A Voice of Reason Puts Automakers on the Road to Rescue

WashingtonPost.com ^ | November 19, 2008 | Steven Pearlstein

[Delacon]

Even before being sworn in, Barack Obama has confronted his first big test as president and passed it with flying colors.

The test is the urgent request of Detroit's Not-So-Big Three automakers for a $25 billion "bridge loan" to get them through what they want us to believe is a "short-term liquidity crisis" -- a crisis that has been caused by the "perfect storm" of soaring oil prices, a credit crunch and now a strike by consumers, none of which is their fault, not one little bit.

Democratic leaders in Congress were initially willing to prostrate themselves before the United Auto Workers union and write the companies a blank check. Republicans, by contrast, said no way, promising a Senate filibuster and a White House veto. Another partisan stalemate seemed in the offing.

Then, in steps Obama with the utterly reasonable proposition, delivered in a television interview, that while the failure of General Motors, Chrysler and Ford posed as much of a risk to the economy as AIG and Freddie Mac, he wasn't about to provide three uncompetitive companies with a bridge loan to nowhere. As a condition of his support, he would require that all the constituencies -- the shareholders, creditors, workers, pensioners, managers and dealers -- make the necessary concessions needed to restructure these companies and put them on sustainable, competitive footing.

Yesterday, before the Senate Banking Committee, top company and union executives stuck to their story of victimization and imminent transformation. But the Bush administration, Democratic leaders and many Republicans in Congress seem to have embraced the Obama principles. The haggling now is over the appropriate mechanism. My guess is that the whole thing will be wrapped up shortly after Thanksgiving, perhaps in a holiday package that will include Congressional approval ...

So what would such a rescue look like?

[Delacon]

I have been banging my head wondering why politicians and pundits, you and I havent been examining why the Chrysler bailout worked out and why it shouldn't be re-applied again. I had assumed times had changed and was simply out of the realm of possibility. You see, the Chrysler bailout wasn't a bailout. It was a modified bankruptcy. It was like you, as a business filing for bankruptcy, had a demanding uncle who gave you a sweetheart loan to keep food on your table and covered your house payments. I've posted several articles against the bailout, fought against it on my threads. I'm posting this article because it contains a kernel of a good idea and a way outta the woods imo. Please pass over the messianistic adoration of Obama. Please don't assume I have anywhere near the level of trust that this author has for Obama or congress to act in a manner that would let this scenario play out. I am including a Heritage Foundation circa 1983 criticism of the Chryler bailout. Compare the current plan with the past criticisms. If the god damn dem govt can do a bailout yet structure it as a bankruptcy? I'll be a happy conservative in a unfortunatly and currently libby world. http://www.heritage.org/research/regulation/bg276.cfm

[FlingWingFlyer]

Even before being sworn in, Barack Obama has confronted his first big test as president and passed it with flying colors.

I hope Steve's Obama tingle is just acting up and he's not smoking something.

[buccaneer81]

You forgot the Barf Alert.

[Fred]

UAW chief urges $25 bln in U.S. auto health care support (Union bailout-payback for $400,000,000) - http://www.freerepublic.com/focus/f-news/2127523/posts

Who's your DADDY Obama?? - - Youtube The One on Card Check

Why Doesn't Toyota USA Need A Bailout? - - http://www.freerepublic.com/focus/bloggers/2130909/posts

Big Three Bailout, Not So Fast! - - http://www.freerepublic.com/focus/news/2133229/posts?page=1

[bigbob]

The one guy who MIGHT be able to help the Big 3 get on the right track:

Lee Iacocca

[Delacon]

Buc, I appologized for the author and is inclinations. But he has a good idea. A barf alert would have helped my hope that anyone would have taken the article seriously. NEVER kill the messenger. Its so much better to kill the message if you are smart and you can.

[Lorianne]

Still sounds like a bailout to me ... only a more complicated and expensive one because Congress is involved in ‘oversight’. Yeah, that’ll work.

[SMCC1]

I can understand the Government wanting to attach strings to any possible loans they give the Auto Companies. But then that sets a precedent for government intervention into private industry. In that regard, it’s almost even worse then just giving them loans.

[Glacier Honey]

ping

[Fee]

Politicians don’t even have a clue about Main Street. Many US consumers are maxed out on their credit cards, maxed out on their equity loans, fear for their jobs after Xmas, and any money they have they are trying to pay down their debts, not take on anymore loans and are not in the mood for buying anything major like cars and trucks. Watch the retail numbers and how many retailers will go into Chapter 11 after Xmas. If too many major retailers do bad, commercial real estate is going to be in trouble as stores close and malls become vacant strips. Deflation will be first as excess goods are liquidated during low demand. This will be followed by inflation as the dollar devalues from all the currency printing to finance these bailouts come back to hit the US. MY ONLY ADVICE TO FREEPERS IS IGNORE POLITICS BECAUSE NEITHER THE DEMS OR GOP CAN SAVE YOU. WE DUG A HOLE TOO DEEP TO CLIMB OUT OF INSTANTLY. WE WILL NEED TIME TO LET BAD COMPANIES DIE AND NEW COMPANIES RISE. THIS MAY TAKE TEN OR MORE YEAR. GO TO SURVIVAL MODE AND WORK WITHIN YOUR COMMUNITY TO SURVIVE THE IMPENDING DEPRESSION/CHAOS. GET READY TO DEAL WITH CRIME, HOMELESS SQUATERS AND DISRUPTION IN GOODS AND SERVICES THAT MULTI NATIONAL CORPORATIONS AS THEIR NETWORKS START TO BREAKDOWN DUE TO FINANCIAL PROBLEMS.

[Delacon]

IF the bailout came with ALL the stipulations and contractual free-for-all of an actual bankruptcy would you be up for it?

[Free Vulcan]

It’s still too interfering but it’s a step in the right direction. Now they need to go back and get rid of the socialism and put together a better deal.

[buccaneer81]

Buc, I appologized for the author and is inclinations. But he has a good idea. A barf alert would have helped my hope that anyone would have taken the article seriously.

True enough. I see your point.

[Lorianne]

No. The government should not be in the business of orchestrating either bailouts or bankruptcies.

And the Dems oversighting this thing? Talk about opportunities for corruption galore.

I just see red flags all over the place.

[Delacon]

Oy.
Buc, I apologized for the author and his inclinations. But he has a good idea. A “barf alert” wouldn’t have helped my hope that anyone would have taken the article seriously.

I also apologize for my inattention to posts. I sham the wiort tippest an the wirlds.

[Lorianne]

I wish I thought you were wrong.

[Lorianne]

I agree.

[buccaneer81]

I sham the wiort tippest an the wirlds.

My beeber is stuned ;-)

[Delacon]

“IF the bailout came with ALL the stipulations and contractual free-for-all of an actual bankruptcy would you be up for it?”

Hell yes. Ask yourself, if you were a stockholder. Pure bailout versus bankruptcy versus govt backed bankruptcy. Which would you choose?

[Delacon]

ON! I ma the Kig fo dab tyist!

[HardStarboard]

>>>Now they need to go back and get rid of the socialism and put together a better deal. <<<

Please show me the structure of a "better deal" that isn't still a "bailout" and SOCIALISM! Here's some of my thinking on another thread yesterday.....

Much as I abhor bailouts of any kind, there is a big difference between bailing out the Banking System and the Big 3 Detroit Automakers.

If the big banks start to go down, they can all drag each other down. They all loan money to each other, they loan money to and get funds from the States and the Feds - and you and me. They borrow money from, and loan money to banks in the rest of the world. the interconnectivity with the entire economy is enormous.

The Big Three are not interconnected to each other. They are interconnected only through many of their suppliers who will suffer if they fail. But there are other car makers operating in the United States....Toyota, Nissan, BMW; Honda operates a mamouth new plant in Indiana. I think they will be eager to pick up the slack if Detroit folds.

According to 2007 figures compiled by the Center for Automotive Research, foreign automakers including Honda, Toyota and Nissan employed some 113,000 workers in the United States, about half of the 239,000 employed by Detroit's Big Three. Auto plants have gone belly up before....and come to life again with new management and innovative new cars. One example....Rover in England went out of business, was bought by BMW and the Mini Cooper was born - a huge success, far greater than anything Detroit has given birth to in recent years.

Detroit is broken....bad management, poor design choices, government meddling and voracious unions unwilling to see trouble on the horizon.

As an American, I hate to say this - but Detroit deserves to die. It has a failed business model. It's rebirth will be difficult - but it will result in a stronger, more vibrant and a viable Detroit in the end (particularly if it can get the government out of the business of dictating design). Capitalism is a process of invention-success-obsolensence-decline-death-rebirth.

The actual number of total bailout money authorized is 3.8 Trillion. I know that neglecting Detroit seems unreasonable....but 25...50...100...200 Billion won't fix Detroit - it will just perpetuate, for a few more months, a failed business model that hasn't made money for 6 or 7 years.

The Big 3 as much as admitted today in hearings that the $25 Bil is only a temporary fix - that they will be back for more in a few months.....some where this bailout mania has to stop - and this is the time and place - and Detroit is the industry!!

[razorback-bert]

wipe out the interests of current shareholders, replace failed executives and directors, force creditors to accept less than they are owed, abrogate labor contracts, reduce pension obligations and override state dealership laws.

Wipe out shareholders, who do these people think owns most of the shares? I bet most of the stocks are owned by pension plans. Who decides who is a failed executive? Overide state laws on dealerships, that will wind up in the courts.

[org.whodat]

If the god damn dem govt can do a bailout yet structure it as a bankruptcy?

That is easy, all they need to do is file , the government, "the tax payers", will provide a bankruptcy judge and court room.

[Eric Blair 2084]

"What most people really object to when they object to a free market is that it is so hard for them to shape it to their own will. The market gives people what the people want instead of what other people think they ought to want. At the bottom of many criticisms of the market economy is really lack of belief in freedom itself. The essence of political freedom is the absence of coercion of one man by his fellow men. The fundamental danger to political freedom is the concentration of power. The existence of a large measure of power in the hands of a relatively few individuals enables them to use it to coerce their fellow men. Preservation of freedom requires either the elimination of power where that is possible, or its dispersal where it cannot be eliminated. It essentially requires a system of checks and balances, like that explicitly incorporated in our Constitution..."

-- Milton Friedman, The New Liberal's Creed: Individual Freedom, Preserving Dissent Are Ultimate Goals," May 18, 1961

[CharlesWayneCT]

The author seems to think Obama had something to do with this. But it seems Bush should get the credit for standing up here, not Obama, who by early reports was trying to force Bush to accept the bailout, going so far as to float a false rumor that Bush was trying to bargain with Obama over the bailout.

[Always Independent]

JUst wondering, If the plan in the article were to take place whats to stop the foreign automakers in the us from crying foul when the us gov’t gives the domestics a big fat nobid contract for a new fleet of fuel efficient vehicles. Now you end up with a complaint in the WTO.

[patriotspride]

“The author seems to think Obama had something to do with this. But it seems Bush should get the credit for standing up here, not Obama, who by early reports was trying to force Bush to accept the bailout, going so far as to float a false rumor that Bush was trying to bargain with Obama over the bailout.”

Very true. The media will not give Bush any credit, and continually plays Barry’s broad winded statements as very insightful.

Can’t wait to see him in a real game, instead of this “ press induced” pre-season

[ding_dong_daddy_from_dumas]

As a condition of his support, he would require that all the constituencies -- the shareholders, creditors, workers, pensioners, managers and dealers -- make the necessary concessions needed to restructure these companies and put them on sustainable, competitive footing.

The Washington Post website won't let me read the rest of the article, but I wonder if we will see a deal that really puts them "on sustainable, competitive footing." One would think that the priorities for the "conditions" under which Uncle Sam would lend (?) money to the auto industry would be in this order:

1) Require that the automakers and unions make real changes to ensure that those companies are profitable in the long run.

2) Ensure that, at some point, they produced enough low-gasoline-mileage vehicles so that consumers would want to buy them, and so that the US can reduce its dependence on foreign oil. Of course, for some buyers, a vehicle that gets 20MPG and carries 8 is a better deal than one that gets 32 MPG and carries 4. So you also have to consider MPG/passenger. The part about low-gasoline-mileage is closely related to #1.

However, I am afraid that Obama's real priorities would be:

1) Lower emissions to "save the planet," even if this requirement would result in vehicles that most folks do not want.

2) Get as much for the unions as possible.

etc. etc.

We'll see what happens.

[DarkSavant]

I miss that man.

[truthluva]

a crisis that has been caused by the "perfect storm" of soaring oil prices, a credit crunch and now a strike by consumers, none of which is their fault, not one little bit.

Sounds like a passage out of Atlas Shrugged.

[ncfool]

I am against any bailout unless the UAW and its members take about a 40% haircut on Wages and fringes. The same applies to the AutoMakers.

Why should AMERICANS pay for the corrupt unions bailout if they won’t take a haircut too. Enough is enough.

[SuziQ]

(Sung to the tune of 'Hosanna', from "Jesus Christ Superstar")
HoBama, HeyBama, Bama Bama HoBama HeyBama HoBama!

I guess we're doomed to having to read these 'messiah' stories about the man for at least four years. Eight, if the MSM can get away with it.