Auto Industry Bailout — Patty Murray Responds

After writing the No Auto Industry Bailout post, I attempted to contact my Senators and Congressman through their website contact forms (Senator Cantwell’s contact form was broken and would not accept my submission), giving them my opinion that government funds should only be used to facilitate simultaneous Chapter 11 bankruptcy for the Big Three.

This morning, Sen. Murray responded:

Dear Mr. Lovely:

Thank you for writing me regarding the possibility of federal loans being granted to certain automobile companies. I appreciate hearing from you about this important issue.

As you know, three American automobile companies, General Motors (GM), Ford, and Chrysler, have recently asked the federal government to provide them loans to help them through the current credit crisis. It is projected that without federal loans, each company will be in danger of failing in the near future. Like you, I am frustrated that management at these companies have allowed their finances to deteriorate to this point, and are now requesting taxpayer assistance.

Whether or not to grant federal loans to GM, Ford, and Chrysler is a difficult question. Millions of Americans are employed directly or indirectly by these companies and their related businesses, such as auto parts manufacturers and dealerships. If these Americans were to lose their jobs due to their employer’s bankruptcy, it would have a devastating impact on the financial stability of millions of families at a time when many people are already struggling to pay their bills. However, using taxpayer dollars to support struggling businesses is seen by some as inappropriate government intervention in the private sector.

I want the auto industry to remain viable and continue to support the millions of jobs around the country which depend on its success. However, I cannot support providing funds without assurances that the automakers have a strategy to restructure and become viable, competitive companies. The auto industry cannot continue to follow a failed business model and then ask for help. I will need to be convinced that the loans will not only save jobs, but that industry leaders will take restructuring seriously and work to reinvigorate their industry. If the federal government- funded by working and taxpaying families- is expected to explore financial aid to these corporations, then I expect to hear about sacrifices that industry management will make during these tough times. Thank you for sharing your views with me about this important issue, and I will keep your comments in mind. Please do not hesitate to contact me again in the future.

I hope all is well in Seattle.

Credit to Sen. Murray and her staff for replying in an at least semi-responsive manner, and for her antipathy toward a conditions-free bailout. Nevertheless, she does not respond to the question of bankruptcy reorganization but rather puts all the blame on the companies’ management for “following a failed business model.”

Granted their business model has failed, but that is in large part because of their legacy costs and over-generous union contracts. Management by itself can only sacrifice so much — as one commenter elsewhere pointed out, even $100 million in egregious management salaries would cover the pre-tax losses on only a hundred thousand cars (<1% of production). Without addressing the union or the dealers either by fiat or by bankruptcy, no amount of management “restructuring” will make any significant difference to the Big Three’s impending collapse.

Unstated in my previous post was this: even if the Big Three undergo bankruptcy restructuring and come out with everything on the wish list, there’s no way the bankruptcy court can make them design better cars that Americans will want to buy. The best that can happen is to make them viable and hope they get a clue. Failing that, they should disappear.

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