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FixCam Week in Preview: The Politics of a Bailout

The ongoing crisis in the American auto industry and the broader struggles of the U.S. economy take center stage again this week as the triumvirate of President George W. Bush, President-elect Barack Obama and congressional Democrats continues to seek short-term and long-term solutions to a problem that doesn't look like it's getting better any time soon.

It appears as though Bush and Democrats on Capitol Hill have essentially agreed to kick the can down the road to Obama as it relates to the auto industry with a $15 billion emergency loan that will keep the so-called "Big Three" carmakers afloat for the near-term. The loan, however, will do little to solve the larger structural problems that have driven GM, Ford and Chrysler to such dire straits.

Why won't Bush and congressional lawmakers do more? Simple. Bailouts (or "rescue plans") make for bad politics.

Look back at the massive $700 billion bailout package for Wall Street that Congress passed in October. Although a majority of economists seem to agree that it was an absolutely necessary move to avoid financial Armageddon, polling showed that large majorities of voters opposed it, believing that it was rewarding irresponsible behavior.

Political strategists traced much of Georgia Republican Sen. Saxby Chambliss' (R) electoral vulnerability to his vote for the bailout, and several savvy operatives around John McCain have suggested that he might have been better off politically if he has opposed the bailout.

Recent polling regarding the idea of an auto industry bailout produces similar results. In a CNN/Opinion Research Corporation poll in the field Dec. 1 and 2, just 36 percent supported the idea of providing money to the automakers to keep them from possible bankruptcy while 61 percent opposed that idea. An ABC poll in late November showed 35 percent supportive of a bailout/rescue plan for the auto industry and 57 percent opposed.

Politicians -- no matter who they are or what they say -- know how to read polls, especially when the results are as stark as these. It's why small steps will stand in for big solutions right now and one of the many reasons why Obama faces such a daunting task when he assumes the presidency on Jan. 20.

By Chris Cillizza  |  December 8, 2008; 5:50 AM ET
Categories:  FixCam , White House  
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Comments

The text of your article CORRECTLY characterizes the automakers request as a bridge LOAN while the headline incorrectly refers to their request as a bailout. What Wall Street got was, in fact, a bailout with no (enforceable) strings and no demands on repayment terms or structural changes for the band of crooks that continue to line their pockets with ill gotten gains. Where is a RICO charge when you need it?

Wall Street gets $700 Billion gift wrapped while Main Street gets the shaft. Again. And you lunkheads in the press see no political connection to the "Alabama Boys" protection of the taxpayers to the benefit of the transplants in Alabama. The media has gone from bad to worser and then taken another step down after that.

SHAME I shout but nobody hears me.

Joe Grecco
Livonia, MI

Posted by: jgrecco | December 9, 2008 1:38 PM | Report abuse

Soaring unemployment rates will only contribute to the downward economic spiral. We can't afford to see millions more added to the unemployment rolls.

It's time for the President and Congress to find and solve the underlying cause of the mess we're in.

It seems the greedy finacial CEOs on Wall Street (abided by past Administrations and Congress)created this mess with their creative financing scams for new homeowners, but they forgot to get the
buy in of employers across America that they would have to do their part in ensuring wages went up at the same rate at interest rates on these creative loans.

When the stagnant paychecks of homeowners could not meet their spiraling mortgage payments banks began to forclose resulting in a credit crunch.

The Wall Street CEOs went crying to Bush and Congress who immediately jumped in to help them in the same manner they got us into the Iraq war - on the basis of fear that there was an impending financial armegedon, and with short sighted planning, and no forethought. Bush and Congress failed to ask them for their plan on how they would use the money to improve the credit crunch. They just handed them a blank check and we haven't seen any trickle down changes in the credit market. They used the money to fund their business as usual methods. They weren't asked to change their bad habits i.e. sponsoring football bowl games, buying the right to have have stadium names after them, eliminate annual bonuses, take pay cuts.

The credit crunch has impacted the average Americans ability to buy large ticket items like cars and homes.

Now the greedy CEOs of the Big Three Automakers are asking for a bailout of their own because car sales are down. It's true that automakers have been asleep at the helm for a long time, but I think they now understand the need for drastic changes. At the same time Congress has finally awakened to the fact that they need to grill anyone who comes with hat in hand asking for money to show them THE PLAN for how the money will be used.

It's not only automakers and small businesses who need a bailout, cities and states are also looking for money to survive.

The new administration will have to create a thoughtful national bailout plan that bails everyone out at the same time. At least we have an INTELLIGENT President-elect who understands this need to help everyone at the same time.

Now it's time for members of Congress to get their heads out of the sand to pass bills that are ear mark free and that show fore thought, insight, and a long-term solution to our growing problem.

Posted by: Nevadaandy | December 9, 2008 11:31 AM | Report abuse

Thanks, Mark. I spent lunchtime doing some reading, including some analysis of legacy costs and of the mess of dealerships. I think the takeaway was that, if they could increase sales, then the legacy cost amortizes down (of course) but they're not in a position to do this now.

It does indeed argue that Chap 11 would be the best way to proceed in terms of structural issues.

Posted by: Kili | December 8, 2008 7:07 PM | Report abuse

I just read this article about a great start-up car company in California . . .

http://tech.spotcoolstuff.com/automobile/electric-car/aptera-2e

. . and it occurred to me that bailing out The Big Three might be a little like bailing out the telegraph companies as the age of the telephone was coming along. I'm not impartial to the plight of the auto workers but maybe it is best for everyone to enable our up-and-coming car companies and let the dinosaurs fade away.

I'm not

Posted by: WesJo | December 8, 2008 5:13 PM | Report abuse

That should read "...includes...".

Posted by: mark_in_austin | December 8, 2008 1:07 PM | Report abuse

Kili, The Detroit FP was my original source, but I could not find it directly. Here is an IHT article that cites the Free Press:

http://www.iht.com/articles/ap/2007/03/27/business/NA-FEA-FIN-US-Nonunion-By-Choice.php

As I understand it, the number you see floated [$70+/hr] is a composite that include the legacy costs which are for zero hours of current work.

Posted by: mark_in_austin | December 8, 2008 1:05 PM | Report abuse

Conservatives get revenge for Palin/Groucho movie Read more, http://stopthepresses2.blogspot.com

Posted by: patdolly7768 | December 8, 2008 11:58 AM | Report abuse

Mark,

Can you give a citation for the competitiveness of salaries? I heard an NPR report that put the salary + compensation delta between US and foreign cars as up to $3,000/car.

Posted by: Kili | December 8, 2008 10:32 AM | Report abuse

The U.S. Auto industry cannot be allowed to fail, however they have to make quality products. I own two Nissan vehicles only because of a poor quality Ford Windstar I bought in 1995, I changed two transmissions with a 114,000 miles on it not to mention other costly repairs and Ford's customer service were just as poor the vehicle.
I previously owned a Toyota which I donated with a 121,000 miles on it, I chose Nissan due to a friend's advice who owned a similar model. However in retrospect I should have stuck with Toyota.
If the quality of American made vehicles improves I will have two in my driveway in about two years with an improved economy also.

Posted by: mcrea19 | December 8, 2008 9:42 AM | Report abuse

Rob, I was arguing for Ch. 11 powers for several reasons. More important even than current wages, which are competitive, is the inability of the companies to rid themselves of overlapping brands like Pontiac and Mercury. This is because of the legal framework of the dealer franchises. GM has 3 or 4 times the number of dealers as Toyota but does not significantly outsell Toyota. Only an 11 would give the power to shut down the redundant dealers and the redundant lines, as well as to change management, wipe out the stockholders, and restructure debt, including leagacy costs. Now we would have to think about pensions long and hard - the Pension Benefits Guarantee Trust is tax funded and is the payor of last resort, if the companies slip that noose.

I have heard the Senate Banking Committee suggest that it could write into an oversight law the power of the oversight board to adjust contracts like a bkcy judge. I question the constitutionality of that mechanism and wonder if any other lawyers who read this blog are clear on that issue. Speak up, please. Unless this is clearly constitutional, I prefer the agreed 11.

Posted by: mark_in_austin | December 8, 2008 9:40 AM | Report abuse

It is a real shame the Big 3 and other large manufacturing companies chose to sit on their hand in 1993 and not speak up for Universal Health Care. Our mfg companies are trying to compete with foreign companies with govt supported health care and pensions. Don't forget those countries also have caps or at least respect for workers, in the exec pay area. While we run around as a 3rd world nation wanna be touting self reliance.

So much for that self reliance of the auto industry in states such as Alabama, home of Senator "Look what Foreign MFGs are doing here" Shelby, giving millions in state tax credits to foreign companies to build plants in their states. Funny, none of the talking heads want to discuss that one, they would rather perpetrate the myth of the $73/hr union auto worker.

Posted by: Charming1 | December 8, 2008 9:39 AM | Report abuse

Trouble is where does it end? GM is burning through a couple of billion dollars a month so a 15 B bridge loan to all three car makers won't last very long. Everyone keeps harping on the fact that the American based car manufacturers didn't switch to small fuel efficient cars years ago, but the reason they didn't is because they can't make the smaller cheaper cars in their high cost legacy factories and make money. The only thing that put off this day of rekoning as long as it did was the hight profit SUV's and pick up trucks. Otherwise they would have had to do something about their out of control labor costs and inefficient factories years ago. How do you compete if your labor costs are almost twice your competitors? Without major union concessions CH 11 may be the only option for them to get their costs more in line with their competitors and allow them to ride out this recession.

Posted by: RobT1 | December 8, 2008 8:47 AM | Report abuse

Assume a normal credit market. Chrysler would be parceled out with or without an 11 and GM would enter Chapter 11. Ford might survive, if the GM 11 did not crater the suppliers. Assuming available credit, an 11 would work for GM, but an agreed 11 for GM or its equivalent would be a less disruptive solution.

The problem we face is still the lack of credit. There are no new lenders to GM in an 11. Further, hardly anyone is financing new car purchases.

If you believe that credit flows will begin any day now, then you will favor no federal intervention [unless it is to force the bailed out banks to actually unfreeze credit].

I favor an agreed 11 or its equivalent for GM that for competitive reasons the other two would be permitted to join, coupled with pressure on the recently "saved" financial institutions to become the new lenders in reorganization. The automakers finance arms should obtain commercial banking status and thus be able to unfreeze retail credit.

There would still be need, in the scenario I propose, for some taxpayer funding, I am sure. But without the force of the Ch. 11 or its equivalent, and the unfreezing of credit, the effort would be futile.

Posted by: mark_in_austin | December 8, 2008 7:47 AM | Report abuse

The Big 3 should not be bailed out. They've operated in a time warp for decades now, ignoring the need to modernize and prepare for the future. It's a bit too late to come crying for money. (Besides, Chrysler was bailed out in the 1980s and apparently learned nothing from that experience. And what of Cerebus, their owner? If they're not willing to help out, why should the taxpayer?)

Bad corporate decisions should not be subsidized by the government. I feel for the autoworkers, but many will lose their jobs regardless of the bailout....

Posted by: RickJ | December 8, 2008 7:01 AM | Report abuse

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