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Miami Herald Editorial

Propping up a failing industry

While all eyes have been focused on the legislative drama over the $700-billion economic rescue package, Congress last week quietly slipped a $25-billion subsidy to the U.S. auto industry. As if that weren't bad enough, Michigan Democratic Sen. Carl Levin, Detroit's chief promoter in Congress, vowed to begin work soon on obtaining another $25-billion in loans for 2009 and 2010.

Where will it end, or will it? Ever since Congress gave Chrysler a loan guarantee to keep the failing carmaker alive nearly 30 years ago, U.S. car manufacturers have looked to Washington to save the industry whenever it is in trouble. The new subsidy sends a message that Detroit's CEOs will never have to face the consequences of their appalling mismanagement because Congress will always be there with a handout.

Compared to the big economic bailout, the $25-billion loan guarantee sounds like peanuts, but this is a sweet deal even by Washington standards. The carmakers get up to 25 years to repay the loans. Because they have poor credit, they would save more than $100-million per $1-billion borrowed in lending costs, and they can also ask the Energy Department to defer repayment for up to five years.

Even if the loan is ultimately repaid, taxpayers will get stuck with a $7.5-billion bill to cover the costs of the loans, including the risk of default.

There is no doubt that the U.S. auto industry is hurting. GM and Ford lost nearly $25-billion in the second quarter alone. Along with Chrysler, they're cutting the work force, slashing spending and shutting down production plants. In an election year, it is no surprise that both Sens. John McCain and Barack Obama endorsed the loan and that it sailed through Congress.

But that doesn't make it right. U.S. carmakers have run their industry into a ditch because they spent their time and money lobbying against fuel-efficiency standards while Japanese carmakers had a better idea.

Instead of fixating on short-term profits, they looked down the road and began producing cars with better mileage. With that, they've managed to capture a dominant share of the U.S. market. In 2020, federal standards will force automakers to achieve an average of 35 miles per gallon, which is why Detroit is scrambling to make the transition from gas-guzzlers to gas-savers. Meanwhile, Honda's domestic fleet rates at 33.5 mpg today.

If U.S. carmakers can't compete, they have no one to blame but themselves. They have to make better decisions and focus on the future, not just on making a fast buck if they want to survive. Ultimately, only the auto industry — not taxpayers, not the government — can save the auto industry.

Propping up a failing industry 10/05/08 [Last modified: Monday, October 6, 2008 2:12pm]
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