Auto Rescue: Thumbs Up or Thumbs Down?

The latest crisis to appear before Congress is one that has been a crisis before, and deservedly so.
The auto industry, for all its importance, has also been a poster child for denial and a model for how to practice unsustainable business tenets.
It has consistently been an industry that appeals to waste, luxury and the power of advertising, instead of efficiency, practicality and common sense.

But are these sufficient reasons to only watch as this industry self immolates and goes down the tube of failure?
Much as I'd like to say good riddance to Detroit and the excesses it represents, there are good reasons to extend a publicly supported life raft to this industry.

Not an outright gift, mind you, as the Big Three seem to be begging, but the kind of considered loan with strings attached that allow a business to right itself without dictating any specific formula.
With carrots and sticks, government could fashion a rescue plan that gave Detroit the incentives to finally put into practice those steps it could have -should have- done years ago by itself.

You know, little things like settling on a reasonable number of vehicles and models to produce and sell, standardizing basic lines to eliminate re-tooling every year or two, incorporating efficiency into production methods, fuel usage and materials selection, renegotiating excessive labor contracts, offering more honest and straightforward sales contracts and financing options, accelerating innovation and eliminating fat-cat bonuses and perks for its top management.
Just a few things like that.

Congress, the Treasury Department, the Federal Reserve and the FDIC now have more powerful tools to work with in dealing with financial issues of several stripes.
But just having new tools doesn't mean we know how best to use them.
As Henry Paulson has stated, there isn't any playbook for dealing with problems, the likes of which we haven't seen before!
And, it doesn't help that we're in a big hurry all of a sudden, with everyone clamoring for whatever they feel like clamoring for.
But, that is the hand we've been dealt, so we play the cards we have as best we can.
Actually, it's kind of good that there is a sense of urgency because that will goad us to action.
And, maybe the many ideas and concerns being tossed around can result in a sort of serendipity, like open architecture software development, where consistent improvements can be incrementally provided.
I hope so, because we need some good solutions!

Yesterday's headline proclaimed 'Battle over Big Three bailout looms in lame-duck Congress'
Swift action urged on help for Detroit, Opponents say $700B in bailout funds is for financial institutions, not auto industry, etc

But should this be a partisan battle over the fate of the nation's Big Three automakers?
And what about the role played by the current administration; and the one that will have to be played by the new administration?

New legislators convened in Washington for orientation and leadership elections, as the 110th Congress met in its last session before passing the baton January 6.
Senate Democrats tried to earn GOP support for their proposed bailout of the Big Three automakers because they would like to see a vote this week, but some concede they probably don't have the support.

"The Treasury Department has acknowledged that they could provide the auto companies the temporary assistance to keep automakers solvent by taking money out of the $700 billion we've already provided to the Treasury Department," Senator Harry Reid said. "If we move forward, we can protect American jobs, help American families and prevent our economy from falling further into a recession," he said. "In the event there is objection to passing this important legislation, we'll have the opportunity to vote on a second piece of legislation ... that consists solely of unemployment insurance and relief for the auto industry and the auto industry's work force."

House Democratic leaders and House Financial Services Committee Chairman Barney Frank, D-Massachusetts met with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke on Monday.
The meeting, in in House Speaker Nancy Pelosi's office -included an update on the Troubled Asset Relief Program, or TARP, the $700 billion measure that was passed last month to help bail out financial institutions.

Here are the arguments -pro and con- in favor of an auto industry rescue:

• One out of 10 jobs in this country are auto-related.

• Twenty percent of retail sales are auto-related or automobiles, so this is a national problem

• A proposed 'lifeline' of up to $25 billion in loans to carved out of the $700 million in TARP funds, already available but in dispute as to how they should be used.

• Symptomatic of the automakers hard times of late;
Ford announced this month that it lost $3 billion last quarter.
General Motors is trading at about $3 a share, the lowest figure at which its stock has traded in more than 60 years.
Chrysler has announced numerous plant closings and thousands of job cuts as its sales have plummeted over the last year.

• The Center for Automotive Research, a think tank in Ann Arbor, Michigan, that is pushing for a bailout, estimates about 2.5 million job cuts if just half of the Big Three's manufacturing capacity shuts down.

• About 240,000 of those job losses would be at the automakers;
800,000 would be at various suppliers and dealerships;
and another 1.4 million job losses would come from businesses that rely on automaker spending, the think tank estimates.

• A letter is being circulated by Sens. Levin and George Voinovich, R-Ohio, to all senators for their signatures in support of the auto industry bailout.
The letter -- written to Reid and Senate Minority Leader Mitch McConnell -- said the automakers "face rapidly evaporating operational liquidity" and "soon may not be able to continue to operate."

• Jobs that rely on the auto industry are diverse and can range from media outlets that depend on the Big Three's advertising dollars to local stores and restaurants in towns where auto plants would be shuttered.

• Supporters of the bailout say the demise of Ford, GM and Chrysler would be a devastating blow to an already ailing American economy. But opponents of bailing out the industry -- including the Bush administration and top Republicans -- say TARP funds weren't intended for automakers.

• "There's a line of companies, of industries waiting at Treasury just to see if they can get their hands on that $700 billion," Commerce Secretary Carlos Gutierrez said on CNN's "Late Edition" on Sunday.
"That is for the financial system. It's to stabilize the financial system. That should not be used."

• Sen. Bob Casey, D-Pennsylvania, said last week that he concurs with his congressional rivals because he can't condone using TARP funds for the auto industry when the money has yet to help homeowners facing foreclosure.

• Sen. Richard Shelby, R-Alabama, is one of the most vocal critics of the proposed lifeline and suggested Sunday that bailing out the Big Three would be a waste of taxpayer dollars because it would reward the companies for mismanagement.
Shelby, the ranking member on the Committee on Banking, Housing and Urban Affairs, further said in his remarks on NBC's "Meet the Press" that the government should allow the companies to file bankruptcy.
"They would be, in a lot of people's judgment, a lot better off to go through Chapter 11, where they could reorganize, get rid of the management, get rid of the boards -- the people who've brought them where they are today," Shelby said.

• President Bush and GOP leaders in Congress say they'd be willing to lift some restrictions on an already-approved program to dole out $25 billion in loans meant to help U.S. automakers design more fuel-efficient vehicles.
The funds are now tied up in Energy Department red tape, but the GOP says it would be willing to approve legislation to force their prompt distribution.

• GM executives -- who say that without help, GM's cash will reach the operating minimum by year's end -- have said the loan money would have so many strings attached that they are not sure it can be used to solve their cash crisis.
Democrats say the automakers need the existing $25 billion in loans and an additional bridge loan just to survive through the year. However, many Democratic leaders say they realize the folly of bailing out Detroit without specifying Congress' expectations of the industry.

• President-elect Barack Obama told CBS' "60 Minutes" on Sunday that Detroit needed help, but he opposes writing a "blank check."
Sen. Chris Dodd, D-Connecticut, who heads the Committee on Banking, Housing and Urban Affairs, said last week, "Clearly we shouldn't be writing checks without some clear conditionality of what's going to happen with that industry -- if they're going to change and get back on their feet again."

• Democratic leaders probably do not have the 60 votes needed in the Senate to avoid a GOP filibuster.

• There is a view expressed that Congress should consider waiting for Obama to take office, so that the Treasury could act without legislation.
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So there you have it, citizens.
What would you do with this particular hand of cards?
As the Gambler, Kenny Rogers advised, 'you gotta know when to hold 'em and know when to fold 'em; you gotta know when to walk away, and know when to run.'
I think we have to play these cards as best we can, and forget about folding, walking away or running -because those are not responsible options.
It may not be a winning hand, but you never know until you play it!

Some years ago, I stopped buying American cars, but that doesn't make me immune to the fall-out if Detroit is not able to be rescued.
1 out of 10 jobs could be lost or at risk.
20% of all retail sales could be lost.
2.5 million jobs at risk if only 50% of auto industry fails.
Then there's the little matter of National security; what happens if we lose the ability to produce essential vehicles, parts and associated software in the US?
Think about it.
Be careful in the decision you make in playing this hand!
And good luck -you'll need it.
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