Aporkalypse Now: The Pick Of The Litter

The great Detroit bailout of 2008 will not be debated in terms of economics. Free market considerations will take a back seat to the “consensus” on what’s good for our “national interest.” But Detroit is just one among many industries now nuzzling towards the warm embrace of a federal bailout. So what makes the American auto industry more equal than say, the mortgage sector or the airline industry? Not much, as it turns out.

In fact, mortgage giants Fannie Mae and Freddie Mac are already suckling upon the federal teat. Financial analysts say that taxpayers are facing a $300b bill for that already-underway bailout. Or more. For now. The staggering size and indeterminate endpoint of the terrible twins’ predicament creates the possibility of Motown-scuppering “bailout fatigue.” Meanwhile, the emerging details of the deal are sending Detroit a message: if you want public money, management must change, investors will take a bath and you’ll be placed under federal “conservatorship.”

This not what Detroit wants to hear, never mind experience. Hence the Big 2.8’s relentless “not a bailout” rhetoric. But even the most devout industry backers have to understand the populist appeal of “letting Detroit choke on its own SUVs” rhetoric. America does not love a loser, let alone a litter of them.

And push come to [unexpected fiscal conservativism revival] shove, D.C. will back the financial giants before Detroit. In fact, much of The D2.8’s recent financing came from the very structured investment vehicles that the Fed is propping-up by backing Fannie and Freddie. Every Detroit exec worth his country club membership would prefer $300b in bailout fatigue over a post-F&F credit market.

But yet another hungry mouth looms over the government trough, anxious to secure patriotic assistance in hard times. The airline industry is on course to lose $5.2b this year, and another $4.1b in 2009. Another flagship American enterprise, and the source of much national pride could just need our collective help… again.

And once again, the parallels to Detroit are eerie. A rapid rise in fuel costs that “nobody saw coming,” perennial legacy costs and crippling labor relations bind automakers and airlines in common misery. What’s more, both trumpet their necessity to the American economy while consistently having their lunch eaten by lean, mean competitors.

The airlines are not currently proposing bailout schemes with the “no bad publicity” shamelessness of Detroit. But when automakers come a-begging, the airline industry parallels will (or should) be brought up by los federales. Why? Because the major airlines are the living dead of corporate welfare necromancy past.

From the $15b “great patriotic bailout” post 9/11, to ongoing “reserve air fleet” payments, from protectionist ownership laws, to Reagan’s infamous strike-busting, the feds have done much to assist the airlines. And what do the taxpayers get for the trouble? Giant firms, dead on their feet, slouching towards bankruptcy court. Or, yet another bailout.

The travails of the airline industry and the F&F unraveling are not the only potential roadblocks to Detroit’s campaign on the Potomac. There’s even a chance that lawmakers might hold American automakers to account– not only for its poor business practices– but for its profligacy with pork long since digested.

The New Chrysler of today is hardly a ringing endorsement of the kind of “loans for retooling” bailout being shopped around. It’s hard to draw causal links between the bailout of ’79 and Auburn Hills’ current plight. Too much water has flowed under the bridge for such a sweeping claim. But, Chrysler’s precipitous downfall proved (if nothing else) how fleeting a bailout can be.

Detroit has also handily proven that government handouts given to the industry as a whole are even more wasteful. In 1993, the government created The Project For A New Generation Of Vehicles (PNGV) to help Detroit build 80 mpg sedans for everyone. Eight years and over a billion bucks later, Ford, GM and Chrysler had each built one “working prototype,” capable of 72 mpg or better.

This was the chance for Detroit to invest intelligently in R&D to prepare for a fuel price shock it “never saw coming.” Instead, $1b+ bought Americans three unobtainable diesel-electric hybrid cars. PNGV research helped clean-diesel and fuel-cell development, but where are these cars of the future?

The pressure is on politicians from all sides to protect their nation’s economy. Since Freddie and Fannie have been deemed too big to fail, the others must wait in line. But Detroit is no more deserving of federal loans than anyone else, but presents a poor track record and little hope for the future. When all is said and done, there’s still a chance that DC could just say no.