EDITORIALS
Automakers need a plan
Saving Detroit’s Big 3 really requires big changes in contracts, management
It wasn’t the first time that anyone who was prepared to write a big check to an automobile company had second thoughts after kicking the tires and slamming the doors.
The leaders of the Big 3 automakers asked Congress last week for a second $25 billion loan just to keep the lights on, even before the last $25 billion loan — to pay for long-overdue fuel-efficiency upgrades in their product lines — had been spent. Even though many powerful members of Congress had, only hours before, been pitching doomsday scenarios about the giant tidal wave that would rip through the economy if General Motors, Ford and/or Chrysler went bust, Congress said no.
Actually, it would be more accurate to say Congress said maybe. And that was the right answer, for Congress. But it would be even better for any taxpayer rescue to be negotiated not with the committee known as Congress but by a single executive, the president or president-elect.
House Speaker Nancy Pelosi told automakers to come back in a couple of weeks, and this time bring a detailed plan that shows Congress and the American people not only what you would do with another loan, but also why anyone should expect that it would do you, and the country, any good.
Congress and the president should examine why the alternative, bankruptcy, would be worse — or not.
American taxpayers cannot just throw money at a broken system that is incapable of providing salable models and a sound business plan. Just as the Legislature in Albany should not expect a federal bailout unless it takes measures to get its own fiscal house in order, the automakers and auto unions of Detroit should not expect rescue without repair. That would simply delay a bankruptcy driven by unchanged work rules and other labor costs, “legacy” pension and health costs and poor management and marketing decisions. Last year GM spent $71 per hour per worker in wages and benefits in Detroit, while Toyota’s cost in its U. S. plants was $47. That’s not competitively sustainable.
Washington should use that same interlude to do its own figuring. It needs to know not just what it would cost to rescue the automakers, but what it would cost not to. Picking up the wreckage of the income, health care and pension plans so many Americans had been counting on would be rough. But with current management happy with its own performance and the UAW unlikely to make enough changes to help the companies survive, bankruptcy may be the best choice.
Leaders of Congress are correctly worried about giant automaker bankruptcies and the impact that would have on union members and board members, Main Street and Wall Street. But they are also correctly worried about pouring good money after bad.
Investment wizard Warren Buffett, a member of President-elect Barack Obama’s economic advisory team (and head of this newspaper’s parent company), thinks bankruptcy is a poor solution. It would be better, he notes, if the Big 3 and the UAW can develop a better business model that offers assurance of a turnaround (and, he adds, if the automakers’ top executives invest a significant portion of their own worth in their companies, to ensure they share either the rewards or the pain).
But unless there is reason to believe that the second federal loan will be enough to put the automakers back on the road to profitability, without the need for billions more in federal aid, it becomes more and more difficult to see why one or more of the automakers shouldn’t head for bankruptcy court instead.
Of course, there’s bankruptcy, and there’s bankruptcy. One variety, Chapter 11, allows a company to get out from under its many woes by legally delaying debts and canceling contracts. Some experts argue that is the answer for Detroit, allowing it to tear up unsustainable deals with suppliers, dealers, unions and retirees and make a new start.
Even if it worked, that would hurt. The other kind of bankruptcy, Chapter 7, the real going-out-of-business kind, would hurt even more. The ongoing credit crunch would make it even more difficult than it would otherwise be for new owners to drag the new American auto industry out of the ashes of the old.
Unless the automakers come up with a plan instead of a plea, Congress might do better to save its $25 billion for the unemployment, welfare, Medicaid and other government accounts that will be so horribly strained when the Detroit industries collapse under their own weight.
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