My two cents on the auto bailout

by Jay McDonough

The $14B rescue plan to flailing automanufacturers General Motors and Chrysler pretty much died last night in the Senate.  The White House is now considering changing course and endorsing using Troubled Asset Relief Program (TARP) funds for the short term loans to the automakers.  While the House had passed the loan assurances earlier in the week, Senate Republicans threw up a roadblock when they demanded immediate large wage concessions by the United Auto Workers union.  When no agreement was made, the deal was considered kaput.

White House press secretary, Dana Perino, said today:

"Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms. However, given the current weakened state of the U.S. economy, we will consider other options if necessary -- including use of the TARP program -- to prevent a collapse of troubled automakers," she said, referring to the Troubled Assets Relief Program, or Wall Street bailout.

Perino said the collapse of the automobile industry would have a severe impact on the economy, and "it would be irresponsible to further weaken and destabilize our economy at this time." (Link)

The Republicans are making a big bet in the face of some scary odds here.  By claiming they're adhering to some principled position around out of control labor costs and denying the loans, they run the risk of watching the economy take a deep dive in response to an American automaker going down the tubes and then being perceived as the responsible Party.  Modern day Herbert Hoovers, if you will.

The Big Three automakers have a labor cost issue, but it's been overblown by those with an anti-labor bias.  As the Republicans pressed on the UAW to make immediate wage concessions to match wages at American factories manufacturing Japanese autos, they ignored the fact the UAW had already conceded wage cuts last year and anticipated making more next year.  The Republicans also chose to ignore that GM and Chrysler are continuing to lose market share despite pricing their cars, on average, $2500 less than comparable Japanese products.  Here's the bottom line: GM and Chrysler are in the tank because too many folks rejected their product and chose more expensive foreign autos.

So, you might wonder why Republicans are not all over the automaker management for developing strategies that didn't adequately assess the market and competition and make automobiles folks want to buy.  Instead they've chosen to attack the workers for the automaker failures.  Now, all this Republican outrage over how the UAW workers are getting over on the average worker sounds pretty good on television.  They'll argue that if that crooked UAW would just concede big wage and benefit cuts and then everything would be peachy for the Big Three.

But all that righteous indignation sounds a bit hollow when the price tag is $14B and Congress just approved a $700B Wall Street bailout and the federal government has stepped in to save grossly mismanaged financial giants Fannie, Freddie, AIG, Bear Stearns, etc, etc, etc.

It does seem the Senate Republicans have some odd principles, spending money like it's going out of style for eight years and now  willing to let an industry that directly or indirectly employs a couple million people go belly up because they believe the workers are being paid too much money.

By the way, U.S. Senators earn $169,300/year, have a very expensive benefits package including a sweet pension plan.  Those costs are paid by taxpayers.

Comments

[Studs McGonagle]

"GM and Chrysler are in the tank because too many folk rejected their product and chose more expensive foreign autos."

Do you really believe this???

They could sell enough cars to stay in business if more than 5% of prospective buyers could find financing. The wild play in the oil futures market last spring and summer put the big three behind the eight ball, but it's the lack of available credit that's killing Detroit, not production choices. You could look it up!