Pearlstein: The Bailout for Detroit

Washington Post columnist Steven Pearlstein was online Wednesday, Nov. 19 at 11:00 a.m. ET to discuss the automotive bailout.

A transcript follows.

Read today's column.

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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Golden, Colo.: If the three auto makers are burning through approximately $10 billion a month, how long will the $25 billion last and what useful purpose will it serve to give them money now only to see them come back for more in a few months? The best solution is to file for Chapter 11 and reorganize and renegotiate the contracts with the UAW and their suppliers. The Big Three should take a lesson from the airline industry. As a taxpayer, I oppose the bailout and still don't see what benefit there has been from the billions given to AIG. IF we're going into a recession that is going to be painful, with the possibility of it looking like the depression, perhaps we should prepare for that and not squander money that will be needed later. There will come a day when the dollar is worthless if we continue this plan.

Steven Pearlstein: Well put. A few comments. First, it's not just the union contracts that make the companies unviable. They have too much debt as well as too much pension liability, they have too many dealers, they have too many plants, etc. Let's not put all the onus on the workers. Second, bankruptcy is fine but it has to be fast, which is why you need some sort of special expedited procedure. And third, you don't see the benefit of bailing out AIG, but that's a good thing, because its working, which means that financial markets aren't melting down as they would have been if AIG was not able to make good on its insurance of all those bonds.

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Clifton, Va.: The bailout is cheaper than assuming the pension liabilities for either GM, Ford or Chrysler. Or all three.

Any bailout needs to include strings to include changing the business model, no bonuses or conferences etc. And I would like to see it end union shops forever for the big 3.

The prez and members of Congress need to remember the big Three do not play on a level playing field. The local govt in Germany owns a major stake in VW. The Japanese govt subsidizes every hybrid sold in the US to the tune of $2500 to $6000.

What Congress needs to do is pass laws leveling the playing field for the Big Three here in the US and in the rest of the world to include South Korea.

The new administration needs to make it a priority that within the first 180 days it negotiates agreements with Japan, South Korea, India and the EU regarding common safety and emission standards.

Now the big 3 and the country will face the biggest economic crisis ever if Mr. Friedman, the NYT columnist, becomes Secretary of Energy. Just walk away and buy gold and platinum because this fool will destroy our country!

And it needs to pass a tax credit of $2500 for buying a car from Ford, GM or Chrysler that is produced in Canada, the US or Mexico with 90% of the parts made in North America.

Now I wasn't for bailing out Wall Street since it hasn't worked and just benefited Wall Street. What we need is less govt regulation, a cut in corporate taxes to make us competitive with the rest of the world and 24 Capital gains tax holiday that stresses investment here in the US. The holiday doesn't include derivatives or other exotic vehicles but buying and selling stocks and bonds in US corps.

Steven Pearlstein: Interesting points. Can't say I agree with much of that, but it is an interesting point of view. But I would urge you, like others, to be careful about making the unions the only villains here. Management and, indirectly, the financial community agreed to and financed these contracts for decades. If they had applied more discipline along the way, which is their job after all, the situation wouldn't be as dire. You really can't blame a union for asking.

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Manassas, Va.: I am 100% against the government assisting the so-called "Big Three" automakers. I know, I know, you've already heard the arguments: why help mismanaged companies with taxpayer money, it will only motivate other companies to form a line hoping for bailout money, there's no guarantee the taxpayer money will ever be repaid or even solve the problem, we're becoming more socialist than Cuba, etc.

But my reasoning has to do with something about the thinking and attitude of too many Americans. There was a time when self-reliance was admired and government assistance scorned. Now, too many Americans, rich and poor, live in a culture of victimology and entitlement.

We are, as Phil Gramm so not politically correct said, "a nation of whiners."

Steven Pearlstein: Without giving much due to Mr. Gramm, there is too much whining coming out of Detroit at the moment and not enough contrition, I'll give you that.

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Ford, GM but no to Chrysler: The Senator from Tennessee predicted yesterday that two of the 3 automakers could be viable but our market doesn't have room for a third. It seemed to me that the CEO panel does have money albeit outside the US market. Can't we see the books?

Steven Pearlstein: Well, if Chrysler gets any money, it will have to open the kimono to the federal officials charged with making the loan, you can bet on that.

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Silver Spring, Md.: Steve - I've read a variety of opinions about bankruptcy for automakers and generally understand the rationales.

I'm not a union girl and will admit to voting for the losing party a few weeks ago, BUT having watched my retirement 401(k) take a massive hit I have some reservations about throwing retirees out with the bath water. What kind of a message would we send to my children and their children?

I don't have much sympathy for 50 y/o retirees. My job is bid out every 3 years and it's sink or swim for me. But many older retirees are not living on much and were promised these benefits.

What protections are there for those folks? I want a solution that will not set a standard of coldness that I will be unhappy with in 30 years!

Steven Pearlstein: Bankruptcy courts are not always heartless and stupid. They get to mediate among claims of various classes of creditors, of which pensioners are one. Nobody is suggesting that pensioners need to be wiped out -- in fact, until recently, GM at least had a fully funded pension fund, and the others were in reasonable shape. The bigger challenge financially is the promise of post-retirement health benefits, particularly for retirees who aren't yet eligible for Medicare. That is an area where some cuts may be necessary. And on that, I'm a bit with you: these people are still of working age and aren't destitute.

By the way, let me point out that bankruptcy is not simply a way to get concessions out of workers and retirees. It is also a way to force creditors to take a haircut -- the only way, in fact -- in recognition of their mistake in making loans or buying bonds. I don't see any reason why they need to be held harmless.

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Dexter, Mich.: The UAW is being blamed in a large way for the problems with the Detroit auto industry. Why is this? There are no unions on Wall Street, in the banking industry, or the mortgage industry. Mistakes have been made everywhere regarding bad management and labor decisions. Why throw away the auto workers? Jean

Steven Pearlstein: I'm with you Jean. But at the same time, a comprehensive and successful restructuring will require reducing the liabilities to retirees, particularly in the health care area, and getting further wage, benefit and job security concessions from existing employees that still enjoy the old wage and benefit scales. Concessions by employees, however, are only one leg of the stool. You have the creditors and shareholders, the second leg, and the oversized dealer network, which is the third leg.

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Johannesburg, South Africa: Hi Steven

What will the WTO have to say if the US government pumps big amounts of money into its motor industry, effectively subsidizing it? Won't this go against the grain of the WTO and its principles that the US up to now has enthusiastically endorsed?

Andre

Steven Pearlstein: I know that a respectable policy wonk isn't supposed to say this, but, frankly, I don't give a damn what the WTO says. This is an economic emergency, the loans would be made on fully commercial terms and the U.S. has a good record in not subsidizing industry compared to just about any other member of the WTO. Frankly, I just wouldn't worry about it.

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Bowie, Md.: Steve, as long as we're offering the auto companies government benefits contingent on making them better corporate citizens, can we do something about their marketing practices?

If an electronics store advertised a TV for $300, and in the store it was marked $500, and it could be negotiated to $400, I'd never shop there again. But that's exactly how cars are sold.

Can we stop them from making their money on the least sophisticated buyers?

Steven Pearlstein: It's not government's role to dictate marketing and pricing strategies for private companies. But there are companies that do offer no-haggle car buying, such as Saturn, and if people prefer that, they should shop at those dealerships. Alternatively, you now have plenty of information available through the Internet that tells you what a particular kind of car is selling for retail. If you want a car, look up the price, write out a check for that price and walk into the dealership and say this is a take it or leave it proposition. Just refuse to haggle. Let me assure you, in this environment, they'll be very happy to take your check.

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Hollywood, Md.: Don't the automakers realize they need to reorganize and to do that they need to declare bankruptcy? This doesn't seem to be a secret. In your opinion, do you think this is a lack of the courage to make the move themselves or are they really hoping they can continue business as usual?

And if they did declare bankruptcy, wouldn't it be better for taxpayers if they guaranteed any loans through the lender rather than being the lender?

v/r Charlie Pitts

Steven Pearlstein: This is very simple: the management and board represent the shareholders, whose only hope of walking away with anything is if the companies don't go bankrupt. So guess what option they think is simply unacceptable?

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Anonymous: Do you think debtor in possession financing should be used to assist the big three?

Steven Pearlstein: Yes, that's what I suggested this morning, without using the technical name for it that you used. THAT is what the government needs to provide, here, the debtor in possession financing during the period of restructuring, which it could then convert to preferred shares with options.

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Alexandria, Va.: Too big to fail has turned into too big to be managed well. How can capitalism keep our companies from becoming bloated Soviet-style messes?

Steven Pearlstein: Hey, you're stealing the headline of my next column!

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Anonymous: Why doesn't the government ask the "Big Three" for competitive proposals (like the Department of Defense does for various weapon or space systems)? What will you produce in the way of fuel efficient vehicles, how many per month, what will they cost, what mileage will they get, how much money do you need to borrow in order to get started and what progress payments will be required, etc.etc.? And then award a contract, or contracts, to the winner or winners with a payback from the profits that accrue from sales.

Steven Pearlstein: Good idea!

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Boston, Mass.: A big problem with the Big Three's business model is that their hourly employees retire in their early to mid 50's. No wonder they can't make any money. To me this shows why the companies need to go to chapter 11 and get rid of these crazy contractual agreements.

Your thoughts?

Steven Pearlstein: Retirement after 30 years is a policy that has badly weakened the French economy and badly weakened the Not So Big Three. Perhaps it made sense in a world when people died at age 62, on average. But it doesn't make sense any longer, particularly at the kind of benefit levels that the auto companies have been paying.

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Central Virginia: Okay, so a gazillion people's jobs are car-manufacturing-related and a car crash would reverberate throughout the economy, but the car execs have got all the foresight and business acumen of a squashed skunk.

How can we support the car companies while drop-kicking the idiots who got them INTO this mess? The execs didn't cause the credit meltdown, no, but the car companies have been teetering on the edge of disaster for several years now because of hideously bad planning and major greed in the corner offices.

Steven Pearlstein: The management ranks of these companies is not impressive. It is insular and very set into an outmoded mindset that believes you can't fundamentally change the industry's business model. It needs to go. I suspect Ford's new CEO, who didn't come from the industry (Boeing) is trying to root it out in his shop, as Bob Nardelli, who came from Home Depot, is doing at Chrysler. GM lags behind: Rick Wagoner came up through the ranks. This is an essential component, not talked about much, of an industry revival.

That said, this isn't about punishing people. Auto industry execs. haven't paid themselves enormous bonuses for some time now. They work hard, they try hard, they aren't bad or stupid people and they are now facing a very hostile financial and economic environment. So we should make sure our rhetoric matches that reality in talking about them.

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Austin Tex.: There are a dozen or more Toyota and Honda car factories in the USA. Honda officially opened a new one, yesterday. These car makers are having troubles selling high mileage cars like the Camry, the Accord, and the hybrids. Honda is introducing a new hybrid car, The Insight this Spring.

Clearly, there has been a saturation of the automobile market the past ten years and it is only getting worse. If we bail out the big three, the Toyota and Honda factories in the USA will have to close. How does that make us better off?

If the same money were given to subsidize solar energy cells for every home in America, then we would be less dependent on foreign oil and we would actually get a return on our money, and most important, we would create a new industry that would employ people who would then have money to buy cars.

In other words, just because we make cars, does not mean the buyers will come. Acres of unsold cars, as we now have in Long Beach Calif. was one of the causes of the Great Depression. FDR's creation of the TVA to create cheap electricity, was the solution, not paying Ford to fill up more acres of unsold cars.

David Gershater

Steven Pearlstein: Nobody is suggesting that bailout money be used to make cars for which there is no market. That's not what is involved here. The industry is adjusting to market demand as quickly as it can.

Unfortunately, thanks to job security provisions of the UAW contract, the Not So Big Three can't very easily lay people off, temporarily, and not pay them nearly their full salary. So what should be a variable cost is a fixed cost, and that makes these companies more vulnerable to an economic downturn than they need to be.

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South Hampton, NH: America United Author: George O'Connor

Many companies, many people, many state governments and one federal government; what do they all have in common? They have the ability to come together and solve problems.

Currently we have a crisis in the United States auto industry; years of mismanagement at GM, Ford and Chrysler have created an environment of apathy, monetary and environmental waste. The question is not of spending 25 or even 50 billion dollars of American money, but a complete restructuring of the US auto industry.

Working Together

The Big Three, United Autoworkers, state governments of Michigan, Ohio, and Indiana, alternative fuel developers, venture capitalist and the federal government, working together can solve this crisis.

First, a PERT system (Program Evaluation Review Technique) must be created; using the following components, to accomplish the following goals.

First, GM would have to close down several product lines, Buick, Oldsmobile and Pontiac. Ford would be looking at closing down the Mercury line and Chrysler the Dodge line. The truck lines and the luxury lines could be incorporated into one product line. GM could modify the Saturn line into a completely hybrid line, using alternative fuels only, such as compressed gas, hydrogen and battery.

Second, all three companies would have to retool their dealerships to handle only the remaining lines and possibly enhance the dealerships with renewable fuel filling sites, such as hydrogen and compressed gas. This could be done on a test basis in conjunction with Exxon-Mobil. Exxon is currently developing both a thin-film battery separator and an onboard hydrogen system. Exxon is willing to invest $100 million to finance a long term research program at Stanford University. Would it do the same to save the auto industry?

Third, the Big Three could finance this effort by using their capital assets as collateral for loans from major US banks, backed by the federal government, grants from Exxon-Mobil, and venture capital infusions.

Fourth, the state governments of Michigan, Indiana and Ohio should aggressively solicit renewable fuel research and development companies; backed by part of the President-elect Obama's $150 billion renewable energy fund, to quickly start producing renewable energy car lines.

Fifth, the United Autoworkers, under Ron Gettelfinger, should not only invest in the Big Three, but also sit on their boards; everybody has a stake in this crisis.

Sixth, have congressional leaders, such as: Rep. Barney Frank, Sen. Debbie Stabenow, Sen. Harry Reid, Sen. Charles Grassely, Rep. Nancy Pelosi and Rep. Carl Levin back this concept of a joint American industry/labor effort to solve their problem.

So in place of a bailout we have a sensible financial solution, using American ingenuity.

Steven Pearlstein: Obviously, you've given this some thought.

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Long Beach, Calif.: What does the US industrial base look like after a collapse of GM?

Would the country really be as de-industrialized as they say?

Steven Pearlstein: Losing these three companies -- and, frankly, that's not going to happen even if they file for bankruptcy -- would be a blow to the industrial base, no doubt about that.

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New Jersey: The media coverage of "legacy costs" to the auto companies really infuriates me. Starting with the term "legacy costs," which sound like a beneficent uncle's affairs, but in reality are legal business contracts - sacred when it involves top management, disposable for workers.

Second, auto workers have ALREADY made several rounds of "givebacks," substantial ones, which are NEVER mentioned.

Third, bonus compensation has been ferociously defended for the financial companies - their staff "have" to be compensated at 40x to 100x the peons' wages in order to motivate them to "perform." But the peons can be cast aside.

OK, what we are really arguing here is that the auto companies have to be saved via impoverishing their workforce - leaving their workers without enough money to visit a hospital if sick, to raise a family of 4, and to own a house. So let's be honest: instead of saying "reduce legacy costs," let's say "impoverish their workers."

Steven Pearlstein: Sorry, but you've really got it all wrong.

Nobody wants the workers to give up a thing until the shareholders are wiped out, the executives removed, the management pension plan terminated and treated no differently than the union pension plan, and creditors forced to take a haircut. So the union pitch, which you have presented pretty faithfully, that there are people out there who want the big shots and the rich guys to benefit while the poor workers have to take it on the chin, is just a bunch of hogwash.

Second, you have a contract with an entity that admits now that it is insolvent. That's your deal with them. Its not the responsibility of the American taxpayer to make good on that deal, particularly since the deal is one of the reasons (not the only, but one) that the companies are now insolvent. So the rest of us don't really put much stock in the fact that you've already made "concessions" to the company, since that was off a very high base -- so high, in fact, that even after your concessions, veteran UAW workers still get paid way more in terms of wages and benefit than other workers in the economy with similar skills and experience, and UAW pensions are similarly advantaged.

So, please, spare us the union class warfare rhetoric here. It's totally unjustified.

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Tuscaloosa, Ala.: First of all Steven, let me tell you how much I enjoy your writing, it is full of information and without an agenda. That is refreshing in these confusing times.

Now my question, given the political realities of Congress wanting to preserve jobs in the U.S. auto industry, I think it is safe to say the bailout will come. Should we cling to any hope that we get any of the "good" of a bankruptcy in this; i.e. the unions giving way on their bloated demands and a severe restructuring?

As a side note, I am employed at the Mercedes plant here in Alabama, and I see first hand the build up of inventory and the stress of the economy here.

Thanks so much

Steven Pearlstein: Yes, I actually think we will have a good outcome here, because people like Barney Frank and Carl Levin will steer this thing in the right direction. There will be a government-managed, government subsidized restructuring that, in the short run, will prevent the financial collapse of these companies and in the long run will get the taxpayers back the money they lent, with interest.

How's that for optimism? And keep building those great cars down there in Alabama.

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Herndon, Va.: Other than the Chevrolet Volt (estimated to cost around $40,000), do any of the big three automakers have an affordable, fuel-efficient or hybrid in the pipeline? If so, when would they be ready for production and how much are they estimated to sell for?

Steven Pearlstein: There's not a lot there in terms of hybrids, although each has some product. They are also steadily improving their fuel efficiency. We shouldn't ignore the gains they have made, and, frankly, they aren't that far behind the foreign companies, which have a long way to go as well.

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Baltimore Md.: The perception of Detroit quality: Stephen, your Post colleague Warren Brown asserts that the quality of vehicles built by the Big Three now compares favorably with Japan and Germany, and I will take his word for it. But I think a major historical reason why we have reached this point with the American auto industry is the fact that, throughout the 1970s and 80s, Detroit designed and built simply awful vehicles--remember the Pinto and Vega, the pathetic attempts to compete in the compact space? Many Baby Boomers moved to Toyota, Datsun (now Nissan) and Honda during this time period and have never really considered buying domestic again.

Why Detroit fell into such a malaise during this era I don't know, but I think it's one of the reasons we are where we are today.

Steven Pearlstein: I want to point out that I've never said these companies now produce lousy vehicles that people don't want to buy. That may have been true once, but objective measures of quality now put them in a very competitive position.

That said, it took a long time for these companies to lose their reputation (some of it undeserved) for quality and value and it will take a long time for them to win it back, even after they have begun to produce good cars and good value. That's just the reality of consumer markets, as you point out. Once people find a good company that has served them well, they tend to favor that company in their next purpose.

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Philadelphia, Pa.: How can I be reassured that GM would be around to service my newly purchased Chevy while GM was in Chapter 11?

Steven Pearlstein: That's why I included in this morning's column the suggestion that, as part of the bankruptcy restructuring process, the government offer a guarantee on warranties and availability of parts. I'm not sure it is necessary, since the market would probably take care of this need on its own. But it would allow the companies and the dealers to advertise it and allay any fears you might have of that.

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Medford, Ore.: Dear Mr. Pearlstein,

Would you please discuss the consequences of the failure of one or all of the big three? How severe do you see the economic fallout of such a catastrophe being? How would it bode for our ability to sustain long-term, high intensity conventional conflict with one or more major powers if these factories and their skilled workers are not available for mobilization? My apologies for multiple Qs, but I would like to hear your thoughts.

Thank you kindly,

Donald Cann

Steven Pearlstein: Don, I can't really quantify it. I'm not qualified to do that, and even those who are probably can't be very precise. There is a think tank in Detroit that has estimated that millions of jobs are implicated in the short term, and several percentage points of GDP, which is certainly significant. I suspect that is overstated a bit, because it sort of assumes that no other companies step in and pick up the slack to meet whatever is the demand for new cars and trucks. But in the short run, meaning up to a year in this case, I think the impact on workers, communities, local governments, retirees and suppliers will be significant.

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Seattle, Wash.: While both sides of the debate have chosen sides -- either bail-out Detroit or let them declare bankruptcy -- it seems like the union of both is the answer. Why can't the government say, "If you file for chapter 11, submit your restructuring and re-tooling plan, we will support you in a very public way with $25-$50B in loans and investment in equity." Everybody wins and it handles some of the tougher arguments against the Big 3 filing bankruptcy, ie, customers won't buy from a car company that is in bankruptcy.

Thoughts?

Steven Pearlstein: Well, that's what I suggested myself two weeks ago and then again this morning, so I guess I think that's a good idea.

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Wayne, Pa.: How in the world can the auto makers have a union contract that allow for 95% of their wages when a plant goes idle? Senator Corker asked the right question. Is it any wonder the big 3 are in trouble if this is a part of a union contract?

And why would Senator Dodd immediately defend that practice? Immediately.

What planet is the union on (and Senator Dodd)?

Steven Pearlstein: Planet Detroit.

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Silver Spring, Md.: Wouldn't your proposed prepackaged bankruptcy be more robust if it were accompanied by a variable gas tax with a (fed-like) authority to reset it periodically to aim for $2.50 plus 5% per year gas price? That would make fuel efficiency investment have a believable long term economic goal.

Steven Pearlstein: I've also thought we needed to increase gas taxes, and now is a very good time.

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Philadelphia, Penn. I agree that the management is bad at the big 3 -- so bad that it impacts the ability to attract/retain talent. No one in my MBA program would even consider going to an auto company (or an airline), yet we all agree that they need strong, innovative leadership to survive.

Steven Pearlstein: That's an interesting piece of information from your class. I suspect that may change, however, once it becomes evident that virtually none of your class is going to Wall Street. Is this Wharton?

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Anonymous: Saturn was developed by GM to build small cars to compete with the Japanese imports. If you watch the latest Saturn commercials they only show their SUV, large sedan and their two seat convertible. Saturn's small car is imported from Europe. Why should we give or loan GM money when they continue to build small cars overseas and completely disregard their original purpose for Saturn? Also, Chevy's small car is imported from South Korea.

Steven Pearlstein: Some members of Congress have been asking the same question. But I think we have to understand that these are global companies with global supply chains and global distribution and we can't expect them to make and assemble everything in the United States.

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Washington, DC: Mr. Pearlstein,

First off - thanks for making the complex seem almost comprehensible. I think I love you.

Here's my question: whatever happened to the initiatives proposed by Mr. Paulson last spring (I know - it seems ages ago) to restructure much of the government's financial oversight agencies? There was a lot of mention in the news for a week or so, then silence. Did it take place? If not, why not? Or is it still being considered as part of a long-term overhaul?

Steven Pearlstein: Wow, never knew economics could be so sexy.

There will be a big regulatory overhaul next year, with a Paulson blueprint still to be presented before he leaves office.

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Plainville, Conn.: Hi Steve. Can you explain what the legacy program is for auto workers? I don't understand it myself, but it doesn't seem like something that I am eligible for at my job or any other job, is it sort of like a teacher who has tenure? Thanks.

Steven Pearlstein: It's not a program. It is just that, as a result of early retirement programs, there are now many more retirees that these companies support than they do active workers. And these "legacy costs -- monthly pension checks, health benefits -- represent a couple of thousand dollars for each car they produce.

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Boston, Mass.: A few years back, GM spin-off Delphi declared bankruptcy and passed its legacy costs onto the taxpayers. Delphi then very publicly recommended that GM do the same. GM instead set about fixing its pension liabilities, as we know now, at great cost to its own well being.

Should the punditry and Congress now let Detroit stumble and declare bankruptcy, how much in additional pension obligations will we get to shoulder? I haven't checked in a few years, but last time I looked GM was close to $100 billion and Ford $70 billion. Oh, and how is PBGC doing? Again, it's been awhile, but it wasn't pretty when I last looked!

Steven Pearlstein: The PBGC won't say what it thinks the hit would be if these companies terminate their plans, which I find annoying, but they say is part of their confidentiality agreement with the companies whose pension plans they insure. As I understand it, these companies had pretty well funded their pension obligations, so it might not be a tremendous hit. But I really can't be sure of that.

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Silver Spring, Md.: I know you're going to disagree with me on this Steve, but I'm going to put this out there anyway and you can tell me why I'm wrong. Because that's what this new form of internet interaction is all about - arguing with guys with Pulitzer prizes, right? I think letting the auto industry fail would be a very bad idea. You can say "well they didn't keep up with the times." And I agree they should have made changes much SOONER. But the fact is, they are in the midst of making the very changes we need in the auto industry. I see the future of automobiles as an electric car that drives most of the way off the grid every day - hopefully a 60%+ wind/solar powered grid. Then it runs a range extender on cellulosic ethanol made for dirt cheap from yard scraps, unused corn husks and old tires. The fact is GM is FINALLY putting real effort towards that future. The Chevy Volt is going to make HUGE waves in the industry. And they've invested heavily in Coskata energy, which has made HUGE technological breakthroughs in bringing the production costs of cellulosic ethanol way way down. And if we let them fail, all the brand new technology is going to be at least 5-10 years further out than it would otherwise be. Even once someone buys them up and gets the technology, it'll take at least that long for anything to happen again with it. And on top of that, consolidation is historically the biggest inhibitor of innovation - so once the competition is diminished, the new technologies may die off entirely. So go ahead.. tell me why I'm wrong and why they should go belly up and tens of thousands of middle class should lose their jobs while Wall Street CEO's and rich investors get $700 billion.

Steven Pearlstein: I really don't know how to take your question, since I don't think we should let them go belly up. A quick but profound restructuring under the rubric of the bankruptcy process isn't going belly up. And at a smaller level, I think two of these companies can survive.

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Silver Spring, Md.: Detroit innovates in hybrids! Oh, wait...

2 Chrysler hybrids to exit; more set from Ford, GM

"The hybrid Chrysler Aspen and Dodge Durango, which just went on sale, are casualties of Chrysler's decision to close its Newark, Del., assembly plant Dec. 31."

Steven Pearlstein: Oops.

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Not Yesterday: I keep on reading and hearing how a Detroit UAW workers' average salary is $70 an hour. As a person who can go through balance sheets better than the best of them, I know HR departments have a propensity to stick on all sorts of BS to what they claim "you" cost the company. But $70 bucks! What did they lard on to get there? Residual health care costs for long retired workers? What else? And I know reporters are innumerate, but why would you guys pass along such patently phony numbers?

Steven Pearlstein: I've never used that number, for just the reason you state, but I think that may include legacy costs. It's all in labor costs, divided by hours worked.

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Allentown, Pa.: Why must we lump the three automakers together? Shouldn't we look at them separately? Why should we save all three? I personally don't see much redeeming value in Chrysler, neither did Daimler. The end product of a restructuring of all three will probably amount to a reduction in size equal to Chrysler.

Steven Pearlstein: For the purposes of a government-sponsored, government-financed restructuring, they would, of course, need to be treated separately. And it may be that one or another is not salvageable, once the analysis is done. I can't say.

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"...people like Barney Frank and Carl Levin will steer this thing in the right direction. ": I wish I were as confident as you. AP quotes Frank yesterday as saying a House auto industry bailout would require that U.S. automakers immediately repay $25 billion in government loans next year if they can't show they're financially viable.

How does Frank think the automakers will repay $25 billion if they're not financially viable?

Steven Pearlstein: Don't know. That doesn't sound right, although it is probably true that even in liquidation, the US would get repaid since it would have first position among creditors.

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Atlanta, Ga.: Good Morning,

I'm not even sure I have a question in here, but I worked for one of the Big 3 as a field representative from 1980-1990 and I'm infuriated with the auto industry. It is true that they spend more time and money fighting -everything- from innovation to regulation, especially CAFE standards.

And I am infuriated with all of our lawmakers. They have the audacity to criticize the business plan of the Big 3 for not making more fuel efficient vehicles. Yet, every time you see video of these folks getting out of a vehicle, its always a big, gas guzzling SUV. And if they wanted more fuel efficient vehicles, why did the lawmakers of both parties vote against more stringent CAFE standards, especially on trucks and SUV's that have lower standards than passenger cars?

And I am infuriated with the UAW. I am a strong union supporter because it should be painfully obvious from the mess we are in that corporations don't know how to "do the right thing." But the UAW has ruined unions for everyone by demanding way more in benefits and wages than what even a good, non-union company provides. It has turned the average person against unions because they see the damage the UAW has done, our vehicles are not competitive. I now work in employee benefits and I -guarantee- I could re-work the Big 3 benefit programs and still provide excellent coverage at a much more reasonable cost.

But then, would the Big 3 pass the cost savings on to the consumer? From my experience, no. They are quick to pass any and all additional costs (including the millions they spend to fight stuff in the first place, like seat belts, air bags, CAFE, etc.) but you never saw them cut their prices.

So, to bail out or not to bail out? I have no clue because all the foxes are in charge of the hen house. As Rachel Maddow would say, talk me down.

Steven Pearlstein: Competitive products markets work pretty well, and this is a very competitive product market.

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Steven Pearlstein: That's all for today, folks. Good chat. "See" you next week.

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