Only one fix for auto industry: nationalize it

A raging debate is under way across the country, in Congress and between the incoming Obama and outgoing Bush administrations on the fate of the auto industry. General Motors, Ford and Chrysler CEOs have faced tough questioning in Congress. GM is begging for $25 billion to keep it and its ailing Detroit counterparts going. But nobody seems too thrilled about the prospect.

Some say the companies are to blame for their own mess because they’ve focused on turning out gas-guzzling sport utility vehicles. The right wing obsesses over all the well-paid union workers with alleged gold-plated benefits. The New York Times and Washington Post join this bandwagon by reporting wage and benefit figures for autoworkers that are double what they actually get. The inflated figures they report include all the obligations that the companies have to retirees — money that workers, especially newer workers, never see.

“The downfall of the American auto industry is indeed a tragedy,” the Washington Post sermonized recently, “but the automakers and the United Auto Workers have only themselves to blame for much of it.” And, if they have only themselves to blame, the argument goes, why do they deserve taxpayer help? Let them fail and file for bankruptcy. In the long run, the economy will be stronger and the workers better off. It’d be worth the short-term pain, which might not even be so severe. So what if they cannot recover — maybe it’s time for Japan, Germany and Korea to produce all the world’s cars. (Of course that means all the engineering jobs will also head offshore.) The essential argument for letting GM fail is the assumption that bankruptcy would be no big deal. But, while bankruptcy has worked OK for reorganizing airlines, among others, it’s very unlikely a GM failure would have the same result.

In order to seek so-called Chapter 11 status, a distressed company must find some way to operate while the bankruptcy court keeps creditors at bay. But GM can’t build cars without parts, and it can’t get parts without credit. Chapter 11 companies typically get that sort of credit from something called debtor-in-possession (DIP) loans. But the same Wall Street meltdown that has dragged down the economy and GM sales has also dried up the DIP money GM would need to operate.

Thus GM would not qualify for Chapter 11, and would instead end up in Chapter 7 bankruptcy, which would entail total liquidation. The company would close its doors, immediately throwing more than 100,000 people out of work. And, experts say, the damage would spread quickly. Automobile parts suppliers in the U.S. rely disproportionately on GM’s business to stay afloat. If GM shuts down, many if not all suppliers would soon follow. Without parts, Chrysler, Ford and eventually foreign-owned factories in the U.S. would have to cease operations.

Restaurants, gas stations, hospitals, and then cities, counties and states all would feel pressure on their bottom lines. A study just published by the Michigan-based Center for Automotive Research predicts that 3 million people would lose their jobs in the first year after such a Big Three meltdown, swelling the ranks of the unemployed by nearly one-third nationally and leading to hundreds of billions of dollars in lost income.

On the other hand, the auto executives should not be rewarded for their decades-long inefficiency, short-sightedness and outright corruption. If you are wondering why mass transit, energy and transportation policy are 40 years behind where they should be, just consider the example of Rep. John Dingell of Michigan, who just relinquished the House Energy Committee chairmanship. His wife, a member of the founding GM Fisher family, is a well-paid public relations and lobbying rep for GM!

It is difficult to imagine the combination of legislative strings attached to a bailout package that would change the behavior of auto execs enough to return the companies to profitability, or give the public the modernized, fuel-efficient cars that the U.S. and the world need, in exchange for our investment.

Nationalization is the only form in which the necessary reorganization and retooling of the U.S. auto industry to meet the requirements of the high-tech and fuel-efficient future can succeed.

Only nationalization provides an opportunity to show how a concentrated effort can renew a great industrial city like Detroit.

Only nationalization provides the framework in which collective bargaining over the pay and working conditions of workers in the automobile industry can result in a fair agreement that ends destructive two-tier arrangements and grants auto workers a sustainable, long-term stake in the industry.

The U.S. auto industry, like major financial institutions, is “too big to fail,” as Federal Reserve Chairman Bernanke put it. But its executives cannot be trusted with public funds.

Once the industry is retooled and refocused, it’s possible the government could resell it, in whole or in part, back to private producers if that proved to be more efficient. This writer would hope that a government-UAW partnership in rebuilding the auto industry could create a sustainable, profitable, public enterprise. But regardless, nationalization is the only practical course with any reasonable chance of success for the foreseeable future.

jcase@ commonhumanity.info