Kicking the Can Down the Road (Updated)

The White House and Democratic Congressional leaders have agreed to a $15 billion dollar loan to GM, Ford, and Chrysler:

(CBS/AP) After weeks of tense discussions with the heads of the U.S. auto industry, Democratic Congressional leaders have reached an agreement that may just clear the way for the Big Three to get the money they need to survive … for now.

CBS News correspondent Kimberly Dozier reports that significant progress came Friday night, when Democrats from both the House and Senate agreed to bail out the struggling General Motors, Chrysler and Ford with federal funds.

Several officials say the White House and congressional Democrats have agreed on $15 billion in loans, which is less than half of what the car chiefs were seeking.

They say the breakthrough came after House Speaker Nancy Pelosi bowed to a demand by President Bush that any aid come from a fund that had been intended to help Detroit produce more fuel-efficient cars.

Leaving aside for a moment that it does the auto makers no good to be able to make more fuel-efficient cars if they aren’t making cars at all because they aren’t operating so that trade-off only makes good sense, the loans themselves don’t make a good deal of sense.

Unless GM, Ford, and Chrysler have a plan for survival that’s a little more compelling than “some day things will be better” and they actually have concessions from the UAW in hand, $15 billion does little more than kick the can down the road a little and, judging by the numbers they’ve provided, not very far—possibly as close as the end of January.

What will have changed in the time that money buys them? As best as I can tell very little other than that Congress will have committed $15 billion dollars to what well may be worthless car companies and be that much more willing to throw good money after bad in propping them up. That and that the new Congress and new Administration may be even more favorably disposed towards subsidizing mismanaged auto companies in the hopes of preserving more auto workers’ jobs than the market for automobiles can justify.

Another thing we should remember: guarantees of repayment by companies that have little hope of survival are worthless. I continue to believe that the management of the auto companies should ensure these loans with personal surety bonds whose sureties are the managers, their spouses and families, and any trusts or corporations they are parties to.


The Christian Science Monitor is skeptical that Congress has the background, temperament, or inclination to operate as venture capitalists:

Congress, however, which has been beholden in the past to union and Big Three pressures, might be too timid to demand radical reform. Similar difficult decisions will be necessary if Congress tries to boost “clean energy” or other job-creating businesses such as biotechnology.

How much in solar subsidies is needed to drive that market? How can accurate prices be determined in a renewable-energy market with a heavy federal hand? What if a federal focus on some industries, such as hydrogen cars, fails?

Innovation, either to save Detroit or to grow new energy industries, isn’t easy to manage. Sometimes failure is necessary for a phoenixlike renewal.

Congress needs humility to know what it can and cannot do.

If we’re going to insist that Congress take on this role, it would be prudent to insist on a Congress that’s equipped for the task. That means electing a lot fewer lawyers, career bureaucrats, and political operators to Congress and a lot more managers, engineers, and accountants. I see no prospect of this happening for the foreseeable future so we’d best lower our expectations of what Congress can do with any semblance of competency.

3 comments… add one
  • PD Shaw Link

    I’m sympathetic to kicking the can down the road. I believe Lincoln said at a point in which his re-election seemed doubtful that it would be incumbant upon him following the election to make sure there is a country for the next President to decide what to do with. Granted GM does not equal USA, but I think the situation is dire enough that a holding action for elected leaders, not lame ducks, is a responsible course.

    I’m not favorable to a bailout though.

  • Delaying makes sense if the fundamentals are strong and historic current circumstances are putting you in a bind. Whatever the case for the country, it’s certainly not the case for the Big 3 auto companies. That they were vulnerable to problems in the financial market because they were dependent on credit doesn’t explain why they were so dependent on credit.

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