The feds tossed General Motors and Chrysler a Christmas package today, offering as much as $17.4 billion in financing to keep the struggling automakers out of bankruptcy - at least for now.
We may well be back in the same place by March 31, when the automakers are supposed to have met a series of goals to maintain access to the government TARP money.
Skepticism, understandably, runs rampant.
We'll see if the geniuses in Detroit can swap two-thirds of their debt for equity in three months, or extract a commitment for unprecedented concessions from the United Auto Workers. That's some of what the government deal calls for.
One thing, though, remains certain. Without some relief on the cost side of the business, whether it's reduction in debt or retirement and health care benefits, the once-Big Three won't be able to keep up with the competition as auto sales sag. It will be like watching a fat man running the 100-yard dash at the Olympics.
A "disorderly bankruptcy," as the Bush administration puts it, is the last thing our struggling economy needs right now. But the bankruptcy court option has its appeal, particularly if it's pre-packaged variety. The decision on that will ultimately be up to the companies, their creditors, vendors, workers and - yes - the government. If acceptable agreements can be reached outside of bankruptcy, great. If not, bankruptcy looms.
Those who deride government involvement in the automakers' travails tend to downplay government's stake in the outcome even if it didn't get involved. In that context, a $17.4 billion lifeline is little more than a drop in the tsunami of bailouts now washing over the economy that were barely questioned by members of Congress. Indeed, it may be no more than the cost of emergency extended unemployment benefits that Congress would no doubt approve in the wake of a Big Three liquidation.
Critics of federal intervention for the Detroit Three might also take note of the long history of government subsidies doled out for foreign-owned auto plants that now have a competitive advantage over domestic automakers.
Washington-based Good Jobs First, a non-profit, non-partisan research group that focuses on economic development, recently compiled a history of state and local subsidies for foreign-owned auto plants in the United States.
Since 1980, Good Jobs First listed $3.6 billion in such subsidies for foreign-owned auto plants in the United States. Notably, those figures aren't adjusted for inflation. Nor do they include similar subsidies for related suppliers near those plants.
As you peruse the following list, you might ponder how many Senate critics of the Detroit Three auto bailout represent states that have already subsidized their competitors:
1980: Honda, Marysville OH, $27 million*
1980: Nissan, Smyrna, TN, $233 million**
1985: Toyota, Georgetown, KY, $147 million
1985: Honda, Anna, OH, $27 million*
1986: Subaru, Lafayette, IN, $94 million
1987: Honda, East Liberty, OH, $27 million*
1992: BMW, Spartanburg, SC, $150 million
1993: Mercedes-Benz, Vance, AL, $258 million
1995: Toyota, Princeton, IN, $30 million
1995: Nissan, Decherd, TN, $200 million**
1996: Toyota, Buffalo, WV, more than $15 million
1999: Honda, Lincoln, AL, $248 million
2000: Nissan, Canton, MS, $295 million
2001: Toyota, Huntsville, AL, $30 million
2002: Hyundai, Montgomery, AL, $252 million
2003: Toyota, San Antonio, TX, $133 million
2006: Kia, West Point, GA, $400 million
2006: Honda, Greensburg, IN, $141 million
2007: Toyota, Blue Springs, MS, $300 million
2008: Volkswagen, Chattanooga, TN, $577 million
* total of direct subsidies to all Honda facilities in Ohio
** includes about $200 million for expansions of Smyrna and Decherd plants
List does not include joint ventures with U.S. companies
The point here is rather simple. There are no virgins at the intersection of business and politics. Only choices. And consequences.
That won't stop those critical of the GM bail out/government supervised bankruptcy from continuing their boycott campaign against GM.
Ruzzel Walsh
Long Beach auto glass