Auto Industry Bailout Pros and Cons
After weeks of debate, we're no closer to consensus in Washington on a bailout for the Big Three auto companies.
White House Press Secretary Dana Perino just said the White House would support an amendment to the Section 136 Department of Enerngy program to speed up those loan guarantees of up to $25 b. "We think there is a bipartisan path to getting this done very quickly -- this week." She said Senate Democratic leaders had not revealed their amendment yet or offered to negotiate a compromise. A Senate vote is expected Wednesday. Senate Democratic leaders and the Big Three auto companies want $25 b. from the $700 b. Troubled Asset Relief Fund.
Perino reiterated the Administration's opposition to using TARP to help the auto companies. "That won't happen." she said. When asked if a bankruptcy declaration by any of the auto companies would be acceptable to the White House, she responded that would be "the companies' decision."
President-elect Barack Obama supports direct aid for the Big Three, but he has said taxpayers should be protected too.
The hangup is whether to insist that loans or loan guarantees be conditioned upon an assessment of "financial viability" over the next 10 years as under the Energy Department loan guarantee program or not, as under TARP. Treasury Secretary Hank Paulson has evidently concluded that taxpayer loans should not be given to firms that can't demonstrate their long-run financial viability, although he didn't apply that standard to Bear Stearns, AIG, Fannie Mae, or Freddie Mac.
The Big Three financed Center for Automotive Research has estimated that the demise of the auto industry would cost 239,341 direct jobs, 973,969 supplier jobs, and 1,738,034 other jobs from $150.7 b. less personal income. Federal, state, and local governments would be hit with $14.3 b. of increased transfer payments, $21.1 b. of less Social Security payroll taxes, and $24.7 b. less personal income taxes.
However, today's New York Times makes a point that most economists would make: the demise of the Big Three would not eliminate all Big Three auto jobs. Many, but not all, of those jobs would be picked up by foreign automakers at existing or new plants here in the U.S., but those would be non-union jobs at lower wages and with fewer benefits.
At this point, I don't see how the Big Three automakers avoid major restructuring that may include foreign takeovers. The only question will be whether taxpayer money eases the pain temporarily.