The Wall Street Journal - The House-approved rescue of the nation's auto makers came under fire from top Republicans in the Senate on Thursday, adding to uncertainty about the proposal's fate. Rescue efforts suffered a major blow when the Senate's top Republican vowed to oppose the bill. "This proposal isn't nearly tough enough," said Senate Minority Leader Mitch McConnell (R., Ky.).
Calling for stronger provisions to ensure reforms at the auto companies, Mr. McConnell also said he opposed the bill on ideological grounds. "A government big enough to give us everything we want is a government big enough to take everything we have," he said.
But Senate Democrats pushed ahead with plans for a vote on the $14 billion aid package as soon as Thursday afternoon. "We have danced this tune long enough," Senate Majority Leader Harry Reid (D., Nev.) told colleagues in the morning.
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Congress is contemplating yet another bailout. This one is intended to prop up the U.S. auto "industry." The immediate decision is whether to give the "Big Three" of GM, Chrysler, and Ford about $15 billion in federal loans. In exchange, the Big Three would be required to submit, to some extent, to a federal "
Car Czar" who would have some authority to force the companies to adopt plans to become competitive in the long term. The problem is that this long term plan for longevity will basically be focused on marketing and on engineering cars that are more fuel efficient or that use more sustainable fuels. These are laudable goals, but the problem is that they will not ultimately make the Big Three more competitive and in 10 or 15 years (and maybe sooner) they'll be back, hat-in-hand, seeking more of our tax dollars.
To the extent there is great global demand for fuel efficiency and alternative-fuel cars, it is a relatively recent trend spurred by record-high gasoline prices. It is guessed (and hoped) that such considerations will remain important to consumers now that gas prices have returned to relatively reasonable levels, but nobody can be certain. In any event, what is clear is that the seeds of the Big Three's destruction were planted long before the recent fuel crisis and festered even while droves of Americans were willing to purchase bus-size SUVs and Hummers. The failure of these companies to compete with their Asian rivals is, in large part, a result of the outrageous costs associated with their unionized labor. The Big Three spend more than $70 per man-hour in labor costs (about $40 more than Honda and Toyota, which also build cars in the United States and manage to make a profit). The $70+ calculation factors in not only wages and benefits paid to current employees, but also the daunting amount of money these companies shell out for retired employees. In fact, the Big Three spend more money on benefits for retired employees than on current ones. That is hardly a formula for success. The union contracts also hinder efforts by the Big Three to automate their production process as their competitors have because automation often eliminates jobs and, depending upon the circumstances, the companies are required to continue paying the idle workers.
The proposed federal bail out is intended to prevent GM and Chrysler from entering bankruptcy. Ford seems to be in substantially better financial position than the others. Unfortunately, bankruptcy is exactly what these companies need. A bankruptcy court would have the power to alter the companies' contracts, including those with labor unions, to provide a more even playing field with forein brands. In addition to sounding ridiculous, the "Car Czar" would have no such authority and, even if he did, political considerations (my own Democratic party) would prevent any action opposed by the unions. This is not a diatribe against unions. They serve an important purpose in a capitalist system. The problem is that some unions in this country have become so powerful that they are capable of negotiating benefits that literally destroy the employer. The Big Three needs to take its medicine; bankruptcy will not taste good, but it is the only real cure for what ails them.
Contrary to the scenarios painted by the Big Three and others, the companies would not evaporate into thin air if they seek bankruptcy protection. A priority for the bankruptcy court sould be to free up assets andliquidityso that operations can continue and wages, salaries, and benefits will continue to be paid. We've all seen bankruptcies in the airline industry and they generally don't stop flying. It is a valid concern that consumers might hesitate to purchase automobiles manufactured by a bankrupt company due to worries that the warranty will become worthless. To me, the simplest solution is a federal guarantee of the warranties for all vehicles sold during the bankruptcy. Similar to FDIC deposit insurance, this should provide the peace of mind most consumers need and a fraction of the cost of the current bailout proposal. This would also help out the dealers, who have no responsibility for the Big Three's troubles, but are suffering the consequences.
Hopefully, the Senate will defeat the bail out or will force amendments designed to get at the fundamental problems. If not, these "loans" will merely buy time and the Big Three, despite their new fuel efficient, environmentally friendly line-ups, will be back in Washington looking for help.
