any direct government aid, the board and management should go. Shareholders should lose their paltry remaining equity.” And the feds should appoint a “hard-nosed and nonpolitical” overseer to pressure the Big Three into trimming their product lines; “tearing up existing contracts with unions, dealers, and suppliers”; and closing or selling factories. Those are “radical” changes, but “pouring taxpayer billions into the same old dysfunctional morass isn’t the answer.”