NO: Why Should We Bailout Detroit?
By: Robert Farago, OpEd Contributor
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December 4, 2008
Chrysler, Ford and GM are broken. They have too many brands, models, dealers, factories, workers, worker obligations, debt and bureaucracy. At the same time, they don’t have the products they need to grow their way back to profit.
Not now, not in the near future. In short, they’re screwed. Which is why Chrysler, Ford and GM want a $34 billion federal loan, to avoid bankruptcy. There are plenty of reasons why Congress should deny their request, but let’s focus on one - we’ll never see the money again.
To return to profitability, Detroit’s automakers have to take in more money than they spend. And boy, are they spending; The Big Three are burning through billions of dollars every month.
While some of the money’s funded product development, and a big slice paid for salary, pensions and benefits; the automakers have torched the majority of their cash in a desperate attempt to downsize to match market share: shuttering factories, paying off employees and servicing debt.
Yes, there is that. The Big Three’s debt may not be enough to shame a Latin American country, but it’s close, around $80 billion. GM alone is paying $250 million per month just in interest.
The cuts Chrysler, Ford and GM need to continue their seemingly (perhaps literally) endless quest to “right-size” their operations will require more money. Money they don’t have. Adding to a debt burden they can’t afford. To build products with meager profits. In a shrinking market. In which they’re shedding share.
No wonder the banks have cried Basta.
This is no small point. Despite what the automakers would have you believe, the “financial meltdown” isn’t preventing the money men from lending domestic automakers the cash they need to stay in business. It’s common sense.
And common sense suggests that if the Wall Street doesn’t think Chrysler, Ford and GM can dig themselves out of a deep hole, they’re right. Throwing $34 billion worth of taxpayers’ money into Detroit’s money pit is fiscally irresponsible. Ipso facto.
Detroit’s counter argument is that new products will save the day. Hybrids! Plug-in hybrids! Electric vehicles! Euro-style gas sippers! Past history indicates that these Hail Mary vehicles are impure fantasy.
Even as Motown sank into this morass, literally mortgaging their future to stay afloat, they’ve dangled the prospect of breakthrough products in front of their shareholders and investors. As Edna Mole said to Mrs. Incredible, “And yet, Darling, here we are.” Again, if the domestics’ new product strategies were so compelling, they wouldn’t need taxpayer money to fund them.
Detroit’s request for federal funding is a bridge loan to nowhere. That’s the left-brained argument. Unfortunately, The Big Three’s communal bailout request lies within the political arena, which is about as rational as Daffy Duck on acid (and far less entertaining). So any anti-bailout proposal must deal with the over-riding emotional issue - jobs.
No one wants to see hard-working Americans turfed-out of gainful employment. But no amount of good intentions can alter the fact that American voters [via their elected representatives] face a stark choice. Either they let The Big Three slip into Chapter 11 bankruptcy, or they subsidize auto workers jobs with federal tax money.
In the first case, there’s no question that Chrysler, Ford and GM will slash jobs, benefits and pay. They will make other, draconian cuts to reinvent themselves as smaller, leaner organizations. It will be a painful process for tens of thousands of people and hundreds of communities. And there’s no guarantee of success.
In the second case, the $34 billion in federal loan guarantees – coming on top of $25 billion in loan guarantees for retooling - will maintain the status quo. Jobs will still be lost, but federal funds will minimize the suffering. When the money eventually runs out, as it surely will, taxpayers will face the exact same dilemma, bail out or abandon ship.
There is an alternative - assisted bankruptcy. The domestic automakers file for Chapter 11 protections from their creditors, freeing themselves to do what a profitable automaker’s gotta do, and then the U.S government provides funding.
That way, the automakers have a chance at survival and we have a chance at getting our money back. Otherwise, you might as well write 250,000 UAW workers each a check for $100,000 and be done with it.
Robert Farago is publisher and editor of The Truth About Cars web site.
