Conservative

By Russ Wung

“I’m from the government, and I’m here to help.” The eager supplicants from the houses of General Motors (GM) and Chrysler averted their eyes, kowtowed eagerly and said, “Thank you, President Obama.” Then the Bringer of Change named his price: “Bring me the head of Rick Wagoner.”

Nobody bothers to ask how firing GM CEO Rick Wagoner is going to help. The company’s troubles far precede its luckless leader; while Wagoner could have done some things differently at the margins, he is no more directly responsible for GM’s troubles than Richard Hilton is responsible for the lurid antics of his daughter Paris. Under the circumstances, it is hard to imagine anyone else performing any better. As such, the populist scapegoating of Rick Wagoner is an ill-advised pound of flesh extracted for an ill-advised bailout of GM.

The recapitalization of the banking system means that the notion of propping up struggling companies at taxpayer expense is nothing new, of course. But at least it was the arguable that “systemic risk” existed — that the financial system would cease to function effectively if too many large banks were allowed to fail, causing shockwaves through the economy. No sensible observer could contend that failure to bail out GM and Chrysler would have catastrophic effects on the rest of the economy.

The troubles facing the automakers are also very different than the ones facing the banks: they are longer-term and less amenable to a governmental fix. In good times, auto executives bought peace with union bosses by promising them the lavish future benefits they demanded. Now, the bill is coming due, and the money isn’t coming in to pay for it. The automakers shouldn’t let a good crisis go to waste. Chapter 11 bankruptcy provides special legal tools for a company to reorganize itself, not least including the ability to void contracts concerning compensation — a painful and extreme, but sometimes necessary, step.

The government should exercise its influence to press for bankruptcy, because no one — including Wagoner — has the power to initiate the process independently. Lobbying for bailouts is the path of least resistance. Such moral hazard can only be encouraged by propping up GM and Chrysler with government-borrowed funds, as Ford and companies in other industries may decide that begging for money instead of improving operations might be a rational choice. Corporate welfare handouts have the same effect as individual welfare handouts — they enervate the drive for efficiency and growth while creating a lasting dependency on big government, turning producers into parasites.

There was a choice: force the automakers to restructure their costs or burn the CEO at the stake and shovel more money out the door without addressing the root causes of the problem. Bad economics is good politics for the White House; as Machiavelli once wrote, “A wise prince will seek means by which his subjects will always and in every possible condition of things have need of his government, and then they will always be faithful to him.” A man who is dependent on you for the means by which he sustains himself will vote for you every time. You can’t beat buying votes with other peoples’ money as a political strategy.

Reach columnist Russ Wung at opinion@dailyuw.com.

Liberal

By Chris Jordan

When Chrysler CEO Lee Iacocca went before Congress in 1979, the company was in trouble. He convinced the House and Senate to give the failing car producer bridge loans by presenting a clear plan for a total overhaul of the company to return it to profitability. The loans were issued, the plan worked and the money was paid back to taxpayers ahead of schedule. What a guy!

Fast forward to 2008. CEOs from the major car companies flew into D.C. on their private jets to ask for bridge loans to get them through the tough economic times and plummeting car sales. Except this time, there was no clear-cut plan to overhaul the companies, and if there was, it was overshadowed by PR blunders and constant bickering with the auto workers’ union.

Fast forward to 2009. Having nearly used up the $17 billion in loans already handed out to them, Chrysler and General Motors (GM) are back for more. The government will likely issue another $21 billion in loans to the struggling companies soon. While it’s clear that the guys running these companies are no Lee Iacoccas, it’s also clear that we need to ignore their incredibly poor salesmanship skills and realize that what’s best for Detroit is still what’s best for the United States.

“It’s not government’s place to bail out failing companies.”  “Let them fail!” “Where’s my bailout?” Talking with friends and family, I constantly hear these arguments. I certainly see where they are coming from.  How can capitalism work if we simply save every company that isn’t efficient enough to compete?

While these considerations are important, they are only a few of many we must weigh. It’s irresponsible to simply stand on the principle of “bailouts are bad” without considering the consequences in these extraordinary times.

First of all, this is not a bailout — it’s a loan. If it works like it did in 1979, then it won’t cost taxpayers a cent.

If we decide simply that “bailouts are bad” and refuse to offer further loans to the autos, we must realize that they will almost surely fail. Because purchasing a car is a long-term investment — you rely on the company for parts, etc. — many experts agree that Americans won’t buy cars from a company that is bankrupt. It simply won’t happen. Bankruptcy will mean the end of Chrysler and GM, and hundreds of thousands, if not millions, of jobs will be lost in these companies and the supply chain that feeds the industry.

I can’t imagine any worse news for the U.S. economy than the end of two iconic companies and the essential disintegration of our domestic manufacturing base. Many have argued that the cost to the government in unemployment insurance and lost tax revenue would likely approach or exceed the cost of issuing these loans in the first place.

In addition, the auto companies actually offer incredible opportunities for the future. Although they’ve been slow to innovate, we can’t ignore the fact that the American companies are starting to finally catch on to what kind of cars Americans want — see the Chevy Volt. Without these companies around when the recession ends, where are we going to create millions of green, American jobs building the cars of the future? We certainly can’t cede this enormous industry to the Japanese.  No other country on earth would let its manufacturing base simply die off knowing the potential it has to drive the economy forward if it’s on the right track.

I agree that the path we are on with these loans is not sustainable. We can’t simply continue issuing new loans to Chrysler and GM every couple of months when they run out. If they cannot prove to the taxpayers that they are capable of competing with Honda and Toyota, then no amount of government money will ever save them. The jury is still out, but this doesn’t mean we shouldn’t give them a chance.

To let the auto companies die would mean the death of millions of jobs, the further decline of the economy possibly into a depression and the inability of the United States to lead the way in production of clean, green vehicles. We need to give the autos another chance to prove they can help carry our economy and our cars into the future. It’s time for Congress and the president to get tough, and it’s time for the executives to get serious and do what’s best for their companies, their workers and their country. This is their last chance.

Reach columnist Chris Jordan at opinion@dailyuw.com.

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