We rarely ride Amtrak, but we’ve still been among the Amtrak Corridor East Coast Media Elite (ACECME) in arguing against a Detroit bailout. But on this day when the Big Three chiefs are up on The Hill begging for public money, we thought it made sense to present the best arguments in favour of a bailout.
In no particular order:
Green Jobs. This might sound like a weird one, especially since we’ve argued that the whole notion of green jobs is bunk. But as long as we’re going to make energy policy based on employment — and it’s for sure that Obama & Co. will pursue this — then you might as well use the manufacturing infrastructure we’ve already got. Both Ford and GM have made promises about gains in fuel efficiency and alternate vehicles, so it’d be silly to subsidise other companies with no roadmap whatsoever, when you already have two major employers with plans and some knowledge of how to do this. Beyond that, the Midwest would be a job-parched region if Detroit fails, so that green jobs stimulus would probably go heavily to states like Ohio and Michigan, as it is.
The Housing Market. It’s the sick housing market that’s killing bank balance sheets. We won’t stop the bleeding if housing isn’t stabilised, but if the automakers go under, the cascade will result in a swath of new foreclosures, rippling across financial markets and plunging our tenuously stable banking system deeper into crisis. This would probably require trillions more in rescue dollars, dwarfing any current payments to GM, Ford and Chrysler.
Bankruptcy Is No Panacea. People who prognosticate for a living might have some idyllic idea of what bankruptcy means. They think the shareholders just get wiped out, the bondholders take over and the company can operate with a clean slate, free of burdensome legacy costs. In all likelihood it would be substantially messier. The parts suppliers would have to write down the value of their receivables, potentially putting them into bankruptcy as well. Are we going to give every third-party company in the Auto ecosystem some kind of pre-packaged bankruptcy. This idea that the government can shepherd Detroit through the process to avoid the pain is Pollyannaish.
Fairness. The heads of the still-standing banks were brought to Washington, DC (via Amtrak, possibly) and they had money shoved down their throats. There was no debate. They were brought into a room, and Hank Paulson just told them the terms of they money there were about to receive. Conversely, the heads of Detroit have had to come back over and over again, while taking humiliation for flying, even though that’s just a PR issue, having little to do with the taxpayer or the economy. If we want to further the idea that the government only responds to its coastal elites and couldn’t give a damn about blue collar workers in the real economy, telling the automaker to buzz off would be a good start.
They’ve Made Progress On Reforming. There’s no doubt that the automakers will be able to reform their businesses, because they’ve already made progress on this front. Within the next two years, the UAW will bear responsibility for the healthcare of the retirees, and new employees are coming in at $14/hour, not the $70/hour (which includes legacy costs) that gets bandied about in the media. The latest is that the UAW is giving up its infamous jobs bank, which allowed laid off employees to get paid for not working — an amazing racket.
There’s also a persistent myth that Detroit can’t make good quality cars. They can, but they have an image problem. They’re burdened by years of the impression that their cars are garbage, and so people just opt for the Toyota no matter what. This perception problem could be overcome, especially under an Obama administration that made buying Detroit cars “cool” again.