As Obama has made clear, bailing out the auto industry is a key priority in his economic recovery agenda. There’s already $25 billion in low-cost loans approved for Detroit, but that money is tagged specifically to help the industry retool to meet higher fuel-efficiency standards. So Democrats have been pushing the White House to tap the $700 billion bailout package for more.
The case for some sort of bailout is strong: GM may not have enough cash to make it through next year, and Chrysler may be running out of cash as well. Too many jobs rely on the auto industry, and the psychological impact of losing one of the Big Three to bankruptcy would have a real effect on economic confidence. But that doesn’t mean we should just peel off a chunk of the bailout to cover them. First, the public is already unhappy over the way the original bailout was handled, and today’s news about another handout to A.I.G. won’t help. The $700 billion was intended for the financial sector; expanding beyond that risks a public backlash at a time when Washington needs broad support for more spending. And what’s to stop other industries from begging for a piece of the bailout? Moreover, any auto-industry bailout needs to be tailored as a reconstruction of the industry: Detroit has too much capacity, it has huge labor legacy costs, and it is still too oriented toward producing gas-guzzling super-cars. There is an opportunity here for the U.S. auto industry to refashion itself as a producer of highly fuel-efficient cars and trucks, but to do so while struggling with its enormous financial onus requires government assistance.
Obama should call for a separate bailout package for the auto industry. If the case is so strong, then it should be able to stand up to Congressional scrutiny. Fortunately, in this instance “deliberate” and “haste” are not equal imperatives: Unlike the banks circa late September, Detroit won’t implode tomorrow. We now have the time to slow down and have a debate--not just about keeping Detroit afloat, but making sure it doesn’t need another bailout down the road.
--Clay Risen