Senate Republicans determined to block the $14 billion rescue package for Chrysler and General Motors have trotted out predictable rhetoric about the dangers of Big Government. Senator Mitch McConnell of Kentucky, the Republican leader, warned on Thursday that “a government big enough to give us everything we want is a government big enough to take everything we have.”
As the American economy sinks into the deepest recession in a generation — caused in large part by this sort of anti-government and anti-regulatory dogma — it would be folly to allow the ideologues to undermine efforts to pull the country out.
Let’s be clear. The rescue plan passed by the House this week won’t fix the ailing automakers that are hemorrhaging cash as sales plummet. But allowing one or more of these companies to collapse into bankruptcy proceedings could potentially cause the loss of hundreds of thousands of jobs and even greater economic havoc.
Furthermore, if the Detroit carmakers are going to survive, they will have to completely overhaul the way they do business — and start building cars that people will buy. For that, they are going to need new leadership, a rational assessment of their long record of failure and, yes, a much larger infusion of government cash.
The short-term bailout not only buys time, it uses the time to build a long-term restructuring plan. The incoming Obama administration can then decide whether to invest billions more to truly rebuild the industry.
Nobody — including the carmakers — fully understands the depth of Detroit’s problems or how much money it will take to dig them out. Mark Zandi, chief economist at Moody’s Economy.com
, told Congress last week that rescuing the companies would cost taxpayers $75 billion to $125 billion over the next two years. And that’s probably optimistic.
As sales fall, the more taxpayer money the automakers will need to survive, and the more doubts will arise about whether it makes sense to support failing car companies that can’t sell cars.
Before it makes any decisions, the next administration will need a lot more information. The current plan calls for a government car czar who would have full access to the automakers’ finances. By the end of the year, the czar would establish benchmarks to evaluate the carmakers’ progress in restructuring.
The official would bring the companies together with creditors, workers, dealers and suppliers to hammer out a plan to restore their long-term viability. The various stakeholders would be given until March 31 to reach such a deal. And the czar could use the threat of forcing them into bankruptcy proceedings to encourage all parties to reach an acceptable agreement.
The bill has big weaknesses. Most importantly, it fails to demand that top executives of any car company receiving taxpayer money step down. These companies need new managers who are not wedded to Detroit’s failed strategies. And the bill doesn’t set any conditions to ensure automakers invest in fuel-efficient vehicles. Any long-term plan must make sure the automakers don’t simply keep making gas-guzzling trucks and sport-utility vehicles, whose popularity — unfortunately — has recovered as gas prices have declined.
We were distressed by reports late Thursday night that Senate Republicans were close to scuttling the deal. Despite all the flaws of the temporary fix, we don’t see a long-term solution without it.