No doubt many of us fondly remember our first vehicles, likely American brand cars or trucks, and wish that the American spirit the Big Three has exemplified will live on. But giving the struggling automakers a $25 billion handout is not the solution.
National leaders should deny the automakers’ request for so-called bridge loans and instead, if needed, allow the practical protections of Chapter 11 bankruptcy to be the government’s primary involvement in helping the companies steer their way back to prominence.
Tough times require that we look beyond nostalgia or pity. On its face, the $25 billion request shows a lack of business judgment, as the rate at which the companies are burning through cash on hand suggests the loans could evaporate well before this time next year. Simply put, the taxpayer money would be wasted at a time we cannot afford to waste it, only to delay the bankruptcy that actually would offer the Big Three the tools the domestic industry needs to survive and thrive in the future.
Meanwhile, prior to the credit meltdown, the domestic automakers already received $25 billion in government loans to help them retool their products to be more fuel-efficient and green. (That taxpayers had to help Detroit retool when so many other automakers made fortunes developing greener cars should be a boldface reminder of why the domestic makers are in so much trouble.)
Bankruptcy would allow management and labor to remove the unrealistic wages and perks that add nearly $2,000 to the total cost of every American car or truck, and should make domestics more competitive with foreign cars.
Big Three executives argue that bankruptcy would frighten away buyers, who might worry that warranties wouldn’t be honored. The problem, however, could be solved by allowing for-profit companies to offer the warranties, or by letting Washington back the guarantees.
We concede that bankruptcy would not be painless, and we encourage Washington to fully weigh potential societal impacts of layoffs and unemployment costs to taxpayers in making its decision. But the request for more money now is improper.
The $700 billion bailout (as frustratingly hamstrung with problems as it is) was meant to shore up credit markets, which are less a particular industry and more an over-arching infrastructure that fosters all economic activity.
Without the bridge loans, an existing automaker could go out of business, but that’s not to say that others won’t rise up in its place and even eclipse its former might with even mightier, more innovative products. After all, nothing suggests Americans will do without cars for the foreseeable future.
If American automakers can continue to retool their thinking, and shed some of their legacy costs, we expect they’ll do OK.
