Five Reasons to Support an Auto Industry Rescue
The Politics
A lot of people are angry about the proposed $34 billion package to rescue the auto industry. Much of this anger is misplaced. It should be directed at the Wall Street banks that caused this crisis and have garnered literally trillions of dollars in guarantees, loans and investments without real commitments to change their business plans or executive compensation.
In contrast, the auto companies and their unions have detailed plans, including concessions on CEO compensation and wrenching concessions by the unions. Any bridge loan should also require the companies to move toward high efficiency cars and keep jobs in the U.S. An independent board should enforce those conditions.
Ultimately, whether or not we are angry, we are in a major recession and America cannot afford to let our auto industry fail.
The Argument
1. Letting auto companies go under would wreck the economy. The industry is in crisis: November auto sales figures released this week showed a 37 percent decline in sales—the lowest per capita vehicle sales in 50 years. [Advertising Age] The economy is in crisis: Friday (December 5), the Labor Department reported that America lost 533,000 jobs in November, the largest decline in 34 years. [Reuters] The non-partisan Center for Automotive Research estimates that if the Big Three automakers cut U.S. operations by 50 percent—which is conceivable if one or more go bankrupt—America could lose 2.5 million jobs in 2009. [Center for Automotive Research] Job losses would not be limited to employees of the Big Three. Suppliers, dealers, and retailers in factory towns would also be hard-hit. Increased unemployment would result in more home foreclosures, more bad debt, and more bank failures, further straining both financial markets and social services programs. We can’t allow that to happen.
2. It’s cheaper to support the auto industry now than to pay the costs of failure. Obviously, $34 billion is a lot of money. But if automakers cut operations by 50 percent, that would cut personal income by about $125 billion in 2009 and $275 over three years which would directly cost the government $50 billion in 2009 taxes lost and $108 billion lost over three years. [Center for Automotive Research] This does not count the inevitable expense of bailing out more banks and insurance companies, and propping up more mortgages gone bad as a result of auto industry layoffs—which could cost the government trillions of dollars. Other countries understand the economics and are moving to support their companies in trouble.
3. This is a unique opportunity to promote energy independence and address global warming. Almost 45 percent of American oil production and importation is used to fuel cars and trucks. [Department of Energy] Autos are the source of more than one-fifth of the nation’s carbon dioxide emissions. [Environmental Defense Fund] So we have to modernize cars in order to solve the problems of dependence on foreign oil and climate change. This project will cost a lot in any case. The auto rescue package is an opportunity to fast-track important changes that America clearly needs.
4. The big problem is health care costs. Conservatives argue that U.S. automakers aren’t competitive with foreign companies because American auto workers are unionized. But foreign manufacturers are also unionized. And foreign auto companies, even Japanese companies that are usually held up as models, are facing sharp declines in sales. The big difference between those companies and ours is that other industrialized nations have universal health care—so their companies don’t have to pay those enormous costs. [Center for American Progress] One essential long-term solution for the auto industry is to enact an American plan for quality, affordable health care for all.
5. Bankruptcy wouldn’t restructure the industry, it would destroy it. Conservatives want auto companies to go bankrupt in order to strip union members of their pensions and health benefits. They think those companies could keep operating through a Chapter 11 bankruptcy and emerge as strong, reorganized manufacturers. But consumers will be much less likely to buy a car from a company in bankruptcy because cars are expected to last for many years, and ultimately they require replacement parts. If there is a risk that the company won’t be around in three or five years, it may be unwise to choose that company’s cars over a competitor’s. Bankruptcy isn’t a workable solution. [Reuters]
