Auto Bailout Dead, Politics Alive and Well

Senate Republicans killed the bailout deal worked out between President Bush and congressional leaders that had previously passed the House.  NYT:

The failure to reach agreement on Capitol Hill raised a specter of financial collapse for General Motors and Chrysler, which say they may not be able to survive through this month.

After Senate Republicans balked at supporting a $14 billion auto rescue plan approved by the House on Wednesday, negotiators worked late into Thursday evening to broker a deal, but deadlocked over Republican demands for steep cuts in pay and benefits by the United Automobile Workers union in 2009.

The failure in Congress to provide a financial lifeline for G.M. and Chrysler was a bruising defeat for President Bush in the waning weeks of his term, and also for President-elect Barack Obama, who earlier on Thursday urged Congress to act to avoid a further loss of jobs in an already deeply debilitated economy.

“It’s over with,” the Senate majority leader, Harry Reid of Nevada, said on the Senate floor, after it was clear that a deal could not be reached. “I dread looking at Wall Street tomorrow. It’s not going to be a pleasant sight.”

AP:

Republicans, breaking sharply with President George W. Bush as his term draws to a close, refused to back federal aid for Detroit’s beleaguered Big Three without a guarantee that the United Auto Workers would agree by the end of next year to wage cuts to bring their pay into line with U.S. plants of Japanese carmakers. The UAW refused to do so before its current contract with the automakers expires in 2011.

The breakdown left the fate of the auto industry — and the 3 million jobs it touches — in limbo at a time of growing economic turmoil. General Motors Corp. and Chrysler LLC have said they could be weeks from collapse. Ford Motor Co. says it does not need federal help now, but its survival is far from certain.

The blogospheric discussion, naturally, is mostly about the politics of this. While unequivocally believing that killing this boondoggle was necessary, my political instincts mirror Jeff Fecke‘s: “Evidently the Republican Party likes being a Southern regional party. Because they wouldn’t be doing this if they ever hoped to win Michigan, Ohio, or Pennsylvania ever again.” (His post title: “Republicans to Detroit: Drop Dead”) He issues a refrain that I expect to see echoed in the coming days, if not years: “[B]ack when we passed the financial bailout, do you remember Republicans hand-wringing about how we had to ensure that the companies significantly cut white collar compensation at those banks? … The GOP saw this as a golden opportunity to screw over unions and blue collar workers, and as such, they’re managing to screw everyone over.”

His counterpoint is Stacy McCain, who’d like to punish Republicans who backed this deal. But he’s dead right here: “After so much bad economic news, it’s good to see real progress. (And if you don’t understand why GM’s bankruptcy is good news, you don’t know anything about economics. Or bankruptcy.)”

Others are all over the map.

Chris Bowers sees this as evidence that, “While Obama is personally very popular, this popularity has not, as of yet, altered the legislative outlook on some key priorities.” Sandy Levinson reaches the same conclusion independently but thinks it’s time to amend the 20th Amendment, further moving up the inauguration of new leaders because “It is, frankly, indefensible that lameducks have the power to block this bill from coming to a vote. . . . There is also no reason in the world to delay the seating of newly elected representatives and senators beyond a week after the election.” That’s probably true. Newly elected presidents need time to put together a team; not so much new Members of Congress.

Digby: “So, the Republicans are saying that if the Democrats don’t agree to destroy the unions, they will block any loans to Detroit, and allow the auto companies to fail. And even that might not be enough to stop them because this wrecking crew seems have decided that the country needs to understand that if they vote for Democrats the Republicans will make them pay by ushering in another great depression.”

Robert in Monterey titles his post “Yacht Party Decides to Let Ship of State Sink” and focuses on the antics of California Republicans.

Sarah Binder is more tactical, observing, “All of the eight Michigan Republicans who participated in the vote supported the bailout. Indeed, Republicans from Rustbelt states were disproportionately (though not surprisingly) more likely to vote with the auto manufacturers, even controlling for ideological predispositions.” The upshot? “The geographic concentration of the domestic auto industry in the Rustbelt radically limits the industry’s voting power in the Senate.”

Former Clinton Labor Secretary Bob Reich is simultaneously reasoned and hyperbolic in making a similar point: “There’s a new Civil War going on when it comes to automaking in America. Japanese, Korean, and German automakers are now building 18 auto assembly plants in the United States, none of which is unionized. . . . So there’s no reason to suppose the good citizens of Kentucky, Tennessee, or Alabama are particularly excited at the prospect of handing over their taxpayer money to competing firms and their workforces.”

Pat Garofalo thinks the Republican alternative amounts to “union busting” and contends that “The UAW has already conceded to help the Big 3 manage their financial troubles. New innovations — not a lower-paid, uncared for workforce — will help Detroit get back on its feet.”

Doug Mataconis offers disdain for both sides, observing, “Not only is the Corker plan a bailout, it’s also an even greater imposition of state corporatism than anything we’ve ever seen before. It would give the Federal Government, represented by a self-described ‘car czar’ unprecedented control over a huge segment of the American economy, and anyone who thinks that power will be surrendered easily is kidding themselves.”

Hilzoy: “[A]fter years of being willing to spend money on whatever George W. Bush and their lobbyist friends wanted, after supporting Duke Cunningham’s and Tom DeLay’s buddies in the style to which they had become accustomed, now they decide to prove that they care about fiscal responsibility. In the middle of the worst downturn in half a century. Thanks a million.”

Of course, failing to adhere to their principles has been rewarded with ballot box calamity two election cycles in a row. Why not try something new?

Ed Morrissey congratulates Senate Republicans and snarks that, “Most of them, and a few Democrats like Baucus and Tester and Blanche Lincoln, must have read their Robert Byrd Pocket Constitutions and realized that the federal government has no role in bailing out out private enterprise with taxpayer money.”

Bowers’ counterpoint, though, is also valid: With a Democratic president and increased Democratic majorities in both Houses, any bailout that passes six weeks from now will likely be shorn of the sops to conservative sensibilities necessary to get Bush and House Republicans on board.

Image:  Mike Licht, NotionsCapital.com‘s photostream under Creative Commons license.

FILED UNDER: Economics and Business, US Politics, , , , , , , , , , , , , , , , , , , , , , , , , ,
James Joyner
About James Joyner
James Joyner is a Security Studies professor at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Dantheman says:

    One can add that on any other economic question, the Republican view is that the decision should not be dictated by Washington, but rather from the marketplace, as those closest to the situation would know best. Somehow, that view gets chucked out the window when it comes down to the timing of concessions from unions.

  2. odograph says:

    Excellent reporting, James.

  3. Pug says:

    …do you remember Republicans hand-wringing about how we had to ensure that the companies significantly cut white collar compensation at those banks?

    Well, if they had belonged to the International Brotherhoold of Loan Officers and Investment Brokers you would have. For Southern Republicans, especially, this is about unions and nothing else. They hate ’em, pure and simple.

  4. Dave Schuler says:

    Here’s the important snippet from the article cited:

    It was over this proposal that the talks ultimately deadlocked with Republicans demanding that the automakers meet that goal by a certain date in 2009 and Democrats and the union urging a deadline in 2011 when the U.A.W. contract expires.

    Without concessions from the UAW there are really only two choices: letting GM and Chrysler enter Chap. 11 bankruptcy (which would allow the courts to re-write their union contracts) or subsidizing the two companies to the tune of about $4 billion per month until the contracts are re-written or the companies magically become profitable.

    I’m aware of the importance of all of the jobs represented by the automobile industry (although I’m skeptical that all of them would be lost should GM and Chrysler fail). However, I think that we should reflect very carefully as to whether supporting a pair of companies in an industry that can no longer support them structurally are worth propping up indefinitely.

  5. anjin-san says:

    The message here is simple. The GOP is not quite finished trashing our country. But hey, think how much fun they will have talking about “The Obama Economy” when unemployment hits 10%. Hannity will be in his glory.

    Granted, GM deserves to fail, but not right now. And I note there was no problem with WAMU’s CEO getting what, 17 million for a few weeks work?

    Creative destruction is a valid concept. But, in life, timing counts for quite a bit. When enough destruction takes place, all you have left is rubble.

  6. sam says:

    For Southern Republicans, especially, this is about unions and nothing else. They hate ’em, pure and simple.

    Right on. Ah for the good old days of free labor (free for the masters, I mean).

    As to James’s political point, right on there, too. You can argue all day long that the bankruptcy route is the economically rational way to go, but at the end of that day, the perceived Senate Republican antipathy to blue collar workers will be what’s remembered, and, come election time, driven like a stake through the heart of the Republican party.

    And if you don’t understand why GM’s bankruptcy is good news, you don’t know anything about economics. Or bankruptcy.

    And if you don’t understand why the Senate Republicans intransigence here is good news for the Democrats, you don’t know anything about politics.

  7. Franklin says:

    Well my very Republican dad is torn. On the one hand, he hated the bank bailout. On the other hand, he is retired from GM and lives on a pension. So you can guess whether he supports the auto bailout or not.

    Personally, I see some arguments for Chapter 11 bankrupty as valid. Although I’m not sure if I fully understand all the differences between having the courts dictate terms or having Congress dictate terms. By forcing the Big Three CEOs return with a plan, Congress was actually letting those with the most knowledge have another shot at it, deservedly or not.

  8. Pug says:

    And if you don’t understand why GM’s bankruptcy is good news, you don’t know anything about economics. Or bankruptcy.

    I’m assuming stock traders around the world don’t know much about economics or bankruptcy because they are reacting as if this might not be good news at all.

    Of course, Stacy McCain has something they don’t. He has idealogical purity.

  9. James Joyner says:

    I’m assuming stock traders around the world don’t know much about economics or bankruptcy because they are reacting as if this might not be good news at all.

    Stock traders make their living by TRADING stockings, so they live in the short term. Creative destruction is generally bad in the short term. Investors, though, will benefit from the longer term shift of the American economy into the 21st Century.

  10. Pug says:

    And if you don’t understand why GM’s bankruptcy is good news, you don’t know anything about economics. Or bankruptcy.

    I know plenty about bankruptcy, more than Stacy McCain I’ll bet. The genius Stacy didn’t tell us where debtor-in-pssession financing would be coming from for GM. Citigroup? Wachovia? Not likely.

    Without DIP financing, it’s not reorganization coming, it’s liquidation.

  11. Franklin says:

    “And if you don’t understand why GM’s bankruptcy is good news, you don’t know anything about economics. Or bankruptcy.”

    Yeah, that statement is pretty grating. It’s that sort of smug “we know everything about national security and economics” attitude that has taken the Republican brand to the scrapheap, since they’ve miserably failed at both in the last eight years.

    As far as I can tell, there are lots of disagreements among so-called experts in economics. Apparently Stacy McCain trumps them all, though.

  12. Moonage says:

    Former Clinton Labor Secretary Bob Reich is simultaneously reasoned and hyperbolic in making a similar point:

    There is nothing reasoned about his argument. It is purely hyperbolic based on the incorrect assumption that the South has nothing to lose if GM and Ford go down. He totally ignores the fact that GM and Ford both have huge plants operating in Kentucky employing thousands of people. Sure, we have Toyota as well, but that doesn’t make Bowling Green or Louisville feel any better. Make any arguments you want pro or con, but to totally dismiss the issues Republicans have with this issue under the false assumption they have nothing to lose is bogus.

  13. Dave Schuler says:

    Although I’m not sure if I fully understand all the differences between having the courts dictate terms or having Congress dictate terms.

    Congress doesn’t have the power to re-write contracts. There are constitutional issues involved—notably property interests.

    Look, if anybody has a plan to keep GM and Chrysler pumping along that doesn’t involve reducing UAW workers’ (past and present) compensation, I’m ready to listen. I’m as concerned about the jobs that could be lost as anybody. But the quote I included above certainly looks as though the UAW wants to run out the clock.

    I’ve read the GM plan and it’s an amiable fiction. It’s filled with ridiculous assumptions, for example, that GM can reverse the market share slide of the last 30 years in a couple of months.

    Let’s hear your plan before we start trashing each other.

  14. Steve Plunk says:

    The plan must include the UAW. Without all the parties being at the negotiating table how can any real solution be found?

    So far this morning the markets are moving along as irrational as ever. Down some but far from a meltdown as Reid predicted. Perhaps later in the day after the traders shake the magic eight ball to determine trading strategies.

    This is not a political move as much as a common sense move by the GOP leadership. The fact elected representatives are listening to their constituents is a good thing as well.

  15. Dantheman says:

    “So far this morning the markets are moving along as irrational as ever. Down some but far from a meltdown as Reid predicted.”

    Largely because the Bush Administration is strongly hinting it will fund the bailout from the $700 billion approved before. The Dow was down around 300 points in pre-market trading before that.

  16. cfpete says:

    I don’t understand why the unions need to make any concessions.
    It has been the stated position of the UAW and its backers, for decades and up to just a few years ago, that job banks and all other protections in their contract were perfectly reasonable.

    From UAW websit on 2003 contract negotiations:
    “UAW job and income security protections have helped transform the old boom-and-bust cycle of the auto sector to a smoother, more stable path, which benefits workers, customers and companies.”

    So what has changed?
    Were they just lying all these years?

  17. Franklin says:

    Congress doesn’t have the power to re-write contracts. There are constitutional issues involved—notably property interests.

    Just to clarify, by “dictate terms”, I really meant the request for concessions (for example CEO pay of $1) in return for the bailout.

  18. Drew says:

    “Trashing the economy.” “This is happening too fast.” “Now is not the time.” “Its all labor – or management’s – fault…” etc etc

    The same type of arguments used to delay the restructuring of the steel industry, which, like the auto industry, suffered from overcapacity, an excessive portfolio of products, an untenable wage/expense structure and, shall we say, less than visionary management. And how did that turn out? The industry of course fell of its own weight. You can only keep so many fingers in he dyke. But it finally went through its restructuring (largely under new management) and got financially righted.

    And so now the auto industry. The transplants are serving a catalytic function similar to the steel minimills: an alternative lower cost, non-union manufacturing environment. What happened to the diseconomic mills (eg Wisconsin Steel, USS South Works)? Yes, they were shuttered. No choice. What happened to the viable plants? (eg, Inland Steel’s Harbor Works or Bethlehem’s Dunes Harbor Works) They are still there, pumping out product.

    So it will go for the autos. Restructured wages, a slimmed down product line, and a smaller manufacturing footprint are issues that the industry must face, but I just can’t see them doing it without going through bankruptcy or with the gun-to-the-head threat of withheld funding.

    Its a natural emotion to want to preserve the status quo, given the human considerations. But just as we cannot do anything about the law of gravity, the law of economic reality will inevitably force an auto industry restructuring, no doubt in a cruder and more heartless fashion if the industry waits.

  19. Jason says:

    General Motors had offered buyouts to all of its 74,000 U.S. hourly employees. [5] Those workers could have elected to take a lump-sum payment of $45,000 or $62,500, depending on their job description, and retire with full benefits. [6]

    Republican Sen. George V. Voinovich of Ohio, a strong bailout supporter, said the UAW was willing to make the cuts – but not until 2011.

    http://nomedals.blogspot.com
    is were citations are posted

  20. Dave Schuler says:

    cfpete, I don’t much care who shot John. The situation right now, this minute, is that GM’s costs are a lot higher than its revenues. When each vehicle you make costs you $21,000 and you’re selling them at $20,000 each, selling more at a lower price doesn’t help you—you just spend money faster.

    Echoing the commenter above the automobile industry’s problem is that its employees, salaried and hourly, present and past, collectively make more than the industry can generate in revenue. I think the salary structures need to be revised downward to match the prospective revenues of the industry. That’s painful and people will naturally resist it. It certainly looks to me at this moment as though the most likely path to that outcome runs through bankruptcy rather than bargaining.

  21. Drew says:

    pug –

    Do you have an estimate of the dollar level of DIP financing required? And rather than the Feds pumping in fresh equity (or purchasing whatever securities or loans) why not have them provide the DIP instead?

    Liquidation is not a foregone conclusion.

  22. Drew says:

    Fun facts to tell your friends:

    Why shouldn’t govt make business decisions? In the late 50’s and early 60’s the US steel industry was in high cotton. In fact, predatory pricing was the government’s concern.

    The Kennedy Administration, afraid of steel shortages, and therefore pricing power, “jawboned” the industry into making huge capacity investments. The nature of those investments? Open hearth furnaces.

    Just a few short years afterward the BOF – Basic Oxygen Furnace – obsoleted open hearth steelmaking. The Japanese steelmakers were the first to adopt the BOF, and then its logical companion, continuous casting. The US steel industry, with a wasted generation of capital spending, was cripled.

    Most people know the story of the next couple decades.

    Your government at work. Tell me again about government directing the automakers…..?

  23. tom p says:

    Without concessions from the UAW there are really only two choices:

    Late to this conversation, but… I find it interesting, that all who voted against the bailout wanted to bring the union workers down to the level of the non-union workers. Where do the non-union wages go from here?

    I’ll give you 3 guesses, and the first 2 don’t count.