Editorial: Bailout Watch 286: Executive Decision

Edward Niedermeyer
by Edward Niedermeyer
editorial bailout watch 286 executive decision
The bailout bill’s demise in the Senate is inspiring all kinds of unhinged commentary this morning. Even by the recently declining standards of discourse, some of the comments we’re seeing around the autoblogosphere are sublimely ridiculous. By the tone many commentators are taking you’d think the US has never overcome adversity before, and lacks the entrepreneurial vigor to survive a highly necessary reorganization and rebirth of our domestic automakers. Rather than calling on Detroit to slow down its little red love machine and find a business plan that’s gonna last, we’re hearing some of the most prominent names in the business calling for a new lender of last resort. Namely that lamest of lame ducks, President George W Bush.Having opened the opportunity for an epic flip-flop on the use of TARP funds, W has brought Automotive News [sub] publisher and editor-in-chief Keith Crain to the mountain top, with co-author Peter Brown in tow. In a piece that puts the “bs” in subtle, Crain offers W an opportunity to rescue his DOA “L” word (legacy, you perv) by showing “leadership and statesmanship.” By reassuring Americans that we have survived worse than this and reaffirming our national commitment to the principles which made our economy great?Of course not. Crain blames a “Senate minority” for the bill’s failure, and then admits that Corker’s plan “could be a basis for a viable industry,” but only if W makes with TARP funds first. But his argument is predicated on the assumption that, like ethanol, a Detroit bailout might be reborn in Obama.And indeed, Obama is continuing to make noises about finding “a way to give the industry the temporary assistance it needs while demanding the long-term restructuring that is absolutely required.” Based on his “disappointment” at the failure of the bailout plan, it sounds as if he would support a Bush TARP raid for the industry. But he’s also not leading any charges on the issue, thanks to his own ambitious spending plans.Between massive infrastructure investments, health care reform, and a homeowners assistance plan, Obama has plenty of plans for your tax dollars. Plans that he knows carry little of the baggage that an auto bailout drags around. Now wonder the Wall Street Journal reports that cooperation between Bush and Obama over TARP policy is breaking down. Furthermore, SecTreas Paulson has “indicated he wants to consult with the Obama team on any big moves, especially a draw down of the next $350 billion. Mr. Paulson doesn’t want to commit funds to a program if the new administration might later undo the effort.”If Bush and Paulson get a go-ahead from Obama to spend TARP funds on a bailout, it would be a return to the unpopular position of giving money without real conditions.Specifically, the blocking Senators blame the UAW for not making immediate sacrifices. The UAW is holding to its position that wages should come to parity with transplants, but not until 2011 when its current contract ends. As with two-tier wages in the 2007 contract, this gives the UAW the luxury of appearing to make concessions while protecting its longtime members and their considerable perks. It also allows the UAW to call the negotiation breakdown “a blatant attempt to make workers shoulder the lion’s share of the costs of any restructuring plan” in a prepared statement.The fact that UAW President Ron Gettelfinger refused to even meet with Corker and the Senate Republicans severely limits any mileage the union might get out of its populist rhetoric. And proves how hard the reforms Obama calls “necessary” will be to realize.Ultimately, this decision will come down to George W Bush– making it nearly impossible to predict an outcome. Bush had previously opposed a bailout, then opposed use of TARP funds, and is now departing from both of these positions. As a lame duck he could either stand firm on principle, or he could cave in to rescue a severely tarnished reputation.Needless to say, I advocate that he take a moment to think about throwing away market principles in the face of a wave of self-interested doomsaying. Look at the auto industry employment numbers, and then gauge the mileage in subscribing to the “coastal conspiracy” and “civil war redux” theories. And for goodness sake, think twice about the real impact of a D3 bankruptcy on the jobs situation.If all the necessary concessions from labor, bondholders, management and dealers were readily available, a compromise could well have been reached over the last few weeks. The desperation of the situation has been clear for all to see. Dumping money on the problem certainly won’t increase any of the stakeholders’ incentive to make painful reforms.Meanwhile, $14b could do plenty of good mitigating the pain of a weak economy for all Americans, rather than for only the most shrill. If Detroit goes down, we can survive.
Join the conversation
2 of 62 comments
  • PeteMoran PeteMoran on Dec 13, 2008

    @ Pch101 700 is an above average score. A majority of Americans have a FICO score below 700, which means a majority of Americans won’t even qualify to be in the car market. A FICO of 700 is supposed to be 60% of the working US population. You can debate whether they should or shouldn’t have access to credit, that’s a matter of opinion. I can't see how anyone could expect a return to the auto-sub-prime that existed before. But it is a matter of fact that they don’t have credit, and since most car purchases are financed, this is going to reduce sales substantially. Of course, but it is an industry wide problem. Otherwise, I think we got a bit off topic. I was trying to illustrate that the Bigish3 are being impacted right now by bankruptcy talk, and that the situation could be improved even with the further "problem" of Chapter 11, contrary to claims from the Bigish3 CEOs.

  • Vozilka Vozilka on Dec 14, 2008

    Phil Ressler : Given time, America’s track record is to generally do the right thing. If history is any guide that statement is indeed true... ...after it has tried all other options. first leaving unnecessarily mountains of burned soil, endless cemeteries (on own side as well) devastated markets and many former friendships in ash behind I would be more then happy if your very moderate and positive words come true. Obama may indeed be a chance. I hoped with crossed fingers that he will make it -and was relieved when the results came in. But he is basically only a lonely men with a idea against a huge, politically well inter-winded, established military industrial complex. Even so - the second coming of David versus Goliath could work another time. We shall surely find out. On one point your definitely wrong. The financial products hitting the globe now with devastating bombshells are exclusively US products - 100% - result of a criminal deregulated US market, a ceiling coming crashing down on a global tightly interconnected market. Like one family with open pestilence dancing tight left-waltz with everybody at the United Nations New-Years ball. The rest of the world is very hard hit by (given by own greed but essentially through) collateral damage of the faltering US card-house -the source of the trouble is evident. Sorry for the off topic - but its not so off topic, but right on the (car) spot at a second glance

  • Tassos The EQS is the best looking BEV, better than even the only Tesla I would ever consider (the S) and more luxurious inside etc etcThe self driving features will come in handy when I'm 110 and my eyesight and reaction times start to suffer.But that's four decades away, and only Tim recommends 40 year old "used cars"
  • Tassos "Baby, Baby light my fire!""Oh God please give me a Kia Forte" --Janis Joplin
  • Tassos The fugly looks of any Subaru, and especially the non-sporty non-elegant, fugly, low-rent looks and interior of the WRX are alone a sufficient turnoff to never want to own one.One can be a 100% car enthusiast but ALSO demand a beautiful AND luxurious vehicle one can be truly proud of and which makes one very happy every time one drives it.The above is obviously totally foreign to Subaru Designers and managers.
  • Thehyundaigarage Am I the only one that sees a Peugeot 508?
  • Lou_BC I realized it wasn't EV's burning by the absence of the usual suspects.