Commentary

Big Three Ask for Money — Again

If a business owner walked into his bank and told the loan officer he was bleeding red ink month after month, facing imminent collapse without an infusion of cash to cover his monthly operating expenses and that demand for his products was in free fall with no bottom in sight, would the bank make the loan? In 99 out of 100 cases, definitely not.

But if there were extenuating circumstances that warranted special consideration, the bank would, at a minimum, require a business plan that emphasized how the company would reduce and eliminate its short-term operating losses. Any loan would thus be conditioned on the business cutting short-term operating costs.

That is precisely the problem with the Big Three U.S. automakers. They have been bleeding cash for many months — $6 billion collectively per month for the last quarter. In plans submitted Tuesday to Congress, General Motors claimed that it will be unable to continue operating if it doesn’t have access to $4 billion by the end of this month. Overall, it seeks an $18-billion “loan.” Chrysler says it will need access to $7 billion as soon as possible. Ford, the company in the least precarious state, says it won’t necessarily need to tap into its requested $9-billion line of credit unless conditions worsen.

Note that the immediate cost of the bailout increased from $25 billion to $34 billion in 10 days. To a bank, that would be a significant change of terms — a deal breaker. But to Congress, what’s another $9 billion taken out of the hide of America’s next generation?

The Big Three know they’re not dealing with a bank. Rather, they’re contestants on a national game show called “To Bail Out or Not to Bail Out.” To win their prizes, the contestants need only pretend they “get it,” show some contrition and say what judges Nancy Pelosi and Harry Reid want to hear. By driving to Washington from Detroit for Thursday’s hearings in their companies’ state-of-the-art clean vehicles, two of the three executives are well on their way the winning over the judges. The third can steal the day if he announces the greenest, most contrite plan of all — to walk the 500 miles from Detroit to Washington.

Am I the only one insulted by the charade of the Big Three chief executives pleading their cases before congressional leaders who don’t even understand that investment in green technology and measures to avoid financial collapse in the short run are completely at odds? How exactly is investment in high-mileage vehicle production going to cut operating expenses and increase revenues now?

Sadly, congressional concern is less about the well-being and endurance of the companies and their workers per se than it is about keeping those companies afloat to serve their own political objectives. Half the congressional Democratic caucus wants to compel the automakers to pump out green cars, regardless of the fact that they are money losers for Detroit. They’re still too expensive to produce, and Americans are even less keen on consuming them as gas prices continue to plummet.

The other half of the caucus is mindful that its biggest benefactor is Big Labor, which is opposed to the only fiscally responsible and realistic option for the failing automakers: Chapter 11 bankruptcy. Big Labor knows that a bankruptcy judge would attach the most important string of all, which is to cut operating costs immediately. And the Gordian knot that must be cut to reduce operating costs is the union contract. That would grant the companies some badly needed flexibility to close facilities, fire workers, cut pay and benefits and terminate dealership relations.

Daniel J. Ikenson is associate director of the Cato Institute’s Center for Trade Policy Studies.