Bailout Roulette -- The Auto Industry's Last Chance for a Rescue.

Saturday, December 13, 2008

CONGRESS FAILED to rescue the U.S. auto industry. In the Senate, the industry's stakeholders agreed to several conditions designed to win over skeptical Republicans who had enough votes to block a bill. But the deal-breaker, it appears, was a Republican demand that the United Auto Workers guarantee wage and benefit parity with nonunion plants by the end of 2009. UAW workers would still be reasonably well paid, whereas they'll be out of jobs altogether if the companies go bust.

But, even though UAW President Ronald A. Gettelfinger had swallowed other concessions, he balked at this one. No surprise there: Not many union leaders would cheerfully trade away the advantage their dues-paying constituents enjoy over everyone else. While some Senate Republicans sought sacrifices from labor in good faith, others sought payback for a union that has few members in their states but spends tons of money and effort electing Democrats nationwide. Whoever's at fault, the bottom line is the same: Without a quick infusion of cash from somewhere, General Motors and Chrysler might have to declare bankruptcy within a few days.

Reluctantly, President Bush yesterday signaled his willingness to dip into the last remaining billions in the Treasury Department's Troubled Asset Relief Program (TARP). Given his previous opposition to spending TARP money outside the financial sector, for which it was intended, this is a tremendous concession. Democrats had been urging him to do this for weeks, and some might say that his change of course shows that the past few weeks of haggling in Congress were just so much wasted effort.

Actually, though, Mr. Bush was right to resist as long as he could. There is a distinction between bailing out selected industries and propping up the financial infrastructure upon which the entire economy depends. The only justification for breaking this rule is to remove a unique systemic risk such as that posed by the collapse of the auto industry.

Furthermore, the debate in Congress has been useful. What began with vague and somewhat peremptory demands from the

automakers turned into a serious discussion of the industry's future, and, ultimately, a consensus that government should aid

Detroit, but only if it agrees to reforms that give it a chance at long-term viability. The companies and the UAW have agreed in principle to most of it: further downsizing; a "haircut" for bondholders; concessions from the UAW; strong protections for taxpayers. Presumably, the administration understands that as well, and it will craft its conditions accordingly.

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