How not to rescue the Big Three
Congress must not loan $25 billion to a US auto industry that isn't doing enough itself.
Car owners know the tough call: When do you stop putting money into a rickety auto? Congress faces a similar decision this month. Should it put money into a failing US car industry? The answer would be simple if Midwest swing states weren't up for grabs in the presidential election.
Both John McCain and Barack Obama have backed a plan in the works on Capitol Hill to provide more than $25 billion in loans to the Big Three automakers. That political stance may go down well in the high electoral-vote states with US car plants (Michigan, Ohio, Indiana, and Illinois). But voters elsewhere should ask: Will these ailing companies and their unions really accept radical reform, ensuring that these loans are paid back?
To persuade US lawmakers to pass an emergency loan for them within weeks, executives from General Motors, Ford, and Chrysler were out in force at the party conventions in St. Paul, Minn., and Denver to plead that the industry is "deserving" of government credit.
Deserving? Years of mismanagement, high executive salaries, and overly generous worker benefits have indeed hurt the Big Three. Last month, their new car sales were down by double digits compared with a year ago. The decline has left them with low credit ratings, making it difficult to borrow.
But guess what. Despite a slowing US economy, Toyota and Honda saw only single-digit losses in their August sales. Nissan's sales were up. Those companies know how to run successful auto manufacturing plants in the US and aren't asking for help. They can sell good cars at reasonable prices with labor compensation packages at $40 to $50 an hour per American worker. GM is still stuck with "legacy costs," or past agreements that leave it paying $70 an hour, and has to heavily discount prices on auto sales.
Many lawmakers will justify these loans by saying the United States needs the Big Three to "go green" by developing more fuel-efficient vehicles and better batteries for hybrid or electric cars.
But many foreign carmakers are already there, or going there, with nimble, innovative, and smarter responses to a shifting market and to congressional fuel-economy mandates. They didn't make the big mistake of focusing on trucks and SUVs as Detroit did and then asking for a loan that may end up simply becoming a bailout.
Detroit is no more deserving than many other US industries – textiles, furniture, toys – that have failed to compete well against foreign companies. But if Congress does decide to risk money on the US automakers – and overcome President Bush's opposition – it ought to at least demand big changes from the Big Three and their unions.
US airlines have been able to retool themselves through bankruptcies, mergers, union concessions, layoffs, and other difficult steps. After the national disaster of 9/11 that closed down the air system for a week and disrupted air service for weeks, they received emergency cash and $1.17 billion in government loans – but that came with strict oversight and tough restrictions.
Congress shouldn't rescue an auto industry and its unions that aren't doing enough to rescue themselves. The federal government is already trying to save one public-private partnership, Fannie Mae and Freddie Mac. It doesn't need to become a credit master to another faltering industry.