George Will sarcastically notes that the fuel-efficient-car-of-tomorrow boosterism is moot now that gas is cheap again:

The two best-selling vehicles in America this year are large pickup trucks (Ford F-Series and Chevy Silverado). In February, Toyota sold 13,600 Tundra and Tacoma pickups and 7,232 Priuses. It sells the Prius at a loss, which it can afford to do because it makes pots of money selling pickups. Has the Car Designer in Chief, a.k.a. the president, considered the possibility that what he calls “the cars of tomorrow” will forever be that?

The American car-buyer likes big cars, regardless of fuel-efficiency. If the president wants Americans to move away from gas profligacy—a position that seems to be politically popular—he might suggest raising the Federal gas tax to make fuel efficient cars more financially attractive. Though I think this is a wise idea eventually (raising taxes right now in a recession is unwise), I still hold that a Congress bowing to popular will (as it typically should) will handily defeat any such proposal.

The public may agree with statements that the country is too dependent on oil, but its behavior suggests the complete opposite.  The Obama energy agenda may not be as popular as he might think.

It’s official.  The White House now picks winners.

After the Senate failed to agree to auto bailout legislation, President Bush today announced that the Treasury will lend $17.4 billion to GM and Chrysler (two will likely merge) to prevent their imminent collapse.  Though their collapse would have disastrous economic consequences in certain rustbelt states, the action marks yet another step in the unwitting construction of a national industrial policy.

Though the loans’ terms require the companies to restructure their operations drastically, the public should remain skeptical.  If politicians employ the specter of increased joblessness to justify such an unprecedented level of Federal intervention, these same reasons can be used to modify these loan terms to preclude substantive restructuring.  Any decent analysis of the auto industry will conclude that GM and Chrysler, in order to survive, must make several politically unpopular steps: they must lay-off employees right away to reduce production to meet lowered demand, they must produce cars people actually want to buy, and they must cut the wages and benefits of their new-hires and those of their  long-time employees and those of their retirees.

Now that public money is put at risk to assist two poorly run companies restructure, many will view this public investment as an excuse to demand the automakers not make the necessary job, pay and benefit cuts.  After all, why should laid-off employees pay taxes to fund their own layoffs?

What a shame that the Administration in its decision to pick winners has picked two losers.

Here are three varying takes on the potential GM bailout.

On the Left, Jeffrey Sachs believes the Detroit automakers are indispensable employers in several rustbelt states whose economic decline would severely damage the rest of the national economy.  He fails to explain why this is or how Michigan, in economic decline for many years, didn’t manage to bring down the entire national economy with it.

Sachs also claims that there is huge global growth in auto purchases, but somehow assumes that foreigners, like Americans, would be reluctant to purchase vehicles from a bankruptcy-protected company.  That remains to be seen.

Sachs also partly absolves Detroit from the blame of the decades of mismanagement:

Some want to see the industry punished for its neglect of energy and environmental realities, but we should acknowledge that the SUV era reflected poor judgment across society. Yes, the industry ignored warnings about energy insecurity and climate, but so did the public and politicians.

Curiously absent from Sachs’s article is any mention of Toyota and Honda, two companies that invested in and started producing low-emissions and hybrid vehicles even when gas was significantly cheaper.  One wonders why GM, Ford, and Chrysler didn’t do the same.  Perhaps a lack of vision even when the increase of oil consumption was clearly outpacing the increase in supply?  One cannot so easily blame Detroit’s decline on “the system” when both Toyota and Honda are a part of the same system and not flirting with bankruptcy.

What is Sachs’s motive?  He seems intent on nationalizing Detroit automakers as a means of promoting various pet projects such a fuel cell cars, a new technology GM is within two years of producing—so they say.  If such a great revolution is within short reach, certainly there are private investors willing loan the company money for fuel cell vehicle production.  However, many doubt GM’s claims on the fuel cell Volt and Sachs wishes the government to act as an investment house for ideas that, if they were good on their own merits, could easily fetch private investment without the help of the Treasury.

Sachs mentions nary a word on the political realities the government money in any bailout.  Such funds would inevitably be directed to over-employ and over-pay people in politically powerful districts to produce cars that simply won’t sell.  State capitalism is not capitalism as any investment will inevitably be held hostage to various vocal political constituencies.

The Washington Post’s center-right economist Robert Samuelson lukewarmly advocates a bailout.  He asserts that a bankruptcy, even under Chapter 11, will damage the economy (again, unexplained).  However he also asserts that any bailout must not suit political goals (as Sachs would prefer).  Samuelson writes,

But neither does it make sense simply to heave taxpayers’ money at automakers. The goal is not to rescue the companies or workers; it’s to shore up the economy and improve the U.S. industry’s competitiveness. A bailout won’t succeed unless other things also happen.

He lists three things that must be done in order to make a bailout worthwhile to the taxpayers:

1. GM must shutter plants it does not need.
2. Workers’ lavish pay, benefits and pensions must be renegotiated to compete with other automakers.
3. The government must mandate lower fuel consumption, either through mandated increases in efficiency or through hikes in gas taxes.

But the devil is in the details, Mr. Samuelson.  How exactly does Samuelson expect the a recipient of public funds to lay-off thousands of taxpayers?  GM will find it hard to make business decisions that hurt separate communities when their public investment itself was premised on saving “the economy.”  If you’re in a town whose GM plant is about to close, surely you’d think that the closure is not saving your economy.

Furthermore, just as the Bush administration retained close ties to its corporate backers, the Democrats now coming into power will remember who funded their ascent: Big Labor.  Samuelson quotes the UAW President as saying that a bailout is necessary “so that auto companies can meet their health-care obligations to more than 780,000 retirees and dependents.”

At least the UAW is honest in its assessment of GM.  General Motors is an HMO that, by the way, just so happens to produce a few automobiles on the side.

Finally, government mandates for higher fuel efficiency have always met strong opposition from both Detroit’s auto executive and the UAW, the latter fearing that such standards will put their members out of work.  It’s unlikely the UAW is suddenly going to drop its opposition in the name of the public interest.

On the Right, NYU Law School professor Michael Levine, a former airline chief (probably familiar with bankruptcy!), makes a compelling case that Chapter 11 is the most thorough way to free the company from various laws and labor agreements that have served to increase the industry’s employment while diminishing the industry’s efficiency.  The obstacles GM faces are intimidating and better overcome through bankruptcy protection than through political goodwill, which, let’s face it, often favors sound-byte populism to sound macroeconomics.

Levine lists several of the challenges:

GM has about 7,000 dealers. Toyota has fewer than 1,500. Honda has about 1,000. These fewer and larger dealers are better able to advertise, stock and service the cars they sell. GM knows it needs fewer brands and dealers, but the dealers are protected from termination by state laws. This makes eliminating them and the brands they sell very expensive. It would cost GM billions of dollars and many years to reduce the number of dealers it has to a number near Toyota’s.

Foreign-owned manufacturers who build cars with American workers pay wages similar to GM’s. But their expenses for benefits are a fraction of GM’s. GM is contractually required to support thousands of workers in the UAW’s “Jobs Bank” program, which guarantees nearly full wages and benefits for workers who lose their jobs due to automation or plant closure. It supports more retirees than current workers. It owns or leases enormous amounts of property for facilities it’s not using and probably will never use again, and is obliged to support revenue bonds for municipalities that issued them to build these facilities.

The political pressure to resist any change to this stifling system is too powerful and will inevitably ruin the solvency of any nationalized (and thus politicized) automaker.  If GM were to receive government money, what’s to stop it from demanding even more cash six months later?  Twelve months later? Two years later?

•••

Lots of people see GM and project onto it different ideals.  Some see a social service provider obligated to provide what the state does not and never did.  Others see it as an environmental and geopolitical silver bullet to reduce environmental strain and reduce the power of oil dictators.  Others see it nostalgically as a symbol of American manufacturing prowess.

A bankruptcy judge is best positioned to see GM in a different view—not GM as cradle-to-grave patriarch, not GM as Jonas Salk of the skies, not GM as Winston Churchill of oil politics, and not GM as Neil Armstrong.  A bankruptcy judge is best suited to view GM in a new light, i.e. as a car company.

My arguments against a Detroit bailout have finally coalesced into a cohesive letter to my Congressional delegation.