The New York Times details the perils of the auto industry bailout being crafted by Congressional Democrats and President-elect Obama. Clearly the devil is in the details, and that’s exactly where the “n” word comes in…
…[W]hat Mr. Obama went on to describe was a long-term bailout that would be conditioned on federal oversight. It could mean that the government would mandate, or at least heavily influence, what kind of cars companies make, what mileage and environmental standards they must meet and what large investments they are permitted to make – to recreate an industry that Mr. Obama said “actually works, that actually functions.”
It all sounds perilously close to a word that no one in Mr. Obama’s camp wants to be caught uttering: nationalization.
Not since Harry Truman seized America’s steel mills in 1952 rather than allow a strike to imperil the conduct of the Korean War has Washington toyed with nationalization, or its functional equivalent, on this kind of scale. Mr. Obama may be thinking what Mr. Truman told his staff: “The president has the power to keep the country from going to hell.” (The Supreme Court thought differently and forced Mr. Truman to relinquish control.)
The fact that there is so little protest in the air now – certainly less than Mr. Truman heard – reflects the desperation of the moment.
This is a perfectly absurd way to fix the auto industry, by subsidizing their current and future losses in the hopes that things will turn around. Many have compared this bailout to a super-sized version of the 1979 bailout of Chrysler. The details of that saga show that it wasn’t the success it was cast as by big government supporters. Somebody is going to eat Detroit’s losses, the only questions who will determine the winners and losers. If you trust Congress to make those determinations (as opposed to a bankruptcy court) seek psychiatric attention immediately…
People aren’t going to stop buying the cars they already aren’t buying just because Chrysler and GM go into bankruptcy. When they’re confident enough in their own financial situation to buy a car they will – assuming that banks, credit unions, and automakers will provide financing. “Fixing” Chrysler and GM via federal fiat will do nothing to the demand side of the equation. Automakers fortunes will turn around when they offer the right product at a price consumers are willing to pay. Of course the problem is that right now consumers are, wisely, holding off on big ticket purchases and some are having a hard time financing such purchases.
Instead of offering $15 billion to GM, Ford, and Chrysler, the government could provide 3 million $5,000 dollar off coupons valid for the purchase of any new car. Alternatively, for even less money, they could offer a car payment insurance policy (that would take over payments for unemployed workers) for all new 5 year auto loans that would make the prospect of buying a new car in an unsettled job market far less of a concern for buyers. Either of those might actually get some buyers back in the market and help turn the economy around.
If the Big Three can’t manage to compete on those terms they don’t really deserve to survive…
