car7858's Blog

Tuesday, November 11, 2008

Editorial: Strings could lessen benefits of auto loans The Detroit News

There should be no question left that the federal government must step in to provide the domestic automakers with the cash they need to survive this economic downturn. Last week's dismal third quarter reports make it clear that General Motors Corp. and Ford Motor Co. are moving steadily toward bankruptcy. Privately held Chrysler is believed to be posting losses just as severe.

Congress has already approved $25 billion in loans to help the automakers meet federally mandated fuel economy standards. That money should be released immediately by the Bush administration.

But it won't be enough. An additional $25 billion loan package is proposed, is supported by President-elect Barack Obama and the congressional leadership and should be moved through Congress in the upcoming lame-duck session.

While backing the second lending proposal, both Obama and House Speaker Nancy Pelosi, D-Calif., have said it should come with strict "conditions" rather than in the form of straight loans the automakers could use as they see fit to save their businesses.

It is unreasonable for the automakers to expect that the government not put some restrictions on the use of the money. But if the bailout comes with too many strings attached, it could just easily strangle the companies as rescue them.

The Big Three will likely have to expect some limits on executive pay and bonuses. That's inevitable. The companies can't expect to lavishly reward executives while they are on the public dole, although the government must be mindful of the need to attract, retain and reward top talent.

Other restrictions would be more worrisome. Obama and Pelosi have both said the aid package should be conditioned on the automakers building more fuel-efficient vehicles. All three have already adopted aggressive strategies for doing that. But they are not helped in that goal by sharply falling gasoline prices. They need to sell more vehicles and quickly. Forcing them to build products not yet supported by the market will not get them through this crisis. The automakers ought to be allowed to stick to the timetable they agreed upon last fall when new fuel economy standards were adopted by Congress and not be burdened by additional mandates.

The automakers must also worry about interference by the government in production and employment decisions. The manufacturers have too much capacity and may need to shutter as many as 10 assembly plants and lay off an additional 30,000 blue-collar workers.

How will the new Democratic administration and the Democratic-controlled Congress react to federal money going to companies that lay off members of the United Auto Workers union, a major Democratic sponsor?

And yet without the flexibility to reduce capacity and work force, and perhaps even to move more of their operations out of the country, the manufacturers will remain at a competitive disadvantage.

Finally, the government may ask for preferred shares in the automakers, giving taxpayers an advantage over regular shareholders if the companies go into bankruptcy. That possibility was reflected in another sharp drop in automotive stocks Monday.

For decades, the automakers have fought to keep the government out of their business. Now, their survival seems to depend on inviting the government in as a full partner.

Untangling the relationship may be more difficult than simply paying back some federal loans.

Car7858's Note: As some may notice, I switched the wording/title of this editorial in my main post title only. It is not any intention of mine to change the editorial nor discredit the source. Thank You.