The Atlanta Newspaper speaks out on assisting the automakers...
ajc.com
OUR EDITORIAL BOARD'S OPINION
Save automakers for our sake, not theirs
Our crippled economy can’t afford any more shocks now
Thursday, December 11, 2008
If government were run on the business principles of profit and loss, the decision on a bailout for the Big Three automakers would be obvious: Absolutely not. Companies that make poor investments and unpopular products end up in bankruptcy court — without salvation from the taxpayers.
But the decisions of government are not simple balance-sheet calculations. Political leaders must take into account additional considerations, including this one: What’s in the best interest of the country? Aiding Detroit, as Congress is now considering with $15 billion in bridge loans, is the right move because failure to do so poses even graver economic risks.
If this scenario were occurring a few years ago, with a healthy economy and low unemployment, the failure of General Motors, Chrysler and even Ford would still jolt the nation’s economy. But the free market would do its work to limit the damage. And business executives who made bad decisions would squarely face the consequences.
But we are not in such a time. The American economy has been in freefall for months. Confidence in American business — as measured by investment in corporate stocks — has plummeted, with the Dow down 33.6 percent this year, on track to be the worst yearly loss since 1937. The economy shed 533,000 jobs in November, the biggest one-month drop since 1974, and unemployment is projected to go far higher as the recession deepens.
Now is simply not the time for Congress to watch two, maybe three, companies go under when they directly employ 227,500 workers and indirectly employ thousands more. In the midst of the present turmoil, the U.S. economy needs steadying, not more body blows to the system.
“It’s not a close call,” Mark Zandi, chief economist of Moody’s Economy.com, told Congress last week. “It’s not even in the same universe. A bankruptcy at this point in time would be cataclysmic for the economy.”
One group of economists, BBK and Anderson Economic Group, estimated that the cost to the government of just two of the Big Three automakers going into bankruptcy would be nearly $66 billion in lost tax revenue and sharply higher unemployment benefit payouts. State governments alone would lose $12 billion in tax revenue.
Over two years, more than 1.8 million auto-related jobs could be wiped out if two Detroit automakers went belly up, the accountants estimated. Even if the automakers meet restructuring goals, the U.S. economy will still lose 500,000 auto-related jobs. In Georgia, automotive and related industries account for about 55,000 jobs and $1 billion in wages, according to the Detroit Free Press.
Lending taxpayer money to Detroit is an uncomfortable — some might even say distasteful — proposition for an industry that has fought Congress over making more fuel-efficient cars and, until recently, paid only lip service to green technology. And legitimate questions remain about the role of government in private business.
But Treasury Secretary Henry Paulson crossed that divide in March, when he injected taxpayer funds into an ailing Bear Sterns. Paulson and the Congress took action to aid those firms because all were about to be consumed by the biggest economic collapse since the Great Depression.
The unprecedented financial forces that threatened to topple the nation’s biggest banks (and in some cases did) also now threaten the American auto industry. Many structural problems unrelated to the financial crisis have hurt Detroit, including high labor costs, a reluctance to invest in fuel-efficient cars and an over-reliance on gas-guzzling trucks and SUVs, to name a few.
But the immediate problem facing the industry is that consumers, scared off from big purchases, have stopped buying cars. Auto sales, down 37 percent in November, have plummeted since the onset of the financial crisis. With banks reluctant to lend even to those with good credit, consumers are simply unwilling or unable to make a $26,000 purchase, the average cost of a new vehicle. And nine of every 10 cars are bought with loans.
The $15 billion plan Congress is now considering — unlike some of the early giveaways in the financial bailout — is not a gift to the automakers. It comes in the form of bridge loans that the industry can use to ease its urgent cash flow problems.
What do taxpayers get in return? Continued operations, at least in the short term, for three companies that directly and indirectly account for 1 million American jobs. And that means men and women who keep working and won’t be coming to the government for unemployment and other benefits.
Taxpayers also get oversight of how the loans are used. The congressional compromise calls for a “car czar” to oversee compliance with the automakers’ turnaround plans. This model worked effectively when the government provided assistance to Lockheed in 1971 and Chrysler in 1980, according to Acting Comptroller General Gene Dodaro, who provided a report to Congress this week.
Dodaro also recommended that Congress seek broad authority to demand the structural changes that Detroit must make to remain viable, including requiring concessions from management, labor, dealers and creditors.
Good advice for this bailout — and others the Congress will undoubtedly face next year.
— Ken Foskett, for the editorial board (kfoskett@ajc.com). |
