Merry Christmas, Detroit, from your already-broke Uncle Sammy; Update: Bush video added

posted at 9:45 am on December 19, 2008 by Ed Morrissey

Bailout mania continues.  George Bush will give the Big Three automakers a whopping $17.4 billion loan package from TARP funds in order to keep them limping along until March 31:

The government will offer up to $17.4 billion in loans to the ailing U.S. automakers and expects General Motors and Chrysler LLC to access the money immediately, a senior administration official said on Friday.

Some $13.4 billion will be made available in December and January from the $700 billion fund that was originally designed to rescue struggling financial institutions, but the loans would be called back if the automakers cannot prove they are viable by March 31, the official said.

Viability would be mean that the companies must have a positive net present value, which doesn’t necessarily mean immediate profitability but would require them to reach that point relatively soon, the official said.

So the government, already in debt over 10 trillion dollars, will use its line of credit to give a loan to companies going bankrupt from their own debt load — and demand viability in 100 days.  Who wouldn’t love that deal?

Supporters of a government bailout of the auto industry managed to hoodwink the administration in part through some very misleading statistics.  They claim that 10% of all American jobs get direct or indirect support from the Big Three automakers, a claim repeated by Senator Carl Levin on NBC’s Meet the PressABC News says that they’re off by a factor of almost seven:

In an effort to convince Congress to bail out the U.S. automakers, company executives, union leaders and politicians have made the compelling argument that the industry directly and indirectly supports one in every 10 jobs in the country. The only trouble is nobody wants to take ownership of that statistic, which is almost certainly false.

The figure is routinely attributed to the Center for Automotive Research, but officials at the nonprofit organization, which has ties to labor and government, claim they never said it and have no idea where it came from.

“It’s such an exaggeration. I kind of grit my teeth every time I hear it,” said Debbie Maranger Menk, a project manager at the center who researches the industry.

The Center, she said, estimates some 350,000 people in the United States are directly employed by automakers, both foreign and domestic, and that 2.1 million jobs are indirectly connected to the industry including suppliers.

That 2.1 million jobs figure is in line with what most economists estimate to be the number of people supported by vehicle manufacturing, according to economist Richard Block a professor at Michigan State University’s School of Labor and Industrial Relations.

We have over 135 million jobs in the US.  Anyone claiming 10% of American jobs is related to the auto industry would have to show almost 14 million people working directly or indirectly for the auto industry in general.  The auto industry as a whole in the US affects a seventh of that, and GM, Ford, and Chrysler would only affect a portion of those 2.1 million jobs.

Well, now the auto industry affects all of our jobs.  We’re all coughing up enough money for a down payment on a new car from every family in America, only without actually getting the car.  And even if we’d used that money to buy a new GM, Ford, or Chrysler instead of it being a loan, none of the three would have shown a profit from the sales anyway.  They’re losing money on every car they sell, and neither management nor labor shows much interest in changing those calculations.  They just want a Governmentus ex machina to rescue them from their own folly without having to sacrifice anything … and George Bush just gave it to them.

Update (AP): Here’s the announcement.



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Wise_man,

They did, though there is much less likelihood they could today. But whether the plan is practical or not, it’s still wrong. It was immoral for the Feds to loan Chrysler money then, and it is equally wrong today. The public treasury does not exist to prop up businesses in trouble.

“I cannot undertake to lay my finger on that article of the Constitution which granted a right to Congress of expending, on objects of benevolence, the money of their constituents.” — James Madison, 4 Annals of Congress 179, 1794

Jeff

JDPerren on December 19, 2008 at 5:27 PM

Wow. Wirdly, I’m so sick of this bailout crap that in reading this my first reaction was:

“Technically … it’d be deus ex kubernesis.”

apollyonbob on December 19, 2008 at 5:47 PM

Jeff, all of the people who state as fact that the money won’t be paid back are expressing their opinion, but it is not fact. Stating that the auto executives will go right back to business as usual and not change their business plan is not based on any merit. They are requesting the loan to keep their companies and their employees in business.

If you want to say that it is wrong to lend them money, then that’s fine to have your opinion to that effect. Is is also wrong to give money away to people who have had their homes destroyed in a natural disaster like a hurricane or a tornado? Isn’t that socialism, and the free market should allow these people to try again, without any assistance from the government. In that instance, it’s giving people money – never to be repaid so they can get back to where they were. For the auto industry, it’s a loan that needs to be paid back.

It’s like some people actually want our domestic auto industry to fail and then their only choice for a car will be a foreign car, even if a few of the models are assembled in the US.

wise_man on December 19, 2008 at 6:02 PM

It’s like some people actually want our domestic auto industry to fail and then their only choice for a car will be a foreign car, even if a few of the models are assembled in the US.

wise_man on December 19, 2008 at 6:02 PM

Wise words from a wise commenter. This would be the Europization of the car industry. Golf carts for the masses, V6′s for the chosen.

Well, Toyota is counting on it for unionbusting to go forward.

sethstorm on December 19, 2008 at 6:05 PM

Hmmm

Lets watch the Dem’s in action.
First thing they will try and do is pass Card Check. This way they can unionise the southern car plants so that the UAW will not have to make any concessions. They will strike these plants to get them in line. That saves their pay at the American consumers expense.

Rick007 on December 19, 2008 at 6:13 PM

Bush is absolutely right in doing this. We simply can’t allow a pillar of the economy to fail at this time. Bankruptcy is not an option, because we have no idea what the consequences would be.

Consider this tiny amount in the greater scheme of things. $17.4 billion is not much compared to what has already been spent. This money is going to support an industry which actually makes things, rather than all that previous money which went to – what? Companies which move money about.

I’m red in the face over all the union bashing going on here. The UAW didn’t cause the problems here. People not buying cars did. The insanity of the credit crunch did. The stupid CAFE standards did. Yet those are complex and harder to demonize than the UAW.

UAW workers don’t live like kings. Having a dear friend whose father was a lifelong member taught me that. His parents had a 2-bedroom house in Ohio. They were most definitely not rich.

All the union-busting going on is awful. Auto workers need unions. The Big 3 need unions. Auto workers not in unions need the UAW or their salaries would suffer. So don’t blame industry-wide failure on the workers of that industry. Nothing they did brought this on.

So the President did a good thing today, and makes me glad that I voted for him twice. He’s a good man who wants to do what is right. Those here who denigrate and snipe at him should be ashamed.

Viscount_Bolingbroke on December 19, 2008 at 6:14 PM

Actually, I’d argue that it’s a shrewd plan. According to my calculations, $17.4 billion is just enough to get ‘em through to about, oh, January 21, 2009.

Not only does it kick the problem into Obama’s lap, but then the Democrats will have to decide, all by themselves, whether they want to explain this impossibly unpopular ‘loan’ to the voters.

Paul_in_NJ on December 19, 2008 at 6:16 PM

I’m red in the face over all the union bashing going on here. The UAW didn’t cause the problems here.

Bollocks: they’re a big part of it. If you haven’t learned by now that most of a business’ expense is labor, then you not only flunked Econ 101, you don’t have the knowledge to speak authoritatively on this.

Have you seen the numbers? UAW workers make about $70/hour, or almost twice what workers at the other seven car companies which operate in the US make.

That’s not true of the “job bank” denizens; those poor souls only make 95% of that — for not working at all.

Now are you starting to see the problem?

Paul_in_NJ on December 19, 2008 at 6:22 PM

If this was from TARP the money was already allocated. I know how some people feel about it, but I would just as soon see it go to the auto industry as a lot of other places. Here in Indiana there are all kinds of industries that depend on those auto companies and most of them are not big business or anything like that.

The truth is that people say they don’t like bailouts, but if that was true the Democrats would not control the Congress and they would not have won in the last election as much as they did. People like for government to be tough with the other guy, but when it comes to voting for their own rep, right now they are voting for the people most likely to extend their unemployment benefits.

Time and again in the last two years I have heard people say that this poll or that poll says people want everything from small government, to enforcement only immigration policies to off shore drilling…but that is not how they are voting.

Bush knows that a Democrat will be taking his place in a few weeks and if those auto industries do not get something now, they will get even more then.

And those folks are taxpayers too.

Terrye on December 19, 2008 at 6:23 PM

Wise Man,

I agree that saying Chrysler and GM won’t pay the loans back is speculation, which can be well founded or just arbitrary. But stating that it is immoral is not mere opinion. I know from reading your comments during the election campaign that you do not view moral ideas as “just an opinion”.

By the same token, no I do not believe it was or is appropriate for the government to be engaged in disaster relief. But let us not to get too far afield.

If Bush and others are sincere about wanting to help the American car companies survive, rather than advocating or applauding short-term, pragmatic efforts such as hand-outs of taxpayer funds, they have alternatives. They can advocate that the conditions that put the American car companies at a competitive disadvantage be changed.

They can advocate stripping the UAW and every other union of government backing that has existed since the Wagner Act (actually before, but never mind). They can suggest a two-year suspension of all corporate taxes and capital gains taxes for owners/investors in the GM and Chrysler. That would be less than ideal, but it would be a step in the right direction. They can remove the thousands of regulations that are strangling all businesses, such as Sarbanes-Oxley.

The President, who imagines he is in favor of the free market, can at least push for these things.

Beyond that, one has to wonder why the President believes he has the Constitutional authority to bailout the car companies when the Senate clearly expressed the will of the people, who have consistently opposed all bailouts by a majority.

If you wish to argue that all this is “mere opinion” you are at liberty to do so. But then, on those grounds, every belief beyond a perceptible concrete is “mere opinion” and there would be no point in trying to decide what should or should not be done in any situation.

Respectfully,
Jeff

JDPerren on December 19, 2008 at 6:27 PM

Paul:

UAW workers do not make $70 an hour. As far as that is concerned, the people working at Toyota do not make $48 an hour. That includes all their benefits, including health care. My understanding is that this help requires certain concessions on the part of workers.

BTW, how many people include their benefits when they calculate their wage? I know doctors make hundreds of dollars an hour, so do lawyers and so far as I know they will never be required to compete with anyone who makes a dime less than they themselves charge.

NO doubt, some changes need to be made to keep these companies viable, but if they go under now in the present economic climate millions of jobs could be lost. Most people just assume their jobs will not be among them. If and when it is their jobs on the line people tend to have a different view of these things.

Terrye on December 19, 2008 at 6:30 PM

Paul_in_NJ on December 19, 2008 at 6:22 PM

If you think sales being down almost 70% over last year has nothing to do with failure, you failed elementary school.

The reason for a Job Bank is so that workers can be found quickly when needed to boost production. It makes financial sense to keep them around even if they are never needed because the cost to find and train a skilled worker outweighs the cost of keeping one handy.

Please think about this issue. Understand that unions are not inherently bad. Union workers are not thieves. They most certainly didn’t cause Detroit’s current troubles.

Viscount_Bolingbroke on December 19, 2008 at 6:37 PM

John Hawkins on Mama Government. Worth pondering.

JDPerren on December 19, 2008 at 6:38 PM

JD:

Free market? The US government spends billions of dollars on health care that goes to doctors living in mansions and taking nice vacations in the tropics every year. And yet, they complain that they are barely making it…however, their lifestyles are not sustained by the market alone because average people could not afford to pay those prices.

In a case like this if we really want to talk about the market then be honest. Millions of people could suffer if these companies go under and most of those people are not even in the UAW. And most of the people who are so bound and determined to see these companies fail are more interested in their own philosophy than they are in the real life costs to others.

I think the biggest problem was not even subprime lending or labor costs, it was high energy costs that just bled the economy of capitol. There was no money for cars and mortgage payments and the economy suffered.

Terrye on December 19, 2008 at 6:50 PM

“A wise and frugal government… shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.” — Thomas Jefferson, First Inaugural Address, March 4, 1801

JDPerren on December 19, 2008 at 6:51 PM

Terrye,

I do not believe the government should be making billions in health care payments either. Do you think that because the system is less than ideal we should continue to move in the wrong direction?

But my interest is not solely in supporting a philosophy as some abstract ideal applicable only in a perfect world. It has consequences every day, every minute for real people everywhere.

I outlined a few alternatives that would help keep the car companies afloat. I could list literally hundreds and bore everyone here. You seem to be assuming that a Federal loan is the only tool the government has to help resolve a problem which — while we’re being honest let us admit – they had a huge hand in creating in the first place.

No corporate welfare for anyone, for any reason. Not health care providers, not agriculture businesses, not car companies, not investment banks or mortgage lenders. No one. It’s wrong, and it’s impractical. This is not “mere opinion,” it is a conclusion based on long personal experience, depth of study in economics and philosophy, and a fair time spent looking at the history of the past few centuries of the U.S. and elsewhere.

Take the railroads during the 19th century, just as one quick example. Dozens of railroad executives went hat in hand to the Feds and State governments for subsidies, bailouts, and special favors. They misappropriated funds, bribed politicians, misplanned routes, went bankrupt, and generally made a mess of one of the most essential business arenas of the period. J.J. Hill said No Thanks to all government assistance and successfully stayed afloat through several serious downturns. He also helped create jobs, transportation, and several large cities because he took this principled stand and applied his own genius.

It’s not like there is no precedent to guide us here. Look to history.

Why, just as one thing to consider, do you think Ford is not nearly in such a mess as the other two? Philosophy is the most practical thing in the world.

Respectfully,
Jeff

JDPerren on December 19, 2008 at 7:08 PM

If they go under because they do not have working capitol then how can they pay back the loans?????????

Rick007 on December 19, 2008 at 7:17 PM

The same stupidity that supported the original Tarp bailouts, with all the attendant hobgoblins warning of Armageddon, are currently at work as regards the auto industry. In fact the same people who chirped then are chirping now with the same warnings screaming at the top of their lungs FIRE. As usual they do it without thinking.

GM and Chrysler, with or without the bailout are going to be half their size sometime next year. The firings that they are blackmailing us with are coming, the only difference now, it is on our dime. GM will be closing half its plants and permanently firing the workers. Their pay will be the same as non union plants when it is over or all the plants will be closed. Like all the other bailouts to date the money will accomplish nothing. You cannot put Humpty Dumpty back together, ever.

No amount of lipstick can change GM and Chrysler from the pigs they have been these last 30 years.

Here, watch Fred Thompson as he mocks the stupidity I’m talking about.

http://blip.tv/file/1528079

patrick neid on December 19, 2008 at 8:14 PM

Whether the President’s/Not-so-Big-2’s plans succeed or fail is irrelevant. The President’s actions here are immoral. He has no right to use taxpayer money to fund private businesses. That is not what government if for; it is an injustice. It’s true that what they really need is more of a free market, not less. But that argument aside, economic difficulties do not justify robbing even one Peter to pay a single Paul, much less thousands who (at least in part) did it to themselves.

JDPerren on December 19, 2008 at 3:15 PM

This is a good point. As are many others presented here.

tartan on December 19, 2008 at 9:01 PM

JDPerren on December 19, 2008 at 7:08 PM

You the man, great posts.

lowandslow on December 19, 2008 at 9:38 PM

….

I’m red in the face over all the union bashing going on here. The UAW didn’t cause the problems here. People not buying cars did. The insanity of the credit crunch did. The stupid CAFE standards did. Yet those are complex and harder to demonize than the UAW.

UAW workers don’t live like kings. Having a dear friend whose father was a lifelong member taught me that. His parents had a 2-bedroom house in Ohio. They were most definitely not rich.

All the union-busting going on is awful. Auto workers need unions. The Big 3 need unions. Auto workers not in unions need the UAW or their salaries would suffer. So don’t blame industry-wide failure on the workers of that industry. Nothing they did brought this on.

….
Viscount_Bolingbroke on December 19, 2008 at 6:37 PM

I think I understand the resentment. Unions should serve the interest of the worker by protecting that worker from a hazardous work environment. But my impression of unions is that they have created a pervasive atmosphere of entitlement that is unreasonable to sustain. If the business is underperforming, if the revenues are falling, then workers should expect that they may see a drop in pay. I never can understand the concept of a strike. At every job I have ever had, if I refuse to do my job, I lose my job. It’s that simple. I will never understand the kind of entitlement mentality that constitutes a striker who refuses to work, yet assumes that because of the protection of the union that they can keep their job. I don’t get it. And yet I recall a number of times I have read about auto workers who strike outside of the factories, refusing to work. But they are protected from losing their jobs which they refuse to do. In my world, if I’m unsatisfied with a salary, I either can ask for a raise or I can go look for a job someplace else. Why can’t auto workers do that? Is it because they wouldn’t find a higher paying job?

tartan on December 19, 2008 at 9:52 PM

Thank you tartan and lowandslow. And thank you to terrye and Wise Man for a respectful discussion.

JDPerren on December 19, 2008 at 10:33 PM

Viscount_Bolingbroke on December 19, 2008 at 6:14 PMBiggest bunch of crap I’ve ever read. You must work for one of the big 3. This is socialism, pure and simple, and it won’t solve a darn thing. The auto companies are going down, and there isn’t a thing that we can do to save them.

Hasn’t anybody ever heard the phrase “throwing good money after bad?”

fossten on December 20, 2008 at 11:42 AM

Mark Steyn’s article, Bailoutistan, is excellent and confronts part of the huge problem the automakers have…their retirees. We are not just bailing out the auto industry, we are bailing out everyone who ever retired from the auto industry. How, exactly, is that our responsbiility?

Glynn on December 20, 2008 at 12:19 PM

Wise_man wrote:

If you want to say that it is wrong to lend them money, then that’s fine to have your opinion to that effect. Is is also wrong to give money away to people who have had their homes destroyed in a natural disaster like a hurricane or a tornado?

The government’s role in a disaster is to save people from immidiate danger. It should be up to private groups like the Red Cross and United Way to provide food and shelter for folks.

In fact, by promising (implicitly or explicitly) to provide for a disaster victim’s every need, government encourages people to a)ride out the storm, and b)move to and live in areas prone to flooding.

hawksruleva on December 22, 2008 at 3:34 PM

What’s the job of a union? To me, it’s to ensure that employees are paid fair market value for their labor. Is it fair market value to pay someone not to work? Or to prevent technological improvements because of union rules saying you can’t eliminate jobs with robots? Many unions long ago stopped looking out for the ultimate good of their members by getting labor deals that hurt the employers of their members. In this regard, the UAW is no different than the textile or steelworkers unions, who got labor agreements that ended up driving the jobs overseas. In the long run, dollars will flow to the producers who provide the best value.

Or take the movie unions. More and more movies are being produced in Montreal or South Carolina. Why? Because film companies can hire just enough staff to produce the movie, instead of having to fill every position that the unions say they should have. A 2005 article said that a movie could be made $2 Million cheaper by leaving LA.

hawksruleva on December 22, 2008 at 3:51 PM

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