Cashing Out Detroit

Cashing Out Detroit

Saving jobs by giving automakers large amounts of cash is a very expensive form of trickle-down. What we need is a clear plan about how automakers will use the money.


Here we go again.

The automobile manufacturers are back for more money. They have yet to borrow any of the $25 billion voted by Congress for development of energy-efficient vehicles. This new demand is for daily running expenses.

Lord knows, American auto companies are gasping for survival money. According to the Detroit Free Press, “Hemorrhaging cash and with sales dropping to 25-year lows last month, the Detroit automakers announced financial results that show they each are burning through more than $2 billion a month to maintain operations…. GM, Ford and Chrysler LLC are seeking federal loans to help them weather the financial crisis and move forward to retool their companies.”

Once again, as with the Wall Street bailouts, the government and the nation are being told that the money must be delivered quick, quick, quick… or GM, Chrysler and Ford too, will fold, taking hundreds of thousands or even millions of jobs with them.

No doubt about it, the collapse of any one of these companies will send a terrible number of people out onto the bricks without a job and with little hope of soon getting another. The crash of all three together would have a shattering effect across the country.

Nevertheless, the projected $25 billion loan may only be a postponement of the inevitable. If the car companies continue to use up cash at the current rate, this loan will be used up in a year, after which GM, Chrysler and Ford will be back asking for another loan–unless you believe that the three will have righted themselves in the next twelve months and come close to breaking even. That is not a reasonable business assessment.

Since there is a high probability that the automakers will be in the same condition a year or so after this infusion of public money, the Obama administration will have to decide if the industry gets another loan and then another after that, and so on. Each successive loan will be justified as saving the jobs of the hundreds of thousands of people dependent on the automobile industry.

The industry’s defense is that it is saddled with health insurance and retirement obligations made to the Automobile Workers Union decades ago, and as a result, industry executives say, it costs American manufacturers $1,000 more to make a car than their global competitors. If that is the case, it would make better sense for the government to assume a large part of that burden and then tell the industry, “OK, you now have your level playing field and the rest is up to you. No more help.”

With the decline of the automobile industry the unemployment situation is becoming dire. The broadly publicized rate of 6.5 percent understates actual joblessness. If you read far enough down in this Wall Street Journal article, you will come across this alarming paragraph: “Firms are increasingly cutting back on full-time workers as they brace for a deeper downturn. An alternative Labor Department measure of total unemployment, including part-time workers who want full-time work but can’t get it, hit 11.8 percent in October, up from 11 percent a month earlier.” Those numbers are not as bad as they were in 1933 but they are very bad and we are going to see worse ones in the coming months.

It follows that giving money to Detroit is more about saving jobs than about rescuing the incompetently run automobile industry. Saving the jobs by saving the car companies is a very expensive form of trickle-down. Given these grim facts, some thought ought to be devoted to saving the people rather than saving that triumvirate of corporate losers.

It is idiotic to hand out multiples of billions of dollars without planning, without any kind of map or overall scheme explaining to ourselves what we are doing, what goals we have in mind and how likely we are to attain them.

The other day the three CEOs and Ron Gettelfinger, president of the United Automobile Workers, rushed to Washington to beg for money. As the Wall Street banks and IAG before them, they cried “fire.” Their essential demand: Help us right now or we’ll be dead by the end of the year and you’ll only have yourselves to blame. Don’t think, don’t hesitate: give us the money!

If the government is to finance vast tracts of the private sector, it ought not to do it by hysterical reaction to crisis and panic. The not-so-long-term economic consequences of such unplanned, unreasoned passing out of money will be horrendous. Act in haste, repent at leisure.

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Katrina vanden Heuvel
Editorial Director and Publisher, The Nation

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