It’s the Policy
CAP’s Dan Weiss argues that bankruptcy for the auto companies would have too devastating an impact on employment to contemplate so we need a conditional bridge loan:
To avoid the deadly consequences of bankruptcy, Congress should create a federal bridge loan program that would provide up to $38 billion in loans if the companies agree to avoid excessive executive compensation, fulfill their recently renegotiated health and pension obligations to their hourly workers and retirees, continue to implement plans to build super-efficient cars, and cease efforts to block or weaken fuel economy and greenhouse gas standards. This would stabilize the Big Three, reduce oil use, and prevent an economic catastrophe that could last for years.
Reading GM’s plan yesterday and following the public conversation on this, I think there’s been way too little attention given to the policy angles — the “cease efforts to block or weaken fuel economy and greenhouse gas standards” element of Weiss’ conditions — which are really important. The auto industry has provided a decent living to a large number of Americans for many decades. But it’s also been a very pernicious force on our public policy. If car companies expect progressives to deliver them a financial rescue, then it only seems fair to me that progressives will want the companies to stop blocking key elements of the progressive political agenda. That means dropping lawsuits like the one aimed at forcing California to lower its fuel efficiency standards, it means stopping involvement in whatever anti-green climate change front groups these firms are involved with, it means seeing members of congress from Michigan and other rust belt areas offering assurances to colleagues that they won’t stand in the way of serious climate legislation, etc.
All the evidence I’ve seen suggests that carbon pricing will actually have only a modest impact on driving habits. The big changes will be in the cost of coal-fired electricity and certain aspects of agriculture. But driving has managed to become the public face of the climate issue in no small part because the auto industry has played a leading political role in blocking action. But people will still want cars in the low-carbon economy. These firms will be okay. Giving federal subsidies that are then used to lobby for pro-pollution public policy is not okay.
20 Responses to “It’s the Policy”
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December 3rd, 2008 at 1:55 pm
That is one of the advantages of de-facto nationalization, or at least should be – the neutralization of business lobbying power. I’d lay odds that one of the reasons why health care might go through now is that a lot of the business lobbies are laying off staffers and there isn’t much cash to go around for ads and bibery…I mean contributions compared to 94.
December 3rd, 2008 at 2:19 pm
@DTM: Then what about forcing them to stop lobbying *at all* until they get off the public dime (i.e. repay the govt guaranteed loan in full with any applicable interest)?
I think that in practice it would amount to nearly the same thing, but without the creepy political litmus test.
Actually, I’m surprised corporations are allowed to lobby with shareholder dollars in the first place. Either it returns a profit to the company (which is corruption on its face) or it’s promoting the executive’s political agenda with shareholder money (which is a clear breach of fiduciary duty).
Distribute the money to the shareholders and let them lobby as (and if) they choose. If the shareholders’ interests aren’t the same as the management’s goals then, by definition, that’s the management’s fault.
December 3rd, 2008 at 2:31 pm
I still can’t get over how enthusiastic both Republicans and Democrats are about all these industry-specific bailouts, considering that many of them spent much of the 90s and aughts using the IMF and World Bank to twist the arms of third-world governments to adopt austerity measures and avoid protecting certain industries.
The hypocrisy. It burns!
December 3rd, 2008 at 2:32 pm
fulfill their recently renegotiated health and pension obligations to their hourly workers and retirees,
This one is the killer.
If the retirees, like the other bondholders, get paid off at $0.20 on the dollar, the bailout might work. Anything else and we’re just pouring money into a bottomless bucket. (And it’s not like we don’t have nationalized health care for retirees.)
December 3rd, 2008 at 2:42 pm
sam, the UAW retirees don’t want to be on any government plan, they want something better, paid for by the government.
matt isn’t going far enough. the auto companies should be run by democrats, hire only democrats, give money to democrats, etc. etc. people need to see that the complaints we heard about crony capitalism in the bush years were just complaints about the cronies. just think about the campaign contributions that gm et al will give to their political overseers now!
December 3rd, 2008 at 2:48 pm
Why not just nationalize the automakers’ health care and see if that lightens the load enough for the companies to get by? The government would be putting its money into taking care of workers, it takes the $1500-$2000 per car burden off the makers, but without just handing the management buckets of no-strings cash. The plan could be a true “nationalization” or the government could just assume responsibility for the current contracts and see where things are at in three to five years. Would UAW turn this down?
December 3rd, 2008 at 2:51 pm
I agree that if we give them our tax dollars, there should be conditions attached. I wish we could make that same arrangement with Congress.
December 3rd, 2008 at 3:20 pm
Matt — I’m in total agreement with you on the desirability of tying a bailout of US automakers to a requirement that the automakers support, rather than fight, progressive policy goals. What I’m not sure of is how to set up such an arrangement in an enforceable way. Suppose that they promise to get out of the way of legislation designed to address climate change, but after they get the money the renege? What could the government do in response?
One obvious option is to structure the bailout such that the automakers don’t get all of the goodies up front; stretch it out in time so that if they are acting in bad faith, the government can withdraw its support. In general, it’s the difficulty of structuring the deal in a way which discourages, rather than encourages, bad faith on the part of the automakers which makes me skeptical of the entire affair, and wonder whether the American people as a whole might be better off to get out of the way and allow the automakers to go bankrupt. Like you, I don’t want to minimize the pain and disruption that this will cause a lot of people in the US (and most of them unionized, to boot); but, like you, I wonder whether the right answer might be to support the disrupted workers directly, let the automakers go bankrupt, and take advantage of the resulting weakening of the forces opposing climate change policy.
December 3rd, 2008 at 3:26 pm
GM’s current market cap is $2.92B. They want $4B to last through the end of the month.
2.92 – 4 = We own their ass
December 3rd, 2008 at 5:15 pm
I don’t think the retirees would agree with your definition of “work”. They gave up potential pay increases while they were working in exchange for generous pensions and now they wouldn’t even get the pensions?
If the retirees aren’t given priority claims, it would not only look bad politically, but undermine all employer-run pension systems, which might be subject to the same kind of raiding. Every employee of every company (well, the ones that have any bargaining power) would start insisting on having his retirement money somewhere outside the company’s control where it wouldn’t be subject to being used as mismanagement insurance.
Furthermore, it would be plainly unjust – whatever the cause of the company’s present woes, retirees clearly aren’t it, since they don’t even work for the company anymore. (Past executives’ decision to undercapitalize the pension fund is another matter, of course – but retirees didn’t make that call.) Indeed, on those grounds there’s a pretty strong case for bailing out the pension fund even if you let the company go under (it’s not like the retirees have the option of reentering the job market in most cases).
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