Detroit Must Be Saved

Have you noticed a strange sense of proportion among some policymakers these days? It seems that some who couldn't approve the $750 billion bailout for the financial industry fast enough have major misgivings about committing $25 to $35 billion to save the auto industry. Now, why would that be? Might it have anything to do with a white collar v. blue collar bias? With antipathy toward unionized industry? With an exceptionally cozy and often politically lucrative relationship between many lawmakers, lobbyists, and financial houses?

The collapse of any of the three major US car makers, GM, Ford or Chrysler would probably lead to the loss of 3 million American jobs. Not only the company itself but most US parts suppliers would probably go down. They operate on thin margins and the loss of one of their three major domestic customers would likely do them in. Thousands of dealers would go out of business too. It would spread to affect jobs in shipping, advertising, mining, insurance, lending and would echo through the stores, restaurants, service businesses and charities of every community where an auto plant, parts supplier, garage or dealership is located.

The loss of all that income would reduce funding for schools and state and local government as well. A widening circle of layoffs, falling demand, dropping sales and resulting additional layoffs would reprise the infamous downward spiral of the Great Depression.

There are also international competitive and national security implications. It is essential to retain a manufacturing base for competitive technological reasons. Similarly, a domestic vehicle production capacity must be maintained for military needs. A nation cannot safely leave the production of its military equipment in the hands of others. For all these reasons, economic, technological and defense, President-elect Obama is right to say that simply allowing them to fail "Is not an option." As usual, he looks at the overall national interest and answers the shrill voices with reason.

Ideologues on the right and left must be ignored. The rightists proclaim that the market must be allowed to work, even if it leads to 10 million Americans living in packing crates. The leftists seem happy to "stick it to the man," in the persons of the corporate chiefs, apparently forgetting the social calamity it would cause for millions of average citizens.

A short-term set of low-interest loans along the lines proposed by Sen. Carl Levin and Rep. Barney Frank should be approved so the Big Three can make it through the New Year. Then a comprehensive recovery package entailing substantial "restructuring," as Obama puts it, can be set up as his new Administration comes in. Corporate heads may be required to roll. Excess lines (Pontiac, Saturn) may have to be discontinued. Intelligent fuel economy standards and/or hybrids and plug-in EVs may need to be mandated. New distribution systems may need to be devised. The UAW has indicated a willingness to offer even more concessions, though hopefully they will not have to Wal-Mart themselves. (In spite of all the hysterical fulminations of right wing mouthpieces, labor expenses are only 10% of US car costs.) Perhaps the public will acquire an ownership stake in the companies, as it has in many of the financial firms undergoing rescue, until they can pay back what has been lent to them.

If $125 billion can be committed to one insurance company, AIG, surely a quarter of that amount can be applied to save the American auto industry and all the ancillary sectors and people who directly and indirectly depend on it. Chrysler was bailed out in this fashion decades ago and has repaid the loan many times over, both directly and through the good jobs it has provided and the taxes it has paid ever since. This is not simply altruism; it is in our national self-interest. Not to act is to take a step into the economic abyss. Detroit must be saved.