WSJ DECEMBER 9, 2008, 10:18 P.M. ET
Bush and Detroit -- A bailout that won't enhance the Republican's legacy.
It's easy to see why Congressional Democrats and an Obama Administration would be eager to bail out Detroit auto makers in exchange for an equity stake and a chance to dictate business decisions. Democrats want Detroit to stop making big cars that run on gasoline, and they hope to protect their friends at the United Auto Workers. The mystery is why President Bush would go along for this ride.
This is all the more puzzling given that the President was once a principled opponent of precisely the kind of taxpayer bailout he now seems prepared to accept. Asked by the Journal about a possible Detroit bailout in an Oval Office interview in January 2006, Mr. Bush said General Motors and Ford might instead try to produce "a product that's relevant." For good measure, he added that "I think it's very important for the market to function."
Nobody can argue that this was a case in which the market didn't function. Ford, GM and Chrysler were in obvious trouble long before the current credit panic. The companies were bleeding cash and piling up liabilities when the rest of the U.S. economy was posting solid quarterly gains. They were losing market share as their foreign competitors -- building cars in the U.S., with American workers -- were gaining. Yes, they were hampered by fuel-efficiency standards that forced them to build cars, at U.S. plants with UAW contracts, that they couldn't sell. But those fuel standards also applied to Honda, and in any case won't be eased under the terms of this bailout.
Nor can it be argued that a rescue for Detroit is of a piece with the financial services bailout. Without credit, no market can function, as millions of Americans looking for loans are now discovering. The provision of public capital to the banking system through the Troubled Asset Relief Program was unfortunate but necessary as a way to prevent a larger, global financial collapse.
Last we checked, consumers had options other than a Buick, Mercury or Chrysler Sebring if they needed a new car. Bankruptcy for any of the Big Three would exacerbate the recession and mean pain for laid-off workers and their families, but it poses no systemic risk to the U.S. economy. It also offers the companies the legal protection to modify labor and other contracts, or to sell their businesses in some economically rational way, rather than postpone the day of reckoning for another few years, at huge taxpayer expense.
No wonder, then, that polls show Americans opposing a Detroit bailout by 61% to 36%, according to a CNN survey last week. That margin is probably higher among the voters who twice put Mr. Bush in office and might expect him to govern according to some discernible conservative principle. When Harry Truman seized steel mills in 1952, at least he had the excuse of having the Korean War to prosecute. In the current bailout debate, the Administration hasn't even been able to bargain for passage of a Colombian or Korean free-trade agreement.
Mr. Bush is holding out for terms, and some kind of "master" or "czar," that could prod the companies to restructure. The White House also wants to remove the demand in the draft Democratic bill that the companies not challenge "state" (read: California) fuel-efficiency rules that would doom the companies to pursue the same loss-making strategies that got them to their current pass. That's certainly helpful as far as it goes. But the problem with this bailout is its premise as well as its details.
Bailing out companies because they claim to be uniquely American sets a precedent for every other poorly managed and politically connected U.S. industry. As for a car-industry "czar," note how quickly House Speaker Nancy Pelosi rejected the idea of former General Electric CEO Jack Welch for the job. She wants a "public sector" type who will impose the decisions that Congress wants. A bankruptcy judge would have a much more independent hand.
It's also becoming increasingly clear that the real goal of Democrats isn't to save jobs per se, but to tell Detroit what cars to make and how to make them. The goal is to turn GM and the rest into Big Green Machines that will stop making SUVs and trucks and start making small cars that run on something other than carbon fuel. If consumers don't want to drive them, well, the next step will be to impose subsidies or penalties and taxes to coerce them to do so. Giving the federal government an equity stake could also lead to protectionism, as the politicians attempt to shield Detroit's mismanaged assets from competition by citing the interests of the UAW, the environment, or some other "social" good that has nothing to do with making cars Americans will want to drive.
None of these measures will save Detroit in any real commercial sense. For precedents, consult the history of France's Renault, S.A., or perhaps of Jawaharlal Nehru's industrial policies in postwar socialist India. But a bailout will harm consumers, harm the auto industry as a whole, put taxpayers on the hook indefinitely, and bring the U.S. commitment to market principles further into doubt.
If this is how Barack Obama wants to begin his Presidency, so be it. But Mr. Bush will not enhance his legacy by helping Congress and the Sierra Club nationalize Detroit.
|
Free Forum Hosting
Important Announcement
Prev Message
