How to Approach the Car Industry Bailout
The taxpayer funds being directed to the financial industry are largely being targeted to putting liquidity back into the system — by encouraging banks to lend more, and through mortgage restructuring, allowing consumers to spend more. (Never mind that these goals are not being achieved by the Paulson plan.)
By contrast, the auto industry is asking for funds to keep the individual firms, and the industry itself, alive in the United States despite evidence that they have made poor decisions over the years in relation to foreign car makers. The rationale is that (a) we need these firms in the US for security reasons (they make tanks); (b) we need the many good jobs they provide directly and indirectly; and (c) eventually times will get better and they will repay us.
Right now the total value of all the common stock of the Big Three companies is probably about $13 billion (Chrysler’s figures are private). There are lots of people around who have that kind of money. The biggest billionaires could raid their cookie jars and buy all three for cash, right now. But Warren Buffett chose to put his money into Goldman Sachs stock rather than a car company. Why? Probably because once the subprime mess passes through the python, the financial companies will do well because they are run efficiently. By contrast, the GM execs evidently felt that a YTD loss of $21billion did not require them to lose their corporate jets or their bonuses. They are like ship’s captains who have run out of fuel and have forgotten how to hoist a sail.
That leaves jobs and national security as reasons to put federal money into the car makers. Both are good reasons. But what form should taxpayer support take, given that we are not likely to get it back? Remember that private money is not eager to fund these companies, and their execs have not seemed eager to go through Chapter 11 (even though it would permit them to leave the UAW holding the bag to some extent). So this moment is somewhat akin to government funding of other programs that private industry is unwilling or unable to finance.
Like the space program, in other words. That’s a program that the US taxpayers own and finance, contracting out production to private contractors (sometimes with less than optimal results). It may never turn a profit, but we run it because it is useful. Or like Amtrak. That’s a government corporation that we formed to take over the hapless passenger railroads and operate them with a taxpayer subsidy that with any luck will turn into a profit over the years. Either way, the government controls the operations, the executive pay, the perks, and the company’s priorities. We can, and do, force them to provide the service that is needed the most, not necessarily the service they can advertise the most.
It may be that despite the ubiquity of automobiles, producing them in the US may be a luxury that we can rationalize only because in wartime we may need to produce tanks. That may not be true in the long run, but it appears to be true now. If that’s the case, we should pony up the $13 billion, buy every share, and run them the way we want them run — good jobs, good pensions, good fuel economy. It’s better than paying twice as much to give the captain sailing lessons.
