On Washington: The Great Bailout Debate
November 18, 2008
By DAVID E. SANGER
nytimes.com
WASHINGTON — In the headlong rush here this week to devise a way to keep the Big Three automakers alive, it might be worth pausing for a moment to ask what this latest bailout exercise is intended to accomplish.
Are we trying to save General Motors, Ford and Chrysler? Have Americans given up on the companies themselves, but want to preserve as many jobs as possible for their workers and suppliers? Or are we simply trying to forestall the shock of huge bankruptcies and layoffs at a moment when the economy cannot take another hit?
So far, all three goals have been jumbled together. But as the chiefs of the carmakers begin two days of congressional testimony today — with most attention on Rick Wagoner, the chief executive of G.M., the most imperiled of the automakers — it is possible to imagine very different kinds of bailouts, from those that simply buy time to those that might force the industry to make the kinds of changes that a generation of competition with the Japanese have failed, remarkably, to bring about.
“The problem right now is that everyone is trying to accomplish in a few days something that no one has been able to get the auto industry to do in a few decades,” Mickey Kantor, a former United States trade representative, who was a central player in the Big Three’s negotiations with the Clinton administration in 1992, which also vowed to help Detroit and preserve jobs. “You are not going to protect everyone, find new leadership for the car companies, force innovation — and get Congress home for Thanksgiving.”
This would be a difficult debate to have at any time. But it is virtually impossible to sort out priorities when the president is focused on surviving the last 64 days of his term and the president-elect is in Chicago running a government-in-waiting that wants to avoid specifics until he has the constitutional authority to act. At the same time, the Senate seems unlikely to be able to put together the votes for a truly large bailout.
So far the only real money on the table is $25 billion that Congress authorized in September as part of an energy bill to help the auto industry re-tool their factories to make high-mileage vehicles, something the Big Three have resisted for a quarter of a century.
Back in the 1980s and 1990s, a government-financed initiative like that would have been called “industrial policy,” which real capitalist democracies were supposed to avoid. When the Japanese perfected this approach — with a mix of research help, tax incentives and government “guidance” — American presidents would dispatch negotiators to demand a halt to the practice. The Japanese took them out to nice sushi dinners, gave them a police escort back to the airport, and ignored them.
But in the past few days, the talk about using the government’s money to retrofit factories has begun to fade. Suddenly, the $25 billion is being talked about as a cash infusion to avoid layoffs or bankruptcies for the next few months. On Monday, Dana Perino, the White House spokeswoman, said President Bush would be willing to release the money if the Big Three “can show viability and a willingness to make tough decisions to restructure themselves.”
A few minutes later, though, she made it pretty clear that this was not like the Chrysler bailout of the 1980s, or even the Mexican bailout of the 1990s — emergency loans on which the taxpayers ultimately made a profit. This is a giveaway, she acknowledged, saying there was virtually no chance that “the taxpayers would actually be paid back.”
Suddenly, this sounds like money to stop the bleeding, not pay for retooling. If so, is this the best way to save jobs?
David Yermack, a professor of finance at New York University, made a case the other day in The Wall Street Journal that with the $465 billion Ford and G.M. have invested in their factories over the past decade, they “could have closed their own facilities and acquired all the shares of Honda, Toyota, Nissan and Volkswagen.”
Of course, the Japanese and the Germans weren’t selling. But the professor was making a deeper point: If the huge inefficiencies, the wrong mix of cars, the union contracts and the work rules leave no hope of saving G.M. and Ford from eventual bankruptcy, maybe the debate should explore alternative ways to spend the $25 billion and whatever follows.
Professor Yermack’s half-facetious suggestion of “cutting each worker a check for $10,000” would not solve the problem, but there has always been a debate about whether helping foreign carmakers take over some of the American-based production facilities, and the dealer networks, might, in the end, save more jobs in the United States. It might also save the automotive suppliers, who would be among the first casualties if G.M. and Ford are forced into bankruptcy.
President-elect Barack Obama has said his goal is to make sure there are jobs, and automotive production facilities, inside America’s borders. To President Bush, that always meant promoting American-owned companies; early in his term, when he invited carmakers to show off their innovative technologies on the South Lawn of the White House, foreign manufacturers who were the first to put hybrid cars on the streets were left off the guest list.
So it was telling that on Monday, at the end of the Bush administration, there was a ribbon-cutting to open a new car plant in the United States in Greensburg, Ind. It belongs to Honda. The company has already begun hiring 2,000 workers to build four-cylinder Civics, including one model fueled by natural gas.
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