Should U.S. bail out GM?
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Published: November 17, 2008
NEW YORK — What's good for General Motors, so the saying goes, is good for the country.
Whether or not one agreed with this bit of conventional wisdom as a guide for formulating policy, there's no doubt that there was an era when the health of GM was perhaps the best barometer one could find for the overall state of the United States economy — an era that reached its apex in the post-World War II years.
Is the old maxim still true at a time when GM's stock is trading at or near 65-year lows and CEO Rick Wagoner has gone to the federal government, hat in hand, asking for a bailout?
Part of the answer rests on the reality that GM and its fellow "Big Three" automakers, Ford and Chrysler, still employ about 250,000 Americans, many in parts of the U.S. already hard-hit economically. Throw in the subsidiary employment of auto-parts manufacturers and related industries, and you're looking at millions of jobs in all.
And part rests on the perception that to let GM fail would be to bid an irrevocable farewell to America's once-proud and peerless manufacturing base. In economics, as in politics, perception is often reality. In addition to the job losses it would entail, the failure of GM would likely darken the public sense of gloom about the economy, further eroding consumer confidence and thereby deepening the recession most economists say is already upon us.
For now, Treasury Secretary Henry Paulson has stated that any help the government might give to struggling automakers won't come from the $700 billion bailout fund, created by Congress last month. Up until now, with the exception of the insurance company AIG (which became a necessary special case due to its huge holdings in toxic credit derivatives), payouts from the fund have gone only to financial institutions; Treasury fears that helping auto manufacturers would establish a precedent that would lead to failing companies from all sectors demanding a piece of the bailout pie.
As the Democratically controlled Congress works on a separate bailout for automakers, two things seem worth considering.
The first is that automakers, unlike many companies, can't just declare bankruptcy as a strategy to regroup, reorganize and re-emerge as stronger entities. The reason why is simple: Studies have shown that the great majority of consumers won't buy a car from a manufacturer in bankruptcy. After all, would you plunk down thousands of dollars for a vehicle you couldn't be sure of getting serviced or finding parts for in a year or two? There is a degree to which GM and its brethren are a special case, in that bankruptcy could essentially equal death.
The second is that the U.S. automakers have, for years now, been spending big sums of money to lobby against the strengthening of Corporate Average Fuel Economy (CAFE) standards and to fight in court against individual states, such as California, that have sought to impose tougher standards of their own. With 2-0/20 hindsight, it seems evident that, had these manufacturers dedicated resources instead to making more fuel-efficient cars, they might not have found themselves in the predicament they landed in after prices at the pump skyrocketed.
Bailing out automakers, like bailing out Wall Street, can raise as many questions as it answers. In both cases, it seems, there is the overarching question of whether we can protect the overall economy from the mistakes of the past while preventing a replay in the future. One way may be for taxpayers to ask for something in return for the checks they are being asked to write and the loans they are being asked to guarantee.
Dan Rather is a columnist with Hearst Newspapers.
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