“Today’s announcement of major job losses and findings from Congressional hearings from the last two days make it clear that Congress must work to provide short-term and limited assistance to the automobile industry,” said a resigned Pelosi. Her surrender was no doubt cushioned by the fact that not all of the DOE’s $25 billion fund would go to the Detroit Three. Pelosi has been adamant that some of the money also assist struggling San Jose startups like Tesla Motors, which has applied for a $400 million government loan to help in production of its battery-powered sedan.
Assuming both houses pass the $15 billion band-aid (not a given), the question remains whether the Detroit Three are viable companies in the long term. Republican senators like Robert Corker of Tennessee, home to non-union Japanese plants, insist that any relief package contain bankruptcy-like provisions that would force the Detroit Three to make aggressive labor and debt reforms. “Based on the outline we have seen so far, we are disappointed,” said Corker.
While acknowledging the difficulty of bankruptcy for an industry with “a franchise and warranty nature,” economist Anderson echoes Corker’s concern (PDF available here).
In return for the federal money, automakers will have to give the government stock warrants and proof of cost-cutting — including eliminating brands, limiting executive compensation, and banning dividend payments. But gutting the United Auto Workers’ notorious work rule and pay contracts to put the companies on an even playing field with non-union Japanese transplants is less likely.
Anderson writes that automakers, “with a significant restructuring, could become quite profitable companies producing a smaller set of vehicles through a streamlined dealer network.”
But without concessions from organized labor, it is doubtful that any significant restructuring can occur.
– Henry Payne is an editorial writer and cartoonist with the Detroit News.