Auto industry makeover is ruthless, but goals are clear

Have you heard about the secret office in the basement of the Treasury where officials are checking the political affiliations of auto dealers to ensure that it will be the Republicans who will be cut out during the Chrysler and General Motors bankruptcies?

Or how about the bare-knuckled tactics the government is using to force a respected bankruptcy judge to strip bankers and bondholders of their property rights and hand them to the United Auto Workers, overturning 600 years of common law and jeopardizing capitalism as we know it?

Well, if you haven't, you almost certainly will as General Motors works its way through federal bankruptcy court and a radical restructuring plan that leaves the government as its controlling shareholder.

The stories, of course, are apocryphal, the criticisms greatly exaggerated. But there is no denying that in the Chrysler and GM bailouts we are witnessing the most ambitious and expensive bits of industrial policy since the early days of the New Deal.

If this were happening in France or Venezuela, we wouldn't hesitate to call it nationalization. But this is not France, it is not Venezuela, and we have not embarked on a new course for American capitalism. This is simply an extraordinary intervention at an extraordinary moment driven by both economic and political necessity.

There is no denying that the big beneficiaries of the government's involvement are workers who will get to keep their jobs and retirees who will keep their pensions and health insurance. But any fair analysis would also show that the net present value of wage, benefit and job-security concessions agreed to by the United Auto Workers amounts to tens of billions of dollars.

It is also not the case that the workers' gains have come at the expense of bankers and bondholders who had the bad judgment, or the bad luck, to lend money to these companies. It is the job of the bankruptcy court to ensure that these financial creditors receive at least as much from any restructuring plan as they would have from a long and messy liquidation — and they will. But there is nothing in the bankruptcy law, or the common law, requiring a government volunteering to finance a bankruptcy restructuring to divide its largess evenly or fairly between bondholders and assembly line workers. That is a political choice that properly rests with the government.

As it has been up to this point, the Obama administration's role going forward is to be ruthless about the restructuring of these once-great American companies, so they can emerge from the recession profitable and competitive.

The administration also needs to offer a credible exit strategy, including a timetable for privately refinancing the government loans and floating a secondary stock offering to take out the government's equity investments.

It would be great if taxpayers could profit from their auto investments, but more important is ending this incursion into the private sector as quickly as possible. If President Barack Obama can get most of our troops out of Iraq by the end of 2010, he ought to be able to get our money out of Detroit by then.

Auto industry makeover is ruthless, but goals are clear 06/07/09 [Last modified: Sunday, June 7, 2009 4:30am]

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