NCPA - National Center for Policy Analysis


November 10, 2008

For decades, Congress has never had a second thought as it imposed tighter emissions standards on GM, Ford and Chrysler, denouncing them for making evil SUVs.  Yet now that the companies are bleeding cash, and may be heading for bankruptcy, suddenly the shrinking Big Three are the latest candidates for a taxpayer bailout, notes the Wall Street Journal.

One $25 billion loan facility has already been signed into law, and Senator Debbie Stabenow (D-Mich.) wants another $25 billion, this time with no strings attached.  Why President Bush and Treasury Secretary Henry Paulson should just say no:

  • A bailout might avoid any near-term bankruptcy filing, but it won't address Detroit's fundamental problems of making cars that Americans won't buy and labor contracts that are too rich and inflexible to make them competitive.
  • As Paul Ingrassia notes, Detroit's costs are far too high for their market share.
  • While GM has spent billions of dollars on labor buyouts in recent years, they are still forced by federal mileage standards to churn out small cars that make little or no profit at plants organized by the United Auto Workers.

Rest assured that the politicians don't want to do a thing about those labor contracts or mileage standards.  House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid recommend such "taxpayer protections" as "limits on executive compensation and equity stakes" that would dilute shareholders.  But they never mention the UAW contracts that have done so much to put Detroit on the road to ruin.  In fact, the main point of any taxpayer rescue seems to be to postpone a day of reckoning on those contracts, says the Journal.

If our politicians can't avoid throwing taxpayer cash at Detroit, then they should at least do so in a way that really protects taxpayers. That means handing a receiver the power to replace current management, zero out current shareholders, and especially to rewrite labor and other contracts. Anything less is merely a payoff to Michigan politicians and their union allies, says the Journal.

Source: Editorial, "Nationalizing Detroit," Wall Street Journal, November 10, 2008.

For text: 


Browse more articles on Economic Issues