First came Bear Stearns, then mortgage lenders and borrowers, followed
by Fannie Mae and Freddie Mac: They've all looked to Uncle Sam for a
bailout, and now the word around Washington is that Detroit will be
next on the taxpayer supplicant list.
Earlier this month, the Detroit Free Press reported that the top dogs
at Ford, GM and Chrysler had a meeting of the minds and decided that
the way out of their current losing streak would be to ask the feds for
a lifeline. They figure they'll need $40 billion or so to ride out
their current troubles until they reach the promised land of hybrids,
the Chevy Volt, and, who knows, maybe even profits.
We've since heard that lobbyists for the car makers are taking their
pitch for direct federal loans around Washington, with a goal of
unveiling the plan after Labor Day -- conveniently in the frenzy of the
fall election campaign. They've briefed Congressman John Dingell, the
dean of Michigan Democrats, as well as officials in the Bush White
House.
The plan is for the government to lend some $25 billion to auto makers
in the first year at an interest rate of 4.5%, or about one-third what
they're currently paying to borrow. What's more, the government would
have the option of deferring any payment at all for up to five years.
Meanwhile, Barack Obama recently signaled that he's open to federal
money to help the auto makers invest in "renewable" technology, and
Michigan Senator Debbie Stabenow and Mr. Dingell are supporting the $25
billion in loans to the not-so-Big Three as part of a second-round
economic "stimulus."
Detroit's political calculation is plain: Having seen the way
Washington has bowed to rescue the mortgage industry and Wall Street,
why shouldn't auto makers give it a try? Michigan is up for grabs in
the election, so now is the time to strike with a goal of getting the
Bush Administration and both Presidential candidates to agree.
The car makers can also claim with justification to have been hurt as
badly as anyone by Washington's policy blunders. The weak dollar has
contributed to the spike in oil prices that has socked their most
profitable vehicles. And the nonsensical way that fuel-economy
standards force Detroit to subsidize cars that consumers won't buy has
helped put the Big Three in this hole.
Then again, the car makers saddled themselves with a cost structure in
flush times that has proved unsustainable as their market share has
eroded. They have made great strides of late in shedding legacy pension
and health-care costs, but they took decades to do so. The fact that
GM's lending arm, now 51% owned by the owners of Chrysler, dipped its
toes in mortgage lending hasn't helped either.
There also happens to be a thriving U.S. auto industry outside of
Michigan. These plants are owned by foreign companies, but they employ
92,000 Americans and build and sell cars here. Tens of thousands of
their shareholders are Americans. Would these companies and plants get
equal consideration under any bailout plan? And if Toyota and Honda get
help, why not Delphi and other auto suppliers? We're told the
low-interest loan proposal would give priority to the "oldest" plants
-- which is another way of saying those plants organized by the United
Auto Workers.
Bailing out "national champions" because of their long history or
politically connected work forces is something you'd expect from
France. With rare exceptions -- Chrysler in the 1970s -- the U.S.
government has managed to remain immune to that European disease. But
as the nearby table shows, Washington has begun to make a habit of
bailing out any business or industry that can marshal enough political
clout. That's a lot of risk to put on the taxpayer dime, and that's not
counting such other runaway liabilities as Medicare.
We wish the Treasury and Federal Reserve hadn't started all this with
its Wall Street rescues, but at least Bear Stearns was put out of
business and its shareholders lost nearly everything. That's also
typically what happens when the Federal Deposit Insurance Corp. takes
over a failing bank, as in the case of IndyMac in July.
If Fannie and Freddie require a taxpayer infusion, we can't believe
Treasury wouldn't wipe out their shareholders and fire their managers
as well. And if Detroit's executives really want taxpayers to save
them, then at a minimum they should suffer the same fate as these other
companies and shareholders. Somehow we doubt this is what the Big Three
really have in mind.
Regardless of where and why these federal bailouts started, American
taxpayers can't save everyone. The only way to stop this parade of
supplicants is to start saying no -- and Detroit is as good a place as
any.
