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| | From:  tc101 (Original Message) | Sent: 11/11/2008 1:56 PM |
REVIEW & OUTLOOK
WSJ NOVEMBER 10, 2008
Nationalizing Detroit
In the Washington mind, there are two kinds of private companies. There are successful if "greedy" corporations, which can always afford to pay more taxes and tolerate more regulation. And then there are the corporate supplicants that need a handout. As the Detroit auto makers are proving, you can go from being the first to the second in the blink of an election.
For decades, Congress has never had a second thought as it imposed tighter emissions standards on GM, Ford and Chrysler, denouncing them for making evil SUVs. Yet now that the companies are bleeding cash, and may be heading for bankruptcy, suddenly the shrinking Big Three are the latest candidates for a taxpayer bailout. One $25 billion loan facility has already been signed into law, and Senator Debbie Stabenow (D., Mich.) wants another $25 billion, this time with no strings attached.
Speaker Nancy Pelosi and Senate Majority Leader Harry Reid met last week with company and union officials, and they later sent a letter urging Treasury Secretary Henry Paulson to bestow cash from the Troubled Asset Relief Program (Tarp) on the companies. Barack Obama implied at his Friday press conference that he too favors some kind of taxpayer rescue of Detroit, though no doubt he'd like to have President Bush's signature on the check so he won't have to take full political responsibility.
We hope Messrs. Bush and Paulson just say no. The Tarp was intended to save the financial system from collapse, not to be a honey pot for any industry running short of cash. The financial panic has hit Detroit hard, but its problems go back decades and are far deeper than reduced access to credit among car buyers. As a political matter, the Bush Administration is also long past the point where it might get any credit for helping Detroit. But it will earn the scorn of taxpayers if it refuses to set some limits on access to the Tarp. If Democrats want to change the rules next year, let them do it on their own political dime.
A bailout might avoid any near-term bankruptcy filing, but it won't address Detroit's fundamental problems of making cars that Americans won't buy and labor contracts that are too rich and inflexible to make them competitive. As Paul Ingrassia notes nearby, Detroit's costs are far too high for their market share. While GM has spent billions of dollars on labor buyouts in recent years, they are still forced by federal mileage standards to churn out small cars that make little or no profit at plants organized by the United Auto Workers.
Rest assured that the politicians don't want to do a thing about those labor contracts or mileage standards. In their letter, Ms. Pelosi and Mr. Reid recommend such "taxpayer protections" as "limits on executive compensation and equity stakes" that would dilute shareholders. But they never mention the UAW contracts that have done so much to put Detroit on the road to ruin. In fact, the main point of any taxpayer rescue seems to be to postpone a day of reckoning on those contracts. That includes even the notorious UAW Jobs Bank that continues to pay workers not to work.
A Detroit bailout would also be unfair to other companies that make cars in the U.S. Yes, those are "foreign" companies in the narrow sense that they are headquartered overseas. But then so was Chrysler before Daimler sold most of the car maker to Cerberus, the private equity fund. Honda, Toyota and the rest employ about 113,000 American auto workers who make nearly four million cars a year in states like Alabama and Tennessee. Unlike Michigan, these states didn't vote for Mr. Obama.
But the very success of this U.S. auto industry indicates that highly skilled American workers can profitably churn out cars without being organized by the UAW. A bailout for Chrysler would in essence be assisting rich Cerberus investors at the expense of middle-class nonunion auto workers. Is this the new "progressive" era we keep reading so much about?
The car makers say that bankruptcy is unthinkable and "not an option." And bankruptcy would certainly be expensive, not least for Washington itself, which could be responsible for 600,000 or so retiree pensions through the Pension Benefit Guaranty Corp. In that sense, the bailout is intended to rescue the politicians from having to honor that earlier irresponsible guarantee. But at least that guarantee would be finite. If Uncle Sam buys into Detroit, $50 billion would only be the start of the outlays as taxpayers were obliged to protect their earlier investment in uncompetitive companies.
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If our politicians can't avoid throwing taxpayer cash at Detroit, then they should at least do so in a way that really protects taxpayers. That means handing a receiver the power to replace current management, zero out current shareholders, and especially to rewrite labor and other contracts. Anything less is merely a payoff to Michigan politicians and their union allies.
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