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December 10, 2008

"Ass-Backwards:" Chrysler and GM Get $14 Billion; Restructuring and Reforms to Be Announced Later

They'll burn through that in three or four months, of course.

Majority Democrats and the Bush White House have finalized a deal to speed $14 billion in emergency loans to struggling U.S. automakers, congressional officials said Wednesday. Strong opposition lingered among some Republicans.

The White House did not go as far as to say the deal was final, although it did report "very good progress." The measure could see a House vote later Wednesday and be enacted by week's end. Then, money could be disbursed within days to cash-starved General Motors Corp. and Chrysler LLC, while Ford Motor Co.—which has said it has enough liquidity to stay afloat—would be eligible for federal aid.

It would create a government "car czar" named by President George W. Bush to dole out the loans, with the power to force the carmakers into bankruptcy next spring if they didn't cut quick deals with labor unions, creditors and others to restructure their businesses and become viable.

Congressional Republicans, left out of negotiations on the package, expressed grave reservations. A handful in the Senate promised to block the measure, which could delay a final vote for days.

Sen. David Vitter, R-La. said the package has an "ass-backwards" approach to curing what ails the U.S. auto industry_ giving carmakers money immediately, and only later demanding that they restructure.

Sen. Mitch McConnell, the GOP leader, said his side hadn't seen the measure as of Wednesday morning and wouldn't agree to immediate votes. "Republicans will not allow taxpayers to subsidize failure," he said, although McConnell added that the auto situation would be addressed by the end of the week.

Kausfiles is annoyed:

Why shouldn't the bailout deal include an explicit reopening of labor contracts? If the new "auto czar" can order the companies to restructure, tell them to build smaller cars and veto any expenditure over $25 million, shouldn't he or she be able to require the UAW to give up the precious work rules that have rendered the domestically-owned industry inflexible and inefficient for decades? To be really effective, the bailout deal would have to "restructure" the UAW itself, so that union locals don't have an effective veto over productive labor practices proven in, say, the GM-Toyota NUMMI joint venture in San Jose, California.

I don't know what the actual deal contains (later NYT and other stories are vague), but this seems like a useful bright line for opponents of corporatist bailout-creep to draw: If the taxpayers are going to foot the bill, then the goal has to be a successful industry in the long run--not a Congressional fix designed to protect the UAW from what it would face in a normal bankruptcy. That means rewritten contracts. If the UAW members didn't want that, they shouldn't have let their firms go broke--that is, they should have made the concessions they're making now, and more, years ago, when it would have made the difference.

Requiring painful, bankruptcy-style reopening would set a cautionary precedent. Just as Rick Wagoner's removal will warn timid management, it would warn unions that their function isn't to squeeze the absolute maximum possible from their companies every moment. They need to leave enough of a margin of error so that in a downturn their industry doesn't have to come running to the taxpayers.

Even if one supports the idea of a bailout of some kind, this is, as expected, the wrong kind of bailout.



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posted by Ace at 03:02 PM

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