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Wednesday, November 19, 2008

Bailout Debate, Part 3: Motivations

I think that some of the motivations behind the mostly Republican anti-bailout and mostly Democrat pro-bailout positions are not the ones commonly being discussed.

The Democrats want to loan the Detroit 3 in part because they owe the UAW big for the recent election victories. If the Detroit 3 slide into Chapter 11, the UAW will be hurt very badly, as an oganization. The Democrats, and Obama in particular, have a goal of making unions stronger (card check). Says Newt Gingrich:
To reward the unions that helped produce its electoral victory, the newly empowered Democratic Congress is proposing that American taxpayers pony up $25 billion to bail out the Detroit Three automakers, Ford, GM and Chrysler.

The House Democrats have written loan legislatio which has strings attached (you can read it here), which require the Detroit 3 to make "greener" cars:
‘‘(1) achievement of the fuel efficiency require10
ments and commencement of domestic advanced
technology vehicle manufacturing as authorized in
the Energy Independence and Security Act of 2007;
The House legislation also bans excessive executive compensation and "golden parachutes", which is more populist pandering and soak-the-rich, as usual.

The Republicans don't want to loan the money outright, but instead keep demanding that the Democrats re-write the already passed (and previously commented on by me) Advanced Technology Vehicle Manfacturers Assistance Plan to remove the environmental requirements, and spend the money as aid right away. This is because they want to jam the environmental lobby, I suspect.

The Democrats want the original $25 Billion ATVMAP left in place, and another $25 Billion carved out of the TARP funds. So, sort of unmentioned in all of this, is that the Democrats are really advocating for $50 Billion in low-cost loans--$25 Billion now, and $25 Billion later.

Some Republicans and conservative commentators are saying that Chapter 11 protection is a smarter choice for the Detroit 3, so they can shed their legacy obligations. What this really means is, "let's stick it to the UAW".

1 comment:

Anonymous said...

OK, I have to disagree with you on this one. I'm sure there are Republicans who are primarily motivated by the desire to set back the UAW and unions in general, but I doubt that constitutes the majority.

What are the really most threatening sets of contractual obligations? Most savvy (non-auto) business people recognize that dealer franchise entanglements are at least as big an impediment to future profitability as the retiree and health care obligations.

In a domestic industry with WAY too many brands and WAY, WAY too many dealers, a simple loan of cash would not permit fixing Detroit so that they could be viable going forward. If it cost GM $5bil+ to close a relative handful of Olds dealers, what would it cost to buy out thousands of excess GM dealers?

Only Chapter 11, preferably pre-structured, will enable GM to consolidate brands and all three makers to get out of the dealer overhang.

The new labor agreement will reduce costs going forward, if they can survive long enough. But major restructuring still has to happen, and only Ch 11 gives GM that freedom. Ford may need it only for the dealer issue.

Some excess capacity has to go, and while a tighter GM and Ford probably have a future, Chrysler as an independent entity does not really make sense any longer. Jeep and the minivans can be sold off, that's about all the value left, sorry to say.