EDITORIALS
Car loan looks reasonable
But taxpayer backing of auto industry should lead to fuel-efficient vehicles
Updated: 09/12/08 6:49 AM
The American taxpayer, fresh from a federal mortgage company takeover that carries some financial risk, now is being asked to back as much as $50 billion in low-interest loans to the Big Three American automakers. It may rankle some that taxpayers are asked to help an industry that has made mistakes in the past, if only to keep their factories open.
But this is a plan that can make sense for everyone, as long as all the fine print is very clearly understood.
Democrats backing the loan deal stress its immediate —
i. e., election year — impact of preserving American jobs. That’s important, but the real justification for taxpayer involvement is the expectation that our return will be the total reinvention of the automobile, creating transportation systems that use little or no fossil fuels, ease our dependence on foreign oil and reduce the pressure on the global climate. That’s in the national interest, not just an industry benefit.
For another thing — as Ford, GM and Chrysler stress at every opportunity — the taxpayers are not being asked for a gift or a grant. It’s a loan, which the automakers say they will repay in full, with the money raised from the private capital market and only guaranteed by the federal government.
In that, it is not unlike the highly controversial deal that rescued Chrysler from bankruptcy in 1980, a package that not only did not cost the taxpayers anything but actually made the government a profit of $400 million.
For bookkeeping purposes, though, Congress will be expected to pony up as much as $7.8 billion in taxpayers’ money as a “debt reserve” fund to get the new loans written. That’s loan-guarantee money that actually may never be spent, and the government may even earn some interest.
For another, the deal should be understood to be a command for Detroit to create the next generation of automobiles, not an offer to rescue it from the failures of the last one or two.
The genesis of the $50 billion loan package — which started out as one half that size — was properly placed in the 2007 law that requires autos sold in the United States to meet seriously increased average fuel-efficiency standards. Because everyone agrees that meeting that goal will cost the automakers some $100 billion, helping them borrow some of that money at better rates than Wall Street is likely to otherwise offer sounds reasonable enough.
It is also reasonable to note, though, that the reason Wall Street is not eager to lend Detroit billions of dollars goes beyond the fact that the financial markets aren’t that healthy themselves. It has to do with the fact that American automakers have been losing money and market share rapidly in recent years, flat outperformed by their global rivals.
What money the U. S. Big Three were making, until very recently, was from high-margin, low-efficiency SUVs and trucks. Now that high gas prices have undercut that market, the automakers finally have seen the need for newer, more fuel-efficient cars. That changeover was an investment that the automakers should have made on their own a decade or more ago, but they need help making it now — in ways that could not only avoid the shock that might go through the whole economy if one or more of the U. S. automakers were to fail, but also reach related goals that are also in the national interest.
