Why Congress Is Unlikely to Bail Out Detroit’s Carmakers—at Least for Now
Democrats want to redirect $25 billion toward automakers, but Republicans are likely to block it
The leaders of Detroit's struggling Big Three automakers are appearing before the Senate today, where prospects of $25 billion in emergency loans to the industry appear to be stalling.
Amid GOP cries of "corporate welfare," Senate Majority Leader Harry Reid introduced a bill yesterday to let the automakers and component suppliers tap into some of the money Congress allotted in the $700 billion financial bailout.
Reid, launching a lame-duck session, warned of a "potential meltdown" in the industry with devastating consequences. He said 355,000 people are employed by the industry and 4.5 million more work in related industries. An additional 1 million people, retirees and their relatives, are covered by retirement and medical plans within the industry, he said.
The Big Three—General Motors, Ford, and Chrysler—have been whipsawed by the faltering economy and credit crunch.
But the odds do not look good for Detroit. At the heart of the debate is whether automakers are deserving—as a linchpin of the U.S. economy—or are, in the words of one high-profile critic, Republican Sen. Richard Shelby of Alabama, an innovation-averse "dinosaur."
Shelby, appearing Sunday on Meet the Press, said: "Get rid of the management. Get rid of the boards—the people who brought them to where they are today. This is a dead end. It's a road to nowhere, and it's a big burden on the American taxpayer."
Republicans attacked the measure on several fronts. Some questioned the rush to judgment; others warned that other industries would soon line up for help. And some charged that the firms brought on their troubles by agreeing to union contracts with wages and benefits costing an average of $73 an hour, compared with $28 an hour for the average private firm.
GOP Sen. Arlen Specter of Pennsylvania said the $700 billion rescue was the No. 1 issue when he toured the state recently. "Candidly, the temperature of my constituents was boiling, 212 degrees Fahrenheit, and the thermometer was broken," he said.
Some opponents prefer that the automakers pursue Chapter 11 reorganizations instead of hitting up Uncle Sam.
Democrats argue that the $25 billion is only 4 percent of the bigger bailout. Reid's spokesman, Jim Manley, said the bill has robust language on corporate oversight, taxpayer protections, and executive compensation limits.
A compromise could be struck if Democrats bowed to GOP pressure and, instead of new loans, rewrote the rules for $25 billion in loans granted to automakers to help them retool factories to build fuel-efficient vehicles. "It's mind boggling," one Republican said of Democrats' intransigence. "If I were them, I'd want to get this off my plate before Obama becomes president."
The automotive executives, Alan Mulally, Ford's president and CEO, Robert Nardelli, Chrysler's chairman and CEO, and Rick Wagoner, GM's chairman and CEO, are to appear before the Senate Banking Committee. Shelby is the top Republican on the panel.
The post-election lame-duck session is the last chance to sign off on the measure during this Congress. The bill probably can pass the House, but prospects are iffy in the Senate, where Democrats need 60 votes to block an expected filibuster.
If nothing passes, it could be taken up in January by the next Congress, which will have a broader Democratic majority.
Reader Comments
Katie
No Bailout! Our society in it's infinite wisdom has removed the process of social Natural Selection. And now some what to remove it from free market enterprise.
Once upon a time, if you owned a business but it failed either through poor business practices, bad customer care, poor quality products, etc. you went out of business & a spot was opened for someone else who might possibly do it better. But now, every time a person [homeowners] or businessess [the Big 3] make bad decisions, they want us the tax payers to bail them out! No!!!!
We made a poor real estate decision & had to tighten our belts to pay 2 mortgages until our old house sole. Christmas wasn't real fun for anyone, but Hey...we got ourselves into it & we got ourselves out of it.
Stop propping up the losers! Let them fall flat on their faces for a change & maybe they'll make better choices in the future.
No Bail out
How will a bailout help them? They will continue with the same practices under the same management. It hasn't worked and it will not work no matter how much money you throw at them. I believe GM lost 3.2 billion dollars last quarter. If we give them 8 billion dollars (25 billion divided by 3) does that mean they will burn through that in 6-8 months and then be crying broke again. If I wanted to support any of the big three I would have bought one of their products. I chose a foreign car because I got more value for my hard earned money. Now after many years of sub par cars the big three want the American taxpayers to help them, I say no way. Let them file bankruptcy and reorganize and renegotiate their contracts to emerge stronger. The Airline industry does it quite frequently and in most cases it works.
No Bail Out!
No bailout for auto-makers!
No-no-no! The bailout money was meant for banks, not auto-makers. What would be next, the airlines? Rail industry? Doctors, lawyers, & Indian-Chiefs? Sorry, but we have the business banckruptcy courts for a reason. No, I don't know what to do with all the people who very regretably may be put out of a job, but perhaps they may come out ahead, too, tho I dread seeing that happen! I wish I knew a solution, but I don't. Perhaps some good will come out of this, and we can finally get more fuel-efficient cars, that don't pollute as much (vehicles and industry smokestacks are two of the biggest air-polluters in the world; why have our politicians not put the screws to these polluters and shut 'em down if they can't drastically shape up?! Where were you, the reader of this comment, all these years, not taking time to insist the politicians do just that?!). By the way, still driving that big gas-guzzler? Vehicular heresy, get rid of it this minute!
I work for Wal-Mart (14 & a half years), and I don't think anyone will bail them out if they get in trouble. Of course, they are the biggest retailer of that type in the world. Before anyone criticizes, though, I will be the first one to say that while they have just had another record year, their stock is stagnant, their CEOs, VIPs, & Board of Directors get monstrously huge bonuses, salaries, & benefits each year, while we little hourly workers struggle along on higher benefit premiums, reduced benefits, reduced hours, reduced wage opportunities. Oh, we get some benefits, but not as good as it used to be, there is no job security (we need a union, & I don't even usually like unions!), & we are at the mercy ofr unqualified, unstable management consortiums. But we little hourlies keep plugging along, trying desperately to really take care of our customers, because we really do like them, & feel they deserve our best service we can provide (at least that is my feelings, one who really does respect them). But there will be no bailout for us, no matter what happens. But I digress...
Back to auto-makers (but this applies to all businesses, big corporations down to smaller businesses): when serving the public, you have a duty to provide the very best environment you can for your workers, & the very best products, goods, & services you can to the public, your real employers. When you don't, perhaps to fail & get out of the business is actually the ultimate best service you can provide under the circumstances. Like in Chess, good planning is essential, you may well reap what you sow. Of course there are market forces that could make a difference, & so that brings us back to remedies (Banckruptcy Court). Why reward incompetance? Recently some recipients went on vacations with the bailout money, trips,awarded additional bonuses, went shopping for additional businesses, crying "poor". Well, I cry "Fraud/prosecution!" How about them apples?!
Jim M. Gau
Hancock, MI
advertisement
