Auto giants up against bailout fatigue

For many lawmakers of both parties, it may be one costly bailout too many.

from the November 19, 2008 edition

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Overall, the Bush administration has spoken carefully about the situation, but in a manner which appears to reflect the fact that GM may soon topple over the cliff into bankruptcy.

"We're surprised that Senate Democrats would propose a bailout that fails to require auto makers to make the hard decisions needed to restructure and become viable," said White House press secretary Dana Perino in a statement.

So why are Republicans apparently OK with the fact that some of the biggest manufacturing firms in America may be forced into bankruptcy reorganization? Isn't the GOP the party of big business, after all?

That may be true, but certain circumstances have combined to put the Big Three currently in a difficult political situation, note some analysts.

To begin with, there is the United Auto Workers union. One of the nation's few remaining strong industrial unions, it is an important player in the auto industry – and a natural Democratic constituency.

Bankruptcy on the part of an auto firm would inevitably lead to changes in current union contracts, perhaps lessening the UAW's sway in the industry.

In recent years the industry has also trimmed plants in the South and other generally GOP areas, leading to the perhaps unintended effect that its manufacturing is now reconcentrated in its industrial Midwestern base.

Michigan, after all, is heavily Democratic. Even Indiana went for Barack Obama this time around.

Meanwhile, free-marketeers see the auto firm business models as tangled and archaic. Besides the heavy legacy costs of union contracts, the Big Three are saddled with too many dealers, in part because of state franchising laws that make it prohibitively expensive to shut dealerships down.

In turn, this has led to the continued existence of brands that may no longer be successful in the marketplace.

In that context, some see bankruptcy as a necessary, cleansing tonic.

"The Big Three are weighed down by excessive labor costs, nameplate proliferation, and inefficient dealer networks. Only in reorganization could an automaker address these problems directly," writes Heritage Foundation legal expert Andrew Grossman in an analysis of the Big Three's financial situations.

Of course, the distribution of power in Washington will change radically next January. At that point, Republicans will be reduced to a congressional minority, and the attitude of the Obama administration will mean everything to the automakers, as far as a bailout is concerned.

At that point everything done so far will be on the table, points out Andrew Samwick, a professor of economics at Dartmouth College in Hanover, N.H.

"It will be interesting to see how a new president, who doesn't have any investment in existing policy, will evaluate past commitments," says Professor Samwick. "Will he even back the TARP program?"

President-elect Obama has said he believes aid for US automakers is necessary, but he hasn't said where the money should come from, or how much is needed. He has said the money should come as part of a long-term plan for the industry.

For Detroit, the question may be how much of the industry is left, in its current form, when he takes office.

• Material from the Associated Press was used in this report.

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