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Pearlstein: Federal Loans for the Auto Industry?

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Steven Pearlstein
Washington Post Columnist
Wednesday, September 3, 2008; 11:00 AM

Washington Post columnist Steven Pearlstein was online Wednesday, Sept. 3 at 11 a.m. ET to discuss whether federal loans to help the auto companies retool themselves to build more fuel efficient cars are a good idea - or is this just another form of a bailout?

This Story

Read today's column: A Road to a Bailout They Don't Deserve.

A transcript follows.

About Pearlstein: Steven Pearlstein writes about business and the economy for The Washington Post. His journalism career includes editing roles at The Post and Inc. magazine. He was founding publisher and editor of The Boston Observer, a monthly journal of liberal opinion. He got his start in journalism reporting for two New Hampshire newspapers -- the Concord Monitor and the Foster's Daily Democrat. Pearlstein has also worked as a television news reporter and a congressional staffer.

Pearlstein was honored with the Pulitzer Prize for commentary for his columns about mounting problems in the financial markets. His award was one of six Pulitzer Prizes won by The Washington Post this year.

Read Pearlstein's latest columns.

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Hughesville, Md.: A bailout, why not? Only I have one stipulation, let the worthless executives that got record bonuses for promoting their gas guzzlers while reducing or eliminating research into higher mileage vehicles help pay for this. Won't happen of course. Another painful lesson for American business.

Steven Pearlstein: Not sure the auto executives have been taking piggy bonuses of late. For one thing, it would have caused too much trouble with the UAW, with which they were trying to negotiate massive layoffs and a two-tier wage system.

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College Park, Md.: I would like to know the track record here in the US and elsewhere.

Who is involved? Japan? Germany? Canada? the US?

In any industries similar to the auto industry?

Can you tell us where government funded R&D has helped an industry succeed and where it has not? In which industries does government assisted R&D succeed and in which does it not? Why?

Thanks.

Steven Pearlstein: I'm no expert on this, although you have one there in college park, Prof. Peter Morici at the Smith School of business. Government's aren't very good at picking winning and losing technologies, but I think the general consensus is that government can stimulate early stage research pretty successfully. And at a time when companies may be capital constrained, the provision of low-cost government loans can be useful in later stage development that is capital intensive, as we are dealing with here. The trick in the latter case, it seems to me, is to make sure the company has plenty of skin in the game so that it has a very high prospect of success once the investments are made.

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Danvers, Mass.: Perhaps another thing the government could require for the $50 billion would be that the companies develop and sell electric trolley systems in urban areas? I mean, at least one of these companies stands convicted of conspiring to monopolize part of that business, and along with co-conspirators acted to eliminate urban transport as competition for their cars and buses.

Steven Pearlstein: John, I love you man but this is one idea that has been proven to be a bad one time and time again. Remember Boeing's foray into light rail? On this one, I'd say the Europeans have a big lead and if they want to come to the US and open up a factory, that would be great, particularly if the government could step up to the plate and increasing funding for transit infrastructure, which is a very good way to lower energy demand.

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Rockville, Md.: Steven,

Let's assume the Big Three will get some money. Do you see an independent qualified body that can oversee the use of these money to ensure the industry uses it to return to competitive state in the long run rather that to satisfy short-term goals. It looks like delegating such oversight to the current major stakeholders (management, banks, financial wizards, etc.) will ensure the short-tern goals will prevail, and the situation will be repeated in a few years.

Steven Pearlstein: I don't think you want to turn this into a regulated industry. But you can write in covenants to the loan that make it clear that the company's first obligation is to get itself in shape to produce fuel efficient cars, and its second obligation is to pay back the loan before doing things to please shareholders (stock buybacks, for example) or workers (big pay raises).

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Alexandria, Va.: Instead of a straight bailout, how about a bailout requiring a consolidation. It's clear that we don't need 3 large automakers, why doesn't the government say "We'll bail you out if you merge 3 into 2. Work out the details amongst yourselves."?

Steven Pearlstein: You are probably right that consolidation is necessary to reduce capacity from its bubble high of 17 million vehicles a year, and to gain further scale economies. But our market is pretty good at doing mergers on its own, what with Wall Street investment bankers always pushing fee-making deals. I don't think the government's hand is necessary in that one.

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Well, this is what we do: Here in America, one of the things we do is "lend" taxpayer money to failing enterprises. Whether it's funding something Detroit should have been doing for the last thirty years, or paying for people to keep living below sea level, there's too much charity in our hearts to tell people "It's over."

Steven Pearlstein: I agree with your sentiment, particularly as it relates to flood insurance. But when you look at other industrialized countries, our record on not bailing out losers is actually the best in breed. We do it sparingly. If this were happening at another time, I would probably say, let them run through bankruptcy reorganization. But in our current predicament, the risk of financial and economic contaigion are very high. We need to accept the consequences of our living beyond our means, we need, as a country, to reduce our standard of living to a level consistent with what we produce, but you want to do that in an orderly way. A crash of the Big Three right now would not be orderly.

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Clifton, Va.: How's about giving GM and Ford the same deal from the U.S. government that Honda and Toyota got from their government who subsidized the development of hybrid technology in Japan.And I dont see the Ford and GM getting any deals to build plants from the states that include lower taxes etc that Toyota, Nissan, Honda, Mercedes and BMW all got when they built plants.

And forget Cereberus/Chrysler their management is destroying the company with cost cutting that effect the quality of the product.

Porsche/VW, Daimler Benz and BMW all get aid in tax breaks etc from their govt and have been for 60 years.

What GM and Ford should do is file Chap 11 and dump the pensions of their retirees on the US govt and the drop the retiree health care and dump all their union contracts. Then maybe autoworkers in the US will earn a wage that is equal to their real world skill set which would max out for 98% of the UAW at about $20.

Steven Pearlstein: The reason Ford and GM don't get deals from states is that they are generally in the process of reducing the number of plants, not adding them, consistent with their shrinking market share; and, secondly, their UAW contracts make them lousy candidates for subsidy, since economically conservative people will argue that it is wrong to tax people who make market wages in order to subsidize people who, by virtue of their union clout, have been able to negotiate wages well above the prevailing market.

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St. Mary's City, Md.: I had understood that American car makers had a misplaced focus on expanding market share instead of profitability. Is that accurate? It may explain why they keep introducing new models and retiring popular ones.

Also, would you favor consumer tax credits for fuel-efficient cars as an alternative to paying the makers to retool? I admit to being cynical about the retooling proposal - I don't trust the car makers not to divert the money for other things.

Steven Pearlstein: I think we can prevent diversion, although to the degree that the companies had set aside money for these projects, that money could now be available for other things. That's probably not the big risk.

And while it is true that the Big Three focused too much on market share at the expense of profitability, we need not to be too facile about that: because the auto production business is so capital intensive, scale and profitability are not unrelated.

The big problem with the Big Three, I'd venture to say, is not that they kept putting the interests of the shareholders ahead of everyone else. The bigger problem is one of competence -- they failed to come up with great cars and great marketing. That, plus uncompetitive wage and benefit structures, can pretty much explain the hole they are now in.

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Salt Lake City, Utah: Great column today, Steve. There are some very fundamental problems underlying our economy which are pushing it to it's limits of survival. The role of the federal government in creating and supporting these problems is key to their existence. Exhibit A: The article in the Washington Post on August 21, 2008 by David Cho titled "A Few Speculators Dominate Vast Market for Oil Trading" explains how, after continual denial, the Commodity Futures Trading Commission recently admitted that it had discovered that the world markets for crude oil are dominated by only a handful of firms, whose trading clearly controls the price of oil! The CFTC allowed this to happen. Under the republican party mantra of "free markets," they have allowed a few to have the ability to make unimaginable amounts of money by controlling the lifeblood of our economy. You can be sure that it is not limited to just oil, but the other essential commodities as well. Only until this and other problems of the same nature are addressed and solved, will our economy have any chance of survival and prosperity. Our economy under the republican party leadership is rapidly transforming to the economy of Russia, where a handful of individuals control the wealth and resources at the expense of everyone else.

washingtonpost.com: A Few Speculators Dominate Vast Market for Oil Trading (David Cho, Aug. 21)

Steven Pearlstein: David Cho's article was an important one, I agree. More on this in a future column, I hope.

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Atlanta, Ga.: I couldn't disagree with you more. Everyone keeps saying: Oh, it's only $50 billion, what's the big deal, we need to do it or things will get worse, etc. STOP STOP STOP. The feds are NOT SUPPOSED to be doing this. Get out of our lives, stop taking our money, and leave the economy alone. So they go into bankruptcy. That's life. Stop the bailouts, they will never end. Every industry will keep asking and asking. Just like your teenager. Please - just $5 more...I need it for (whatever). We need to get the feds to spend less, NOT MORE. What is wrong with this picture? My goodness. Where is MY bailout? I mean, seriously, isn't that why people are voting for Obama? They think everyone else is getting stuff, they want theirs too? That's all he keeps promising (I'm going to take from everyone else, and give to you, because you deserve it as much as anyone else).

Jeez. Seriously. What about another bailout is a good thing?

Steven Pearlstein: It's hard to argue with you in principle. The reality, however, is that if you let so many big entities fail all at once, you get a real mess from which it could take years and years to recover.

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New York City, N.Y.: Steve,

I'm sure you're getting innundated with "bailout" comments, so let me comment on a related point that you note.

It disgusts me how politicans of both parties are groveling at the feet of GM and Ford, presumably, as you point out because of the importance of mid-west voters. I think our political system has run horribly amuck because politicians, seeking short term gains and votes will sacrifice almost all long term sensibility. This applies to both parties and every level of government.

After all, why bother trying to fix medicare and social security (which have $40+ TRILLION) in unfunded liabilities if it will cost you short term votes? Why bother doing away with the ludicrous municipal pensions if it will cost you the union votes? These problems can be pushed off until a later generation. I haven't heard Obama or McCain make any substantial comments about these subjects.

Maybe I'm just paranoid, but someone is going to have to pay the bill for Fannie, Freddie, GM, Bear Stearns and on a much larger scale, social security & medicare.

Thanks for keep us informed!!!

Steven Pearlstein: Let me say one thing: if we structure these "bailouts" carefully, and take useful but good risks, it is not clear that they need to cost the taxpayer anything in the long run. The one thing that all of these bailouts have in common is that they seek to inject capital or liquidity into a system where, temporarily, there is none, not necessarily because the use of it is uneconomic, but simply because capital markets have become irrationally fearful. That's a legitimate use of government money (a market failure).

The short-termism of politics is a big, endemic problem. We need a Perot-like candidate to shame the others, and while Ron Paul and others tried to serve that role, it didn't take sufficiently.

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Washington, D.C.: The Big 3 have shown time and time again that when they go hat in hand to the government they refuse to reinvest the aid. During the 70's with the voluntary export agreements with Japan. the $1,200 per car subsidy was invested by Toyota in developing better cars and the big 3 went on shopping sprees to "diversify" their portfolios.

The Big 3 have access to more fuel efficient technology NOW, they're selling it in europe and aisa. They just want to be paid to do what is in their own best interest.

Steven Pearlstein: Not sure you are right that they have fuel efficient cars all designed and tested and ready to go. Our safety standards are higher here than elsewhere. But even conceding that point, it does take a number of years to retool plants to make a new type of car, particularly those that use very different technologies to power the car. And it is to accelerate the production of those more advanced vehicles that these loans are geared.

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Washington, D.C.: Steven, I really like your idea that any technology coming out of the program should be shared. But given the current state of intellectual property rights and government rules on IP, how can this be done? Should there be an automatic patent pool, for example?

Steven Pearlstein: Yeah, something like that. There is already such an agreement among the Big three, which have received technology grants under programs dating to the Clinton administration. They formed a joint venture called US Car or something like that, and it morphed into something like Freedom Car under a subsequent Bush program. So there are mechanisms to do this, if the will is there.

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Maryland: Why should taxpayers put ever more money into a bankrupt transportation paradigm? Transportation based on large individual vehicles has so many negatives it hard to remember them all: cost, congestion, pollution, safety, moral and environmental consequences of securing energy supplies are a few that come to mind. Let's get past that paradigm and into transportation/land use paradigms that make sense.

Steven Pearlstein: Its a transportation paradigm you don't like, but its not clear that the majority of consumers agree with you.

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Troy, N.Y.: Nice column. Don't we already have a big mess that will take years to resolve? Why cannot a collapse of the domestic auto industry be part of it? (Other than Ohio's electoral college votes!) In Predictably Irrational, Dan Ariely told his nurses just pull the bandages off as fast as possible. Is a collapse or a bail-out closer to 'pulling the bandages off fast'?

Steven Pearlstein: Yes, but as I said, pulling off five bandages at the same time might put the patient into shock. By the way, for those of you who haven't read Dan Ariely's book, go and get it. Its a gem.

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Prescott, Ariz.: So sad. For the entirety of my adult life I have seen the big three fight mileage standards, health care reform, electric and hybrid R &D, fully funding pensions, etc. In short, they have fought every measure that would benefit them financially at this point. Now I am going to bail them out. we need some public humiliation for the executives. Hey, why don't the American people get stock in these companies, and others like Fannie and Freddie when we bail them out? If they got a bail out from the United Arab Emirates, the financiers of that bailout would get stock.

Steven Pearlstein: Gett repaid with interest, it seems to me, would be a fine enough outcome.

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Credit Junkie Street, Wash. D.C.:"It's hard to argue with you in principle. The reality, however, is that if you let so many big entities fail all at once, you get a real mess from which it could take years and years to recover."

That's right, Steven. And long-term sustainable growth is not as important as a quick credit fix to keep this glorious ponzi scheme rolling!

Steven Pearlstein: That's one view.

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Chicago, Ill.: Hey Steve, In your view should the government have any direct role in job creation or should it simply use the earned income taxed credit after the fact? If we are going to have the government be lender/creditor of last resort how about it being the employer of last resort? It strikes me as better than welfare or the status quo.

Steven Pearlstein: There are better ways for the government to stimulate employment, through the private sector, than becoming an employer of last resort. We don't do that so well.

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Leesburg, Va.: Since the oil embargo and gas lines of the mid 70's, the Big 3 have known what the future held. They ignored the warnings and continued to build, and market inappropriate vehicles to add to their bottom lines and their execs wallets. They have not wisely used their profits to research and develop fuel efficient vehicles or utilize alternative fuel sources. I find it amazing that once gas prices started soaring, the Big 3, almost immediately, have come out with smaller high mileage vehicles. Where were these vehicles 10 years ago? I am against any bailout of any company that has squandered money in a visionless manner. They have browbeat their loyal employees and denied them the retirement and health benefits they deserved. They had the money for retooling and research and development and put it in their greedy little wallets, along with these benefits. The arguement regarding their employees is not valid now that BMW, Toyota, Honda and even Kia have manufacturing plants in America. The employees can be hired by the Asian and European manufacturers that have kept pace with the realities of today's world and wisely spent their profits on research and development. I'm sure the Asian & European auto makers can make good use of the Big 3 factories, which they could buy at yard sale prices. Don't play the save the American company card. It no longer holds water when it is now a world economy and American maufacturing jobs have gone overseas. It is time the Big 3 got a little of what it has dished out. I have no sympathy for gnomes of Detroit.

Steven Pearlstein: I think if you read the column carefully, you'll see that I didn't play the save the American companies card. I consider BMW and Volkswagon to be very legitimate and important US manufacturing companies.

On the question of fuel efficient cars, in hindsight it is easy to say these guys were fools not to see it coming. But when oil was down at $10 a barrel only a few y ears ago, that was not so obvious. These things involve big investments with very long term payoffs, and if the companies had gone whole hog into fuel efficiency and left five years of SUV and truck profits on the table, I'm sure those managers would have met with a takeover challenge from critical investors. Life is complicated.

It might also be worth noting here that one reason Japanese and Korean companies had money to invest in new technology is that they operated in home markets protected from foreign competition. This is the Asian mercantilist model. And while the Big Three have probably made too big a deal of this in explaining their declining fortunes, it is a reality.

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Alexandria, Va.: Here's a comment to another reader's question regarding government investment in R & D. Just take look at the Defense Industry, we are pumping many billions of dollars into missile defense, stealth destroyers, tilt-rotor aircraft, and other wonderful toys while the Europeans are perfecting ways of truly weaning themselves off of foreign oil and gas. If one looks at our own record, President Bush just a year and a half ago was cutting the budget of NREL, the National Renewable Energy Lab. He flip flopped and restored its budget. NREL's budget is a tiny slice of the billions that are lavished on the defense industry. There are multi-million dollar energy related projects in defense that really should be under the aegis of energy. I'd love to see further reporting on this topic Steven.

Steven Pearlstein: Was not aware of that. Thanks.

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Limbo Contest:"But when you look at other industrialized countries, our record on not bailing out losers is actually the best in breed."

Why set the bar so high, Steven?

I like to compare our record to non-industrialized countries like Sudan. We really look good then.

Steven Pearlstein: Funny.

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Lefty from Princeton: We'll probably disagree on this, but there is a basic problem here that goes well beyond the auto industry although it is a good example. Executives of big corporations run them to maximize their return, and I mean return to the executives, not the stockholders. We must get back to the point where CEO's earn 50, not 500, times what workers do.

I think they way to do this is do have many more tax brackets with really high rates on the upper ones. Please do't tell me this will be bad for the economy. Look at 1946 - 1973, Sweden, Spain, etc., etc., etc. This could change the whole executive culture of the country back to a sane responsible one.

Steven Pearlstein: Its a separate debate, although I think you'd lose on that one too. But in terms of the Big Three auto companies, excessive executive compensation ranks pretty low on most expert's list of things the companies did wrong.

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New York: Are you going to address the farcical notion Japanese manufacturers with profitable plants in America will be legally eliglble to receive these loans, else there are profound WTO/GATT implications? Or are you going to continue to pretend to be a progressive all the while you tell us "just one more bailout please" of multibillion dollar corrupt enterprises?

Steven Pearlstein: The program is technically open to everyone, but it just has a priority for older plants. I suspect that would survive a WTO challenge but given the politics, foreign companies are unlikely to mount one.

Corrupt enterprise? Inept, maybe, but not corrupt.

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"You are probably right that consolidation is necessary ": But that assumes that the car companies know how to make economies of scale work for them. Based on the strange overlap of products among carmakers under the same umbrella, I'm skeptical of that knowledge.

Steven Pearlstein: Given the number of nameplates GM tried to maintain, and continues to maintain, I take your point.

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Concord, N.H.: How do the unregulated, free-market proponents square up advocating for unlimited profit potential dictated by market conditions, while that very model prevents failure in those same conditions?

And doesn't it also have the effect of stifling innovation? If bloated companies unable or unwilling to see the winds of change and move towards developing new technology are no longer financially viable, but are given the leg up to keep going, does that send a message change is unnecessary? Why risk developing anything new until the old fails and you are funded for your new ventures?

Steven Pearlstein: For just the reasons I outlined in today's column. In principle you are right. In practice, this might not be the right time to stand on principle.

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Franconia, VA: Hello Steven,

"Now the bill is coming due. The only thing left to be resolved is how it will be paid."

So, how will it be paid? Apparently by passing the buck onto the next couple generations so the generation in power (yours) can continue to live high off the hog.

I'd never expect the Boomers (aka Greediest Generation Ever) to take one for the team, and the "solution" to this problem will not surprise me.

God bless the United Socialist States of America!

Thanks.

Steven Pearlstein: Look, there are plenty of companies that have failed and you haven't heard me or others arguing for bailouts. We have let the steel industry die and be reborn, the textile industry die and move offshore, the shoe business die and move offshore, the furniture business die and move offshore until it just started returning, etc. etc. We've also allowed the Big Three market share go from virtually 100 percent to about 50 percent. So please don't overstate your point.

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Denver, Colo.: Something like this can't be short sighted. It has to be a combination of federal grants for research and development; financial assistance to build the cars at competitive prices; incentives to consumers to get on board; the building out of an infrastructure; and, finally, clear gov't mandates to get this done.

In addition, we have to look into the future with these things. I really believe the Pickens mantra that we are in a "bridge" stage. The technology isn't there and we have to have the guts to do a few goofy things until the (excuse the profanity) MARKET and or science makes a breakthrough.

Steven Pearlstein: I like the way you put it, doing a few goofy things. And the idea that we are in a transition stage in terms of energy seems intuitively correct.

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Great Falls, Va.: There's a good parallel in the American steel industry. About 10 years ago, it became evident that American steel companies could not compete with those abroad, for a variety of reasons ranging from enormous legacy costs to some deleterious effects of free trade. There was some clamor for a bailout, and that had some merit because steel is a necessary part of our national defense. Instead, we let the companies fail. And in my opinion, that decision has been a huge success. Many steel companies went into bankruptcy. Things looked bleak; they fired workers; they idled (if that's the right term) some plants. But look -- those companies simply couldn't keep those workers and those plants forever. Even with a government bailout, it was a question of when, not if, the companies downsized significantly.

As a result of the bankruptcy process, the steel companies shed debt and excess baggage and were usually sold. Players like Wilbur Ross gobbled up the steel companies, forming International Steel Group out of the bankrupt companies. Today, Ross has sold off ISG for a significant profit and ISG is competitive in a resurgent industry. American steel companies don't have the same names or ownership that they once did, but they're competing in the world market because they've been forced reconcile their business model with the 21st century.

Any distinction between this and cars?

Steven Pearlstein: Yes, the distinction is that the steel revival was done in the middle of two very long economic booms when capital was plentiful. That's not the situation now.

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Bad Precedent: I can understand the logic of a bailout as a necessary evil, considering how important the Big Three are to the overall economy. However, I cringe when I think how many other industries will step up with their hat in hand, expecting taxpayers to bail out their bad business decisions.

Steven Pearlstein: Actually, I can't think of many that would and could. This is a variation on too big to fail. The big banks have done it. I suppose Boeing might be able to do it, except that they have more orders now than they know what to do with. Can't really think of any others that would be able to marshall the political support or capture the public imagination.

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re Cho piece: I'm shocked, shocked to learn that commodity trading entities are doing so in a speculative manner. After all, Enron was just a logistics company.

Steven Pearlstein: Cute.

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Norman, Okla.: Steven

It strikes me that the real problems of GM are in the Management Offices, and no amount of Credit or Equity will resolve these.

GM/FORD management have been ruining workforce relations since the 1930's and they have never been able to make the UAW a stakeholder and partner as opposed to an adversary.

GM has been behind the curve for decades, wether it was Safety equipment, pollution controls, Small Cars in the 1970's, Quality in the 1980's, or Efficient vehicles in the new Millenium. GM has been bleeding their Pension and Benefits funds for decades and now the chickens are roosting.

Perhaps the most salutory effect that could occur would be a real bankruptcy.

Force Management to negotiate with creditors including the retirees, and that this kind of traumatic event will sear the defective culture and stop the slow bleed of GM.

GM is able to be competitive in China one of the meanest markets in the world, why can't they be competitive in the US. Why can't they bring product to market at a profit?

Steven Pearlstein: Well, as I said, its hard to think of an industry that is less deserving of assistance as this one. But this really isn't an argument about what's good for GM. It's a discussion about what's good for the rest of us. It's not about rewarding them, its about protecting our own economic interests.

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Chicago, Ill.: Hey Steve, I love your columns but I think your way out on a limb on this one. I think it's a misnomer to talk about a domestic auto industry in the fashion you do. Most of the so called foreign car companies have assembly plants here. They can pick up the slack if Detroit goes further south. Are Toyota and Mercedes eligible for these loans? Does this in any way violate international trade rules? I guess this is the new Washington Consensus.

Steven Pearlstein: No, its not the new Washington consensus. It is the new political accomodation to the electoral map, first of all. And it is an economic accomodation to the fact that a bubble has burst, the economy has to shrink and it is a dangerous time. If you handle these things wrong, you can get an entire decade of economic stagnation -- we KNOW that from painful experience here and elsewhere. And the trick, it seems to me, isn't to be rigid or ideological or judgmental, but practical in what you do and what you don't do in terms of government policy. As I wrote in a previous column, the goal isn't fairness. Its avoiding a dangerous downward economic spiral.

Of course the transplants can pick up the slack. And of course GM and Ford could be re-structured under bankruptcy into smaller, profitable companies (once you kiss off creditors and abrogate labor contracts and obligations to reitrees). That's usually how we handle these things, and how I'd prefer to handle this situation. But the argument I'm making is that the economic situation is such that this is a very dangerous time to put the industry through that transition. There are big secondary consequences.

Now if you disagree with that assessment, well, fine. But you've really not addressed it.

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Brooklyn, N.Y.: I learned to drive with my mother's 1979 Oldsmobile Delta 88 and my father's 1988 Lincoln Continenal. Both were big and comfortable, but the Olds was moderately unreliable and the Lincoln was horrible (this was all in the pre-SUV age). Then my mother upgraded to a Toyota Avalon. I was shocked. I didn't realize there were cars that didn't need to be in the shop every third week. My folks have sworn off American cars and I can't blame them. I personally drive a Subaru and think it's a great car and it's made in Indiana by American workers. Maybe GM & Ford should look inside before asking outsiders for money.

Steven Pearlstein: You know, for all their faults, they are looking inside. But you're talking about turning around a supertanker.

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Atlanta, Ga.: Steven Pearlstein: Its a transportation paradigm you don't like, but its not clear that the majority of consumers agree with you.

However, Mr. Pearlstein, shouldn't we be led by our leaders, rather than have our leaders follow? There is a reason we were not set up as a democracy. We should clearly be getting away from the automobile as a way to get around, NO QUESTION. And those in DC should possibly be leading. Oh, wait. Sorry.

Steven Pearlstein: There are enviros who think everyone should live in energy efficient cities and walk and bicycle to work or take public transportation. And they want to impose that lifestyle on everyone else. I am not one of them. You?

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Chicago Ill.: What "bailout" did Detroit get to switch from fuel-efficient sedans to gas-guzzling SUVs and trucks? If I remember correctly, they happily capitalized on that new market by themselves, even though it meant building an entire new line of vehicles. If they could do that then, why can't they do it again now?

Steven Pearlstein: Because the energy situation turned on a dime and now they're out of money. That's pretty much it.

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Garrett Park, Md.: I remember several big loans that were actually repaid. They aren't all bad: that's just Welfare. We loaned Chrysler a lot of money, and got it back with interest before the loan was due. The same happened with loaning money to Mexico when they had a temporary crisis. Secretary Rubin got money down there quickly, and Mexico paid it back within about nine months--about a year ahead of schedule. Maybe re-tooling loans would help the Big Three and prove to be a good investment?

Steven Pearlstein: Thank you. Thank you. Thank you.

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Neverneverland: We spend tens of billions bailing out short-sighted individuals in Louisiana and Florida every time a hurricane hits. Why can't we do the same with domestic auto manufacturers?

Steven Pearlstein: We should stop doing the former and promise ourselves that after this time, we won't do the latter.

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Can't Do Spirit: If our government's going to do bailouts, we need a National Failure Agency to manage the process. The first step would be to mail out a brochure "So Your Business Has Failed".

Steven Pearlstein: I think it is called the U.S. Treasury. 1500 Pennsylvania Avenue. Henry Paulson, chief executive.

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Princeton, N.J.: You miss my point. I was not saying that excessive pay was itself the problem, but that because of greed and the ability to satisfy that greed, executives made and will continue to make bad decisions.

Steven Pearlstein: Not greed. Stupidity. You would be amazed how insular the auto industry is and how clueless they are about consumers, markets, etc. Really.

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Real World: FYI to your readers...

they stopped being "The Big 3" a couple years ago.

They are now just "The Detroit 3."

Steven Pearlstein: You got that right.

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Concord, N.H.:"Let me say one thing: if we structure these "bailouts" carefully, and take useful but good risks, it is not clear that they need to cost the taxpayer anything in the long run."

What is the likelihood of these "bailouts" being structured properly? Are others with influence in deciding the terms on the same page as you, or is this more whistling into the wind?

Steven Pearlstein: The chances of structuring them well is pretty high. We've done it before and there are some very good people at Treasury, in particular, who know how to do these things or can hire people who do.

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Woodhull, N.Y.: Bailing out auto makers? For sure they Jest! The Auto industry has supposedly the sharpest CEO's out there, yet not a one of them have a bit of foresight. Instead of just letting their company's fail like they have done for the last couple of years by not having foresight and seeing the writing on the wall of the fuel crises .. a good CEO would have been all over this. Thats why paid the high $$$ ? right? We would be much better off haveing $250,000 CEO's that really care for the firm they work for, and the firms best interest, then it is to pay the Current CEO'S Millions + a year plus bonus and have these guy run their firms into the ground like they have. And this isnt only the auto companies, it seems to be a trend. We the american public are unable to except this irrsponsibile attitude in our CEO' that only are employed for a few years to suck fimrs dry, and then move to the next firm as a CEO to continue the cycle.

Steven Pearlstein: As I've said several times already this morning, the problem is CEO ineptitude not CEO pay. Ford and Chrysler have recently installed new top management and there is certainly evidence that the new guys have learned from previous mistakes. General Motors is a different story. Although Rick Waggoner has recently made some good moves, I wonder if it is not time for him to go, bring in someone from outside the industry and to move the company headquarters to California to get that crew out of the Detroit culture.

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Steven Pearlstein: That's all the time we have for today. Good discussion. "See" you next week.

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