Detroit Automakers a Relic of the Past

Barack Obama has noted, carefully and correctly, that we have only one president at a time. Yet on at least one issue he has taken the lead and nudged the man who will soon be his predecessor in a direction that he might not have taken without prompting.

It is an issue, moreover, that points up the tension between Obama's appeal to young voters and his calls for creating a new America on the one hand and, on the other, policies that he backs which seem designed to freeze in place the America we have.

The issue is whether the federal government should bail out, with a capital injection the size of what would have been unthinkable four months ago, General Motors and perhaps the other two U.S.-based auto manufacturers, Ford and Chrysler.

As one born and raised in Detroit and its suburbs, who once lived next door to Big Three factory workers and later went to school with the children of Big Three executives, I have mixed feelings about this proposal. My native Michigan is ailing, with the highest unemployment in the nation, plummeting housing values and cascading foreclosures. Its economy, despite the efforts of two previous governors -- Democrat Jim Blanchard and Republican John Engler -- is dangerously dependent on what used to be called the Big Three and are now called the Detroit Three.

The bankruptcy of one or more of them would deeply impact the personal lives and dash the seemingly reasonable expectations of those who, directly or indirectly, have depended on them. I can't help but think of these people when the issue is raised.

And yet the implications of a bailout are frightening. The Detroit Three were unprofitable well before the current financial crisis hit, and GM is reportedly hemorrhaging $1 billion a month. The huge cost of lavish employee and retiree health care benefits, negotiated with the United Auto Workers (UAW), makes it impossible for the companies to sell for a profit anything but the big cars and SUVs that, after gas prices hit $4 a gallon last spring, almost no one wants to buy.

No one in the private sector is willing to pony up a dime for this business plan. GM stock is below its 1946 price, and one investment house has priced it at zero.

The Detroit Three are taking advantage of the passage of the $700 billion financial bailout to argue that they, too, need government money to go on. But as Megan McArdle of The Atlantic argues, the finance firms are different. If credit coagulates, everyone suffers, while if the Detroit Three go bankrupt, their shareholders lose their stake, employee and retiree pay and benefits are cut, and real estate values go down in areas where the companies and their suppliers operate -- but life for most of us goes on.

McArdle, native of a similarly bedraggled industrial area (Upstate New York) and an Obama supporter, further argues that the capital invested in keeping the hulk of the Detroit Three operating pretty much as they are, unprofitably, will not be available to those whose startups could morph into the Microsofts and FedExes of the future. We don't know who today's Bill Gateses and Fred Smiths are, but markets sure have a better chance of finding them than the federal government.

Obama's presidential campaign was an entrepreneurial enterprise whose success owed much to harnessing individual initiative through an innovative management structure and creatively using emerging technology. The campaign, as well as the candidate, helped inspire under-30 voters, who preferred Obama by an unprecedented 66 percent to 32 percent margin -- as opposed to his 50 percent to 49 percent margin in those 30 and over.

But keeping the Detroit Three in their present form, with their extravagant health care benefits and the union's 5,000 pages of work rules, is an exercise in preserving in amber the America of the past.

And of course the Detroit Three will not be the last flagging enterprises to line up for government subsidy. Michigan is not the only state that has a talented congressional delegation capable of enlisting allies on relevant committees and from states with economic stakes in failing companies. Other unions, noting the UAW's success in maintaining benefits, will be standing in line.

George W. Bush may well acquiesce in a Detroit Three bailout. GM could run out of cash over Christmastime (Big Three plants don't operate between Christmas and New Year's), well before Jan. 20. If so, I will feel happy for the respite provided my friends and relatives in Michigan. But I will wonder if in preserving the past we are giving up the chance to get to a better future.

COPYRIGHT 2008 CREATORS SYNDICATE INC.

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Views expressed in this column are those of the author, not those of Rasmussen Reports.