The auto bailout: The (big) three options
GM's 1959 Caddy: Glory days.
America’s Big Three automakers sell (or lately, don’t sell) 15 different brands of vehicles, including 112 different car and truck models at more than 13,000 dealerships throughout the United States. All of these numbers are problematic and subject to downward revision as the Big Three continue to plead their case to Congress for a $34 billion bailout.
There also seem to be at least 13,000 different proposals for dealing with the automakers’ troubles, including doing nothing at all — which may be what happens when Congress votes on the issue next week.
Support for the bailout measure is lagging in the Senate.
Moreover, in a second round of testimony before congressional committees this week, the chief executives of Chrysler, Ford and General Motors still didn’t appear to grasp the enormity of the challenge they face.
As we have argued previously, if the American taxpayers are to be asked to bail out the auto industry, it must be in the interest of a total makeover, not for cosmetic changes. The glory days of Detroit — or indeed, Chrysler-Fenton, Ford-Hazelwood or GM-Wentzville — are not coming back, not even when the recession ends. We wish it weren’t so. Over the years, the industry has provided good-paying jobs with excellent benefits to millions of Americans and has supported millions more, providing ordinary workers with a solid path to the middle class.
What can come back — and what is worthy of being underwritten by taxpayer money — is an auto industry that serves and promotes key public policy interests of the United States: preservation of the manufacturing base, decent middle-class jobs and energy independence.
GM's 2010 Chevy Volt: The Future?
Bankruptcy for the Big Three (GM and Chrysler say they will run out of cash by year’s end if Congress doesn’t step in) does not serve that greater good, at least not without enormous social dislocation. Suppliers and dealers would be left holding the bag. Who’s going to buy a car for which he can’t be assured warranty support and available replacement parts? Taxpayers would be stuck with pension costs. Some form of auto industry would reemerge, but there’s no guarantee that it would build the kind of cars the nation needs.
Nor would throwing $34 billion of bridge loans at the industry necessarily solve any problems. It would buy time, but who knows whether automakers would use that time wisely? GM, in particular, seems reluctant to make the kind of revolutionary changes the industry needs. It proposes to eliminate only eight of its 48 car models and close only about 2,000 of its 6,700 dealerships, meaning it still would have three times more dealers to support than Toyota.
Here are three ideas worth consideration. Parts of all of them could be part of a solution:
- Structured bankruptcy. Ford says it doesn’t need it, but Chrysler and GM could survive under a so-called pre-packaged bankruptcy. Pre-packaging the terms would eliminate some of the uncertainty of a Chapter 11 filing. Shareholders (or, in Chrysler’s case, private investors), unionized workers, bondholders and creditors would have to cooperate. Everyone would get less, but the company would survive. The government would guarantee warranties and payments to parts suppliers, as well as provide interim financing during the bankruptcy. In return, the government would have a very large say in the company’s new management plan.
- Pay-as-you go. Raise the price of gasoline to $3.50 a gallon, says Daniel Sperling of the University of California-Davis Institute of Transportation Studies. Collect anything between the pump price and $3.50 as taxes and use it to underwrite a transition to energy-efficient cars. The tax would go away if the pump price goes above $3.50.
- Nationalize GM. Why mess with bailing GM out when taxpayers could own the whole company? Dan Neil of The Los Angeles Times notes that GM currently is valued at $32 billion, plus $45 billion in debt. For the price of fighting the war in Iraq for six months, the government could own an automobile company and operate it in the national interest, as it did during World War II.
The upside: preserving the industrial base, providing good jobs and moving toward energy independence. The downside: Perhaps the only organization in America less efficient than the auto industry is the federal government.
Level the playing field with the jap car manufacturers and you won’t have this problem. NO more tax breaks for the japs.