Expla-Nation: Auto Industry Bailout

Every once in a while, a news story becomes so dense and complicated that you could use a little cheat sheet to follow the discussion. We'll endeavor to help you out by outlining the key points in the discussion, and presenting our own opinion in our new series Expla-Nation.

The current lame-duck Congress will be considering proposals to bail out the beleaguered US auto industry this week, most urgently, General Motors. Opponents of the bailout say we should let GM go bankrupt, and allow something better to arise from the ashes.

PROS

From Jeffrey Sachs at WaPo, here's the pro-bailout side: (abridged)

First, this is an opportunity to embark on a major industry restructuring to position the United States to lead the world in producing cars that get 100 miles or more per gallon.

Second, the sudden closure of an automaker would be catastrophic, possibly pushing our economy from recession to depression.

Third, any restructuring under Chapter 11 bankruptcy rules would be a death knell... accelerat(ing) the collapse of consumer demand and the mass bankruptcy of parts manufacturers.

The crux of his argument is that saving GM could be a vehicle (sorry) of needed change to the auto industry, while Chapter 11 for GM would certainly kill it.

CONS

On the con side, favoring bankruptcy for GM, here's Michael Levine at the Wall Street Journal:

General Motors is a once-great company caught in a web of relationships designed for another era. It should not be fed while still caught, because that will leave it trapped until we get tired of feeding it. Then it will die. The only possibility of saving it is to take the risk of cutting it free. In other words, GM should be allowed to go bankrupt.

The piece goes on to explain the huge burdens that GM will continue to carry for the excesses of its past, like pensions, and the cost that reducing the number of state-protected dealerships would entail. Bankruptcy would allow GM to sever or modify these unproductive relationships.

MY TAKE

All things being equal, I agree more with Levine.

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However, both arguments have significant problems. Sachs' contention that people wouldn't buy cars from a company in Chapter 11 doesn't hold water. As Levine notes, most Americans know the difference between Chapter 11 and a boarded-up building with a guy wearing a barrel in front of it. There's no reason for people to think that, as long as a market existed for spare parts, there wouldn't be a supply of them.

I also have a problem with Sachs' rationalization that we all have a share in this s*** sandwich.

Some want to see the industry punished for its neglect of energy and environmental realities, but we should acknowledge that the SUV era reflected poor judgment across society. Yes, the industry ignored warnings about energy insecurity and climate, but so did the public and politicians.

That gets a Parkway Salute from me. If by "the public" you mean the large number of overcompensating idiots who bought the useless pieces of crap, and who are now buying stegosaurus-sized "Pickup" trucks that they never actually use to pick anything up, then that makes sense. But lots of us bought vehicles that made sense, and we don't relish taking a bite of this.

On the other hand, Levine's idea of severing or modifying relationships really amounts to breaking promises. The people whose hard work was betrayed by the poor decisions of auto industry executives are the ones who will suffer the pension and benefits cuts. "Competitive Labor Agreements" are a way of maintaining the profitability of unprofitable ideas, nothing more. And, while you may have a hard time ginning up sympathy for the leisure-suited fast-talkers who sold you the things, they're people, too.

THE SOLUTION

So, what's the solution? Well, allowing GM to enter Chapter 11 is a risk, but a better one than throwing billions onto a sinking ship. That money would be better spent helping those damaged collaterally in the fallout.

A better idea, that's a tougher sale, is to allow GM to go bankrupt, and then nationalize it. It actually makes more sense in this case than in the banking crisis.

The auto industry, left to its own devices, will never fix itself. It is tied to the progress-averse petroleum industry, which stands to make its maximum profit by stymieing progress until every last drop of oil is gone.

If the American people own a car company, and can pour resources into it to develop more fuel efficient and alternatively fueled cars, it could act as the "mechanical rabbit" that makes the other automakers pick up the pace. There are already plans to fund this kind of research. This would focus it, and put those dollars in the hands of people who stand to benefit from its success.

Of course, this has about as much chance of happening as a national grid of bumper cars (the real solution to our energy problems). However, as it stands, GM's bankruptcy would save taxpayers money that can be better spent moving us forward, and it still gives GM the chance to survive. I would favor that, as long as promises to workers and consumers are protected.

Further Reading

Mark Impomeni on the upcoming capitol hill showdown

Fox News on President Bush's position.

Tommy Christopher co-hosts "Unusable Signal" , on BlogTalkRadio Tues - Thur at 10pm, and Fri, & Sat at 11pm. Click here for the Unusable Signal homepage.

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