Congress and President Bush appear close to an agreement that would bail out the Big Three Detroit automakers. Politics has trumped prudence, and the real goal of this bailout plainly is not to help the automakers become sustainable businesses but to preserve union jobs and subsidize hybrid cars. We understand why the Democrats are happy with this arrangement. It is less clear why the president should agree to it.
In a sense, congressional Democrats called Bush’s bluff. The debate between Congress and the White House has not been about whether the Big Three should get a bailout, but about where the money for a bailout should come from. (Those who think bankruptcy is the best option have found few friends in Washington.) Democratic leaders Nancy Pelosi and Harry Reid have argued that the administration should save the automakers by using funds from the $700 billion bank-rescue program. The White House has maintained that if Congress wants to bail out the Big Three, then it should expedite the approval of $25 billion in loans it authorized in September.
These loans were made available on the condition that the Big Three use the money to retool their factories and start making cars that run on electricity and biofuels. But in their plea for help, the Big Three have emphasized that they won’t in fact be around to make the cars of tomorrow unless they get some no-strings-attached cash today.
Pelosi was adamant at first in her refusal to sever the loans from their intended purpose. Her home state of California is one of 17 states seeking to impose emissions standards on automobiles that are stricter than the national standard. The automakers have averred they cannot comply with a patchwork of state regulations that would force them to make different cars for different states. The $25 billion in loans was intended to mollify their opposition by providing them with the means to meet the states’ tougher demands.
Now it appears that Pelosi has caved; the compromise calls for $15 billion to be redirected from the green-energy loan program and used for the automakers’ more urgent needs. But Pelosi is also preparing to restore the money to the loan program in a separate bill once Barack Obama takes office. She has thus neutralized the administration’s opposition without making any real concessions.
In addition to that, the draft bailout legislation would bar the car companies from seeking injunctions against states such as California with emissions targets stricter than the national standard. Without legal recourse, the automakers’ most profitable cars and trucks will be shut out of the nation’s largest market. There is no way the automakers can return to profitability under such conditions, and the presence of such a provision in the bailout should dispel the notion that a self-sustaining auto industry is the Democrats’ first, second, or tenth priority.
The agenda also calls for the appointment of a federal “car czar” to direct a restructuring of the car companies. But it does not give this person a mandate to force the autoworkers’ unions to make the realistic concessions that are required if the Big Three are to become competitive again — something a bankruptcy judge could do. The Big Three’s labor costs, work rules, and job-security arrangements are relics of a bygone era; if you want to see what a successful American auto industry looks like, look to Toyota, Honda, and Nissan, which employ a non-union workforce of more than 100,000 at their American assembly plants.
If, as seems likely, this restructuring doesn’t work, consider the $15 billion a down payment: It is the nature of federal czars to attribute mission failure to inadequate resources, and it is the nature of Congress to throw good money after bad. No one wants to call this a nationalization, but that is what it is bound to become unless Senate GOP leader Mitch McConnell can rally enough Republicans to block the bill. McConnell got to the heart of the matter in a statement yesterday: This bailout doesn’t fix Detroit’s problem, he wrote, “It subsidizes it.”