Next Bailout May Be for Automakers

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The New York Sun

WASHINGTON — The beneficiary of the next government bailout may not be Wall Street but Motor City.

The nation’s top car manufacturers are pushing Congress to act by the end of this month to guarantee $25 billion in loans to help them invest in the production of fuel-efficient vehicles. The idea is being greeted warmly by both the Democratic and Republican presidential candidates, who see it as a way to win votes in the swing state of Michigan while also moving America away from dependence on foreign oil.

Backers of the legislation, which include the Democratic leadership in Congress, say it would give a needed boost to a struggling industry and save American manufacturing jobs. But critics have panned it as a taxpayer-funded rescue plan for automakers who have lost out to foreign competitors in the race to build cleaner, more efficient cars.

“It boils down to a bailout of the Big Three,” a senior fellow at the Heritage Foundation, James Gattuso, said, referring to the ailing American firms, General Motors, Ford, and Chrysler. “It is a direct subsidy to car makers.”

Congress authorized the loan guarantee as part of a broader energy bill in December, but the money was never appropriated. Now, as lawmakers return to Capitol Hill for an abbreviated session, industry executives are lobbying intensely for Congress to dole out the funds before leaving town for the year at month’s end.

Electoral politics and the recent willingness of the federal government to aid teetering financial firms have come into play, analysts and congressional sources said. “We know the auto industry feels somewhat emboldened to come to Washington and ask for subsidies,” the associate director of the Cato Institute’s Center for Trade Policy Studies, Daniel Ikenson, said.

Industry officials insist they are not trying to take advantage of a more interventionist Bush administration, but they are nonetheless pushing for approval of the funding by September 30. “This is something that Congress determined was a good thing nearly a year ago, before the current market and financial crisis,” a spokesman for General Motors, Greg Martin, said.

Supporters of the bill acknowledge, though, that the timing is key, with Democrats looking to ingratiate themselves with voters in Rust Belt states like Michigan and Ohio, where thousands of auto industry jobs could be at stake.

The automakers “realize their best shot at getting the money is pre-election. Can’t say they’re wrong,” said Bill Wicker, a spokesman for the Senate Energy and National Resources Committee, whose Democratic chairman, Jeff Bingaman of New Mexico, supports the loan guarantee.

The federal loan guarantee is needed, supporters say, because mounting losses by the nation’s top automakers have made it difficult if not impossible for them to access private credit markets. The cost to the taxpayer, according to a revised estimate by the Congressional Budget Office, would be $7.5 billion.

The automakers are seeking $25 billion in loans after dropping their public bid for $50 billion, although they are said to be privately pushing for the higher figure.

Executives have said the money would be used to manufacture more hybrid, electric, and other alternative energy source-based car models. After years of marketing gas-guzzling sport utility vehicles, American car companies have been slow to respond to the increased demand for more efficient vehicles that has been spurred in large measure by rising gas prices.

The push comes also as car sales have declined worldwide and particularly in America, where domestic sales are on pace to fall by 10% in 2008, according to a recent report.

The loan will help “to get more efficient and more clean vehicles on the road quicker,” Mr. Martin of GM said, adding that the company wants to do its part to meet goals for reducing the nation’s carbon footprint and achieving independence from foreign oil. “It would be an important incentive both for the country and the industry to meet these energy goals,” he said.

Other analysts blamed the struggles of American automakers on the move toward increased industry regulation, arguing that companies would not need federally backed loans if fuel-efficiency requirements were loosened. “A huge amount of the auto industry’s misery can be laid at the feet of Congress, but I don’t think that’s the reason to spend heavily to fix the problem,” a regulatory analyst and the general counsel of the Competitive Enterprise Institute, Sam Kazman, said.

A senior fellow at the Heritage Foundation, J.D. Foster, said the companies themselves were to blame for their predicament. “If they’ve had trouble getting access to credit markets, it’s because of mistakes they’ve made in the past,” he said. “They need to get their own act together and not rely on the taxpayers.”

Lawmakers have yet to decide which of several bills that are set for debate in the next two weeks will include the loan guarantee. Democrats have considered it as part of a second economic stimulus package they are proposing, and Mr. Bingaman is preparing to insert it into a separate energy bill he is drafting. But with neither of those options guaranteed to gain passage in the Senate, lawmakers may also put in a mandatory bill, or continuing resolution, to fund the government through the election. “Whatever has the best chance of passing is where we would want it to be,” Mr. Martin said.

The White House has been noncommittal about the loan. “Obviously, we want to be very, very careful about the government’s role with private enterprise out there,” a spokesman, Tony Fratto, told reporters last week. “There are lots of industries that are dealing with challenging economic conditions, and it’s always important to be very cautious about the federal government’s role.”

The issue has reverberated in the presidential campaign. The Democratic nominee, Senator Obama, supports the full $50 billion loan guarantee, while the Republican nominee, Senator McCain, signaled last month that he would agree to unspecified federal backing after earlier warning against “predicting failure” for the Big Three automakers. In an op-ed in the Detroit Free Press last month, Mr. McCain noted that the major car manufacturers were having trouble accessing credit for large investments in new technology. “In these same circumstances, Washington has stepped in to help Wall Street. We should be prepared to offer similar assistance to our automakers,” he wrote.

The New York Sun

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