AUTOMOTIVE INDUSTRY: Auto bailout could be a Pandora’s Box

As our country approached Thanksgiving, Congress found itself considering a federal bailout for America’s Big Three automobile companies (General Motors, Chrysler, and Ford).

With losses piling up, the Detroit-based automakers argued they needed assistance from the federal government and – by extension – the U.S. taxpayers. Recent car sale trends have favored foreign automakers, and the downturn of the American economy has forced these companies into a corner.

One of the plans on the table was to loan only those automakers at least $25 billion from the $700 billion Troubled Asset Relief Program (TARP) on top of $25 billion in low-interest loans approved earlier this year.

Late in the 110th session of Congress, the government passed the $700 billion TARP. However, since then information on the recipients of the emergency loans has been hard to come by. It has reached the point that a news agency files a lawsuit recently after having a Freedom of Information Act request ignored.

In testimony, Secretary of the Treasury Henry Paulson admitted during congressional hearings TARP was not being used to purchase troubled mortgage-backed securities – as originally promised – but is morphing into something which was not intended as part of the package passed by Congress.

This is a prime example of the danger of rushing through massive bills worth billions of dollars. Any action we do take must contain stringent safeguards and the oversight necessary to ensure federal funds are not wasted.

The most recent push to aid the auto industry was not rushed through, though this issue is almost sure to return when Congress reconvenes in December or January.

Efforts to usher through the bill were hurt by a number of factors, not the least of which was the fact that each of the executives from the three companies arrived in Washington D.C. to plead their case on their private jets (at a cost of $20,000 per round trip) – despite the fact there are 24 daily nonstop flights from Detroit to the Washington area.

During a time when focus on federal aid to struggling institutions comes from not only Washington but also the media, this display of largess was a tremendous misstep.

With or without a federal bailout, the American auto industry needs to drastically restructure itself. Compensation for unionized workers for American automotive companies total about $73.20 per hour – compared to Toyota’s $48 per hour. Legacy costs can add up to $1,500 per vehicle.

“Buy American” needs to be more than just an empty moniker. Our country’s native auto companies, if they are able to survive, must invest in new ideas – fuel economy technology, energy research, and sound business management – which will ultimately benefit the automotive industry. Moreover, foreign automakers with U.S. manufacturing facilities – BMW, Toyota, Honda, Nissan, and others – do not face these challenges. They employ thousands of Americans, have American shareholders, and are important parts of the American automotive supply chain. To quote Mitt Romney, “Detroit needs a turnaround, not a check.”

Make no mistake Nebraska is impacted by the final fate of the Big Three automakers. Lincoln, Kearney, Hastings, Cozad, Columbus and other communities in our state are home to suppliers whose financial well-being are tied to the auto industry.

Whichever steps are taken – if a reasonable and responsible relief package can make it through Congress and to the President for signing or if the auto companies are forced to revamp their practices on their own – we have to ensure they emerge as viable entities, otherwise any funds used to strengthen these companies would have been wasted.

I’m afraid – when we start heading down the road of bailing out private institutions, even those considered American standard bearers – we are opening a Pandora’s Box which we might never close.