Leave automakers alone

The following editorial appeared last week in the Detroit News.

If there was anything certain about the federal bailout of the banking sector, it’s that the venture would not stop at the banking sector. Giving out hundreds of billions of dollars in government assistance to one industry is like giving out free beer to the students in one corner of a college campus – it has a way of attracting a crowd.

That phenomenon emerged immediately upon the heels of Washington’s ride to the rescue. Last month Congress voted to provide $25 billion in loans to automakers, the excuse being the burden they face in meeting higher fuel-economy requirements. Now there is talk of an even bigger life preserver. Among the possibilities: for the feds to purchase ownership stakes in General Motors or Chrysler, as it has in banks, or to buy up bad car loans made by their financing entities, as it has done with mortgage-backed securities.

There is no question that these two corporations are skidding toward bankruptcy. (Ford, which is also suffering, has more cash on hand to ride out the downturn.) But what is appropriate for the banking sector would not be in order for Detroit. The reason Washington had to act in the former case is that the entire economy runs on credit, and if banks stop functioning, every business is in danger. That is the only possible justification for such an extreme and potentially expensive intervention.

The auto industry’s troubles, by contrast, don’t create the risk of a general economic implosion. If General Motors or Chrysler goes bankrupt, other carmakers – including many that assemble vehicles right here in the U.S. – will be more than happy to expand production and hire workers to fill the gap. There are now 16 foreign-owned factories that build cars on U.S. soil, not to mention others that produce automotive components. Honda recently opened a plant in Indiana that will turn out 200,000 Civics a year.

Why are the Big Three floundering? Mostly because they bet so heavily, for so long, on gas-guzzling SUVs and pickups. They did well for a long time, but their popularity collapsed at the first whiff of $4-a-gallon gas.

Lacking a sufficient number of attractive, fuel-efficient models, GM’s sales have sunk by 18 percent in the past year, and Chrysler’s are down 25 percent. And the recent drop at the pump won’t solve their problems.

Another problem lies in generous union contracts that saddle the Big Three with heavy wage and pension costs. Acrimonious labor relations with their workers, reports the Wall Street Journal, explain “why Detroit’s factories remain vastly more cumbersome to manage than the factories of foreign car companies in the U.S.”

Federal handouts are not going to make Hummers any more tempting to anyone looking for affordable transportation. Nor are they going to spur needed cooperation between labor and management that would cut costs and raise productivity. If Americans aren’t willing to save automakers by buying what they have to sell, they shouldn’t have to save them with their tax dollars.