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Capitalism In Question: Why Is GOP For 'Forced Restructuring' Of Big Three?

Congress will spend the remainder of this week arguing over the Detroit Big Three automaker bailout -- $14 billion in emergency bridge loans aimed at keeping at least two of them, GM and Chrysler, in business.

The House approved the bailout tonight. Now it moves to the Senate, where it's heavily opposed by Republicans.

Okay, that makes sense, you say. Free-market Republicans ought to oppose a government bailout of a failing company.

But what might surprise you is the alternative they prefer: a "forced restructuring" of at least GM and Chrysler, according to Sen. John Ensign (R-Nev.).

In other words, a Republican is in favor of the federal government forcing a corporation to change the way it does business, the way it's run, the products it makes. They don't like the way private-sector corporations are running themselves and want to make them change.

Now, that's surprising. At least it used to be.

The current financial crisis is doing more than just draining 401(k)s, throwing markets into turmoil, determining presidential elections and putting people out of jobs. It is causing Americans to question the very nature of U.S.-style capitalism.

Greed and short-sightedness have flipped our system upside down and Americans rich and poor are turning to the government for help. Each federal response, it seems, takes the economy one more step away from capitalism and toward nationalization.

In this feature -- Capitalism In Question -- we will take a hard look at these steps as a way to help us better understand what kind of economy we are becoming.

In the case of the automakers, Republicans are not advocating a true free-market -- a place where profitable ideas succeed and poor ones fail. If they were, they would oppose any sort of government action -- bailout, forced restructuring, whatever -- directed to the Big Three or any company, for that matter. If they were laissez-faire capitalists, they would tell the automakers: You're on your own. Sink or swim.

Instead, they favor a highly invasive form of government intervention -- one that is much more invasive than the Democratic plan of simply lending automakers money at a good rate.

At a press conference yesterday afternoon, Ensign was joined by Sen. Richard Shelby (R-Ala.) and a handful of other Republican senators. They said they were working on an alternative to the $14 billion bailout bill passed by the House last night that would require the "forced restructuring" of the struggling Big Three, presumably through Chapter 11 bankruptcy.

"Unless Chrysler, Ford and GM become lean and innovative and competitive in the marketplace, this is only delaying the funeral," Shelby said, referring to the bailout.

And when did it become the job of a U.S. senator to ensure that any private-sector company become lean, competitive and innovative?

The government "has to make sure they come out healthy on the other side," Ensign said. Oh? It does?

But wait, there's more: Ensign called for new-car warranties on vehicles made by GM, Ford and Chrysler to be backed by "the full faith and credit" of the U.S. government.

Now the government is in the business of guaranteeing products? What's next, toasters?

Not all Republicans are on board with this idea.

Rep. Ron Paul (R-Texas), a former presidential candidate and a deficit hawk, was outraged on the House floor tonight and railed against the growing government intervention into the private sector.

"We're in the middle of heading into nationalization without a whimper," Paul said. "It's such an embarrassment and such an insult to those of us who believe in freedom. This is what it's come to? Bailout after bailout after bailout? It's the nationalization of our industry."

-- Frank Ahrens
The Ticker is Twittering!

By Frank Ahrens  |  December 10, 2008; 9:12 PM ET
Categories:  The Ticker  | Tags: Chrysler, Ford, GM, capitalism, nationalization  
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Comments

Goodness gracious! Since when does Shelby know squat about the car business? I am not sure what the right answer is but I sure don't want the Senate telling the Big 3 how to organize. I would like to see a good faith effort to save GM. I am ambivalent about Chrysler since they have been saved once before and are privately owned.

Posted by: cdierd1944 | December 10, 2008 7:51 PM | Report abuse

When did the gov't get into the business of trying to force corporations how to run their business. Doesn't the gov;t have enough problems trying to run the gov't.

You don't have to look very far to see that the gov't created much of the economic woes that much of the country is suffering from.

Posted by: lcarter0311 | December 10, 2008 9:39 PM | Report abuse

There is one thing that the GOP wants to restructure. They want to break the union, and that's all. The Big 3 have been operating longer in the U.S., and so they have a large number of retirees. That and the necessity of tying benefits to work in the U.S. explains the whole difference between GM and Toyota in the U.S. The foreign companies go to right-to-work Southern states, getting every last bit of tax cut or special deal on utilities that they can. Then they have to pay the workers competitively. But there are no benefits that have been banked over thirty, fourty or fifty years at the Toyota plant in South Carolina. It's a newer plant.

Posted by: jimhass | December 10, 2008 9:40 PM | Report abuse

I don't think the writer understands where the R's are coming from. There are suggesting that any loan have conditions strong enough that the companies might actually survive.
The plan approved in the House is just money down a rathole. IT will tide them over a few months and provide no assurances that they will survive. IT will take tough love for the autos to make it, but less is irresponsible

Posted by: robert23 | December 10, 2008 11:18 PM | Report abuse

The NYTimes reported today that labor costs account for TEN PERCENT of the cost of a car -- and most of the gap between Big Three workers and the North American workers for Honda, Toyota, etc., is due to cost for retirees, for pensions, and for healthcare.

The union's taken a lot of criticism, and they did get fat and lazy -- but the UAW wasn't calling the design or marketing shots.

Vehicle buyers wanted SUVs (though they also wanted minivans, and somebody sure as hell wanted Honda Civics). Management and investors loved the juicy per-vehicle profit on trucks and SUVs.

There may be a case for government intervention, in an active-welfare sense, but I for one don't want any vehicle designed by the gang that's perpetuated the farm program. Why are we subsidizing sugar? Peanuts? Cotton? Won't be able to get any?

Posted by: NorwegianBlue | December 10, 2008 11:45 PM | Report abuse

Senator Richard Shelby is waging virtual war on the blue states and the unionized blue collar workers of America. Shelby and his Republican buddies would just love to use this crisis to destroy the unions and return blue collar workers to the status of serfs. Shelby cares nothing about blue collar workers in the North. He engineered hundreds of millions of dollars in giveaways to foreign auto companies to locate their assembly plants in his state, depriving his impoverished citizens of badly needed tax dollars for schools and health care. His state continues to lag most US states in income and health care...why? Because Shelby cares nothing for people, only for the welfare of corporations, which of course contribute huge sums to keep him in office. Thats "free speech" for you! Shelby welcomes foreign auto companies and holds them up as models, convienently forgetting to mention the fact that each and every foreign auto assembly plant in the US is subsidized by their governments, the fact that their worker's health benefits are paid for by taxes on all the citizens of their countries, or that 50% or more of the parts they use are shipped in from other countries or from state in the northern US, from parts suppliers that are likely to go bankrupt if the domestic auto industry goes under.

The Republicans, after years of refusing to do anything to encourage US citizens to buy smaller more fuel efficient cars, like increasing fuel economy standards or gas taxes, after bailing out Wall Street to the tune of 350 billion dollars with nary a single condition or oversight commission, want to reject a plan to keep in business an industry that employs millions of people and takes care of a million retirees. How much, Senator Shelby, will it cost the US taxpayer if you refuse to commit 15 billion to bailout the domestic auto companies. How much in unemployment payments, health care for the uninsured and retired, how much in payments to the retired? How much are the Japanese companies paying you for sabotaging the bailout? That's what we want to know!

Posted by: Chagasman | December 11, 2008 12:02 AM | Report abuse

Conservative republicans are going to shoot themselves in the foot if they try to make an issue out of auto workers making $27.00/hr!

Senators and congressman make $160K+ a year and they want assembly line workers making $56K/tr to take a pay cut???????????

Labor cost are 10% of the cost of producing an automobile soooo what are conservative republicans asking autoworkers to work for????

wal-mart wages and benefits???????????????

Posted by: knjincvc | December 11, 2008 12:20 AM | Report abuse

Conservative republicans are going to shoot themselves in the foot if they try to make an issue out of auto workers making $27.00/hr!

Senators and congressman make $160K+ a year and they want assembly line workers making $56K/tr to take a pay cut???????????

Labor cost are 10% of the cost of producing an automobile soooo what are conservative republicans asking autoworkers to work for????

wal-mart wages and benefits???????????????

Posted by: knjincvc | December 11, 2008 12:23 AM | Report abuse

The majority of Republicans in Congress voted against the huge bailout for Wall Street, so in a way they are being ideologically consistent in opposing any bailout for the three major domestic auto companies. On the other hand the Bush administration has been seeking greater specific oversight for the much smaller proposed bailout for the auto companies than they wanted for financial institutions.

Pure free market capitalism has probably never existed in the history of this nation. The policies of George Washington, as advocated by Secretary of the Treasury Alexander Hamilton favored business and financial interests. The Republican party from 1860 to at least the early 1930's enacted high protective tariffs to protect American companies from foreign competition. The railroad companies received huge grants of land and subsidies to build the transcontinental railroad.

The Reagan administration persuaded the Japanese to agree to voluntary quotas of cars produced in their country, to try to protest domestic automobile companies in this country. These are but a few examples of how pure or laissez faire capitalism have long been myths.

Posted by: Aprogressiveindependent | December 11, 2008 1:15 AM | Report abuse

One item I rarely see mentioned in the debate over the "bailout" is the cost of health insurance.

Consider - You set up a new "clean sheet" company in the US. Who are you likely to hire? Answer - A lot of 30ish folks, along with a few older folks for their experience and proven leadership abilities. Now go out and buy healthcare for your 90% under age 30 workforce. Compare those numbers to a workforce that is predominantly 50-55 years old (as one would find in a typical Big 3 plant). This represents a large percentage of the $2000 difference in cost between Big 3 and transplant brands.

Also in response to Chagasman's question - "How much in unemployment payments, health care for the uninsured and retired, how much in payments to the retired?"

I would also add, - How much in lost tax revenue to Federal, State and Local governments?

From an article in Automotive News 12/8/08. "Taxpayers will wind up paying $66 billion if two of the Detroit 3 sink into bankruptcy and then go out of business, according to the report released today by the Anderson Economic Group, a consulting firm, and BBK, a business advisory company."

Other studies I've read, have shown taxpayer costs as high as $125 Billion under similar conditions.(but all 3 fail)

One final point - A study which compared the Detroit 3 bridge loans to the money given (yes I said given) to transplant car companies in Alabama, shows that the bridge loans would cost about $100,000 per job saved, and again these are LOANS. The cost to "bribe" Mercedes, Hyundai, Honda and whoever, to build their plants in Alabama was $125,000 per job created, and once again this money was a "gift" with no repayment. (I should note that this was when the "bailout" number was $25 Billion not $14 Billion) - Makes me wonder about Shelby's "conflict of interest". At best he should stay out of this because of an apparent bias.

Posted by: glen6431 | December 11, 2008 1:59 AM | Report abuse

Give the bailout money to the public in the form of a rebate of 50% of the price of the car if they buy in the next 90 days. Sales will go up, inventory will go down, factories will start producing and jobs will be filled, dealers will be busy and the economy gets a jump start. Keep GMAC in business, with some guarantees, so they can finance the purchases by consumers and dealers. Concessions must be made, but it is easier when things are looking up instead of staring at a disaster. charles hopfl

Posted by: hopflcd | December 11, 2008 2:14 AM | Report abuse

Well. I think they are trying hard to save their hard unregulated capitalism. The idea is that this a bump. Only a bump. Money is welcame from everywhere. In a couple of years the conservative 'common sense' will return with a more free free-market and a white strong candidate for the Presidency of the USA.

Posted by: vercinget | December 11, 2008 6:01 AM | Report abuse

I don't think that the author of this article understands the position or the issue, becuase it appears that the relationship between a position on an issue has somehow been swapped with the compeating viewpoint. Though, in other words, maybe it's me. Either way, kinda strange.

Posted by: jralger | December 11, 2008 6:03 AM | Report abuse

The only reason that Congress is considering this bailout is because it's politically unhealthy to allow the bankrupcy of the employers of hundreds of thousands of people. They did the same thing with the airlines several years ago(why doesn't anyone remember that?). I think it's reasonable for all these companies to go bankrupt. Other than a few cars here or there, do GM, Ford, or Chrysler really make good cars anymore? How many advances in efficiency and design have they made in the last 15 years? Who do you think has been lobbying so heavily against higher fuel efficiencies in Congress? Just giving them money isn't going to help and it's not going to change the failing business plans they've been using for the last few years.

As for the unions, they have only to blame themselves for their current predicament. They kept demanding more and more money and benefits from their employers and now they're wondering why the big 3 can't afford to compete with foreign competitors. And NO, I don't think that a (maybe) high school educated union worker should be making $27 or more an hour for an unskilled job when we pay the teachers of our children HALF that amount.

I say let them go bankrupt and re-emerge as better companies or force the change on them.

Posted by: RAF4 | December 11, 2008 6:17 AM | Report abuse

Yes. Hundred of thousands of possible foreclosures, risky borrowers and economic delinquency. A re-capitalized bank system unable to find clients. This is probable the common sense. But not the conservative 'common sense'.

Posted by: vercinget | December 11, 2008 6:24 AM | Report abuse

Who cares what the GOP wants? They and their crappy steal from the poor and give to the rich philosophy were thoroughly repudiated in November. Remember, elections have consequences.

Posted by: branfo4 | December 11, 2008 7:51 AM | Report abuse

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