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The Great American Bailout Continues

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By JOHN HERBERT

From Where I Sit

Published: November 30, 2008

The handwriting was on the wall at least 20 years ago. While making a quickie visit to the headquarters of one of America's Big Three automakers back then, I noticed the employees' parking lots were almost half-filled with Japanese cars.

If anything, our auto workers should be buying American, I thought. But Detroit's senior executives already had enough on their minds; it wasn't my place to muddy the waters even more.

The car makers had been going through several turbulent years of their own; Japanese-American "transplants" were grabbing a foothold in the South, and giant Chrysler had emerged, profitably, from a previous federal rescue scheme only a few years earlier.

Fast-forward to the end of 2008. The American automakers are in a bigger financial stew than ever before. Their tills may be totally cleaned out by early next year. They claim the nation's credit crisis entitles them to a share of the Great American Bailout.

They're conveniently forgetting all those years of their own mismanagement, of foot-dragging to start producing smaller, environmentally-friendly cars while the Japanese have cornered the market on what American consumers really want to buy.

We'll see in the next week or so if the American automakers can come up with something new to push another federal $25 billion or more or hopefully, federally-sponsored protection from bankruptcy.

Newspaper headline writers predict "bankruptcy," a full-scale liquidation, by the Big Three. That may be a bit overdramatic. If you read the fine print, it's protection from bankruptcy the auto makers should be seeking.

According to Chapter 11 of the bankruptcy laws, companies may apply for protection from their creditors while they develop a reorganization plan, with creditors, union and government approval, to return to solvency. That would mean revising and renegotiating hundreds of current union, dealer and supplier contracts.

No matter how many billions of dollars Congress sends Detroit's way, the automakers will no doubt be back for more. Other sectors will want a share of the action. We've seen banks, insurance companies and mortgage brokers already being rescued by the feds. Why not farmers, builders or credit card companies, too?

Potential bailouts present a Democrat-controlled Washington with some awkward choices. Ideally, the Dems would like to make a new Detroit bailout the responsibility of Bush's lame duck administration. Come January, when it may be too late anyway, the Democrats will no longer have the Republicans as an excuse not to act.

The Democrats would prefer not to assume the burden of a financial package that's certain to backfire. America's unions are breathing down lawmakers backs; after all, the unions contributed millions of dollars so the Democrats could secure control of Washington.

Someone is going to have to inform the unions that their scare tactics, like millions of unemployed auto workers if the government doesn't pony up with a really hefty bailout, won't work any longer.

Chapter 11 bankruptcy protection has worked in the volatile airlines business and should now be allowed to make a permanently smaller and smarter Detroit, even if it's painful. Troubled airlines are a good example.

Continental has used Chapter 11 twice to reorganize and has now grown into one of America's most successful airlines. Delta and U.S. Air have emerged from Chapter 11 strong enough to take over competitors.

Detroit has lost its stranglehold on American car making. The South has become the new Detroit, thanks to a surge in lower-cost Japanese transplants. America won't lose its automobile industry; it's just being relocated.

The Japanese are already producing what America wants. The Big Three, unfortunately, are at least five years away from putting more efficient cars on the road, even with unlimited federal rescue packages.

Even if the Big Three pry another cash rescue out of Washington, auto executives should do what they've never tried before: define what business they actually want to be in, and go from there.

Providing reliable and economical transportation should be their top priority. Making cars to fit and fill those transportation needs should be a secondary priority. Once those choices have been made, a slimmed-down production apparatus should be relatively easy to structure. Provided Chapter 11 can give the Big Three the temporary breathing room a serious reorganization would require.

When we order a ride, we don't specify a Ford, Chevy or Dodge; we just want four efficient wheels to get us from point A to point B.

A regular columnist for Hernando Today, John Herbert lives in Spring Hill.

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