Much has changed in the two weeks since the chief executives of America's Big Three automakers flew into Washington on their corporate jets with hats in hand for a taxpayer bailout.
First, they were smart enough to drive hybrids this time. Second, their requests have jumped to $34-billion and reflect that the state of America's auto industry is getting more desperate by the day. And most important, the industry and its unions are finally acknowledging the steps they need to take to reduce costs and regain ground from foreign manufacturers. The auto bailout is still a tough sell, but the case is stronger now and the consequences of doing nothing are even more serious in this deep economic recession.
At Thursday's hearing before the Senate Banking Committee, both auto executives and senators seemed better aware of the stakes. Sen. Charles Schumer, D-N.Y., summed them up plainly: No one is going to buy a car from an automaker going bankrupt, and America needs a manufacturing base.
The industry and the United Automobile Workers union have used the past month wisely. The carmakers put forward detailed schedules for using the money and retooling their businesses. General Motors, which seeks up to $18-billion in federal loans, said it would reduce jobs and brand lines and close factories. Chrysler, which seeks $7-billion, said it would pursue more fuel-efficient models. Both promised to begin repaying any loans by 2012. Ford said it had changed its business model to move away from gas-guzzling trucks and SUVs. While it did not ask for immediate assistance, Ford asked for $9-billion in revolving credit. The automakers also said they were restructuring billions of dollars in outstanding debt and structural costs to improve their cash flows. The numbers remain staggering, but against the backdrop of the broader economic problems they are not indefensible.
The concessions offered this week by the unions also are important. The UAW said it would consider a reduction in wages and benefits, which run a third or more above what some Japanese manufacturers pay. It offered to suspend a jobs-bank that pays laid-off workers nearly full salary, and to relieve the Big Three of billions of dollars in payments to a new employee health-care trust fund scheduled to begin next year. The UAW, whose membership has dropped almost two-thirds due to plant closings and buyouts, may have finally realized that giving ground to save some good jobs is better than no jobs at all.
To be sure, the loans carry enormous risks. One economist testified Thursday that the $34-billion could be only the first wave of public assistance for the automakers. But the nation's economy cannot absorb the impact of the failure of the industry. It also is clear that the psychology has changed in Detroit. The leaders of the Big Three not only embraced the idea Thursday of an oversight board to manage the loans, but they spent much of their time before the Senate committee explaining how to make that process meaningful and transparent. That spirit should carry through today's hearing at the House Financial Services Committee, and Congress should focus on the strict conditions for obtaining the loans and what taxpayers should expect from the automakers in return.