Tough Love for Carmakers, Pillows for Wall St.
Through a series of logical decisions, the Obama administration has maneuvered itself into an illogical and uncomfortable place. The president is telling Detroit to shape up or die while at the same time politely asking Wall Street, whose recklessness and greed caused this economic crisis, if it would be so kind as to accept another heaping helping of taxpayer funds.
General Motors and Chrysler have been ailing companies for decades. But they wouldn't be in extremis, hemorrhaging money like never before, if consumer demand hadn't fallen off a cliff. And why did people suddenly stop buying cars? Because they either can't get credit or don't think it wise to make major purchases with the economy in such dire straits.
Both the credit crunch and the reluctance of consumers to spend what money they have left are the direct result of Wall Street's atrocious misbehavior. Yet the administration's plan for rescuing the banking sector involves generous inducements, big subsidies and the opportunity for wealthy investors to become much wealthier while assuming very little risk. There are reasons for structuring the bank bailout this way, and there are reasons to take a get-tough attitude with the auto companies. But the juxtaposition is galling -- and, for many autoworkers, potentially devastating.
"We cannot continue to excuse poor decisions," President Obama said yesterday as he laid down the law to Detroit. But it's hard to reconcile that declaration with policies that seem to excuse, if not reward, unspeakably poor decisions made on Wall Street.
I can't argue with the administration's decision to force GM chief executive Rick Wagoner to resign. It was encouraging, even, to see the White House employ that kind of muscle, given the fact that the president now has to oversee so much of the economy. But shouldn't the first public flogging have involved one of the bankers who got us into this predicament? On Friday, the day when Wagoner got his walking papers, the biggest cheeses on Wall Street went to the White House for a cordial meeting. All still had their jobs when they left.
Wagoner's crime was in not getting GM out of an untenable situation that he inherited, though it should be noted that he has been with the company for more than 30 years, plenty long enough to be considered part of the problem. His defenders say that in recent years he demonstrated that he had seen the light about what kind of cars Americans want to buy, and they also point to his success in gaining market share for GM abroad. Maybe there was no way for him to get the company out from under its crushing "legacy" costs for retiree benefits. But if he made any headway at all at changing the company's culture and turning GM into a lean, green, carmaking machine, it's not evident.
Obama gave GM a 60-day deadline to come up with some kind of radical restructuring plan that would ensure a viable future for the company. That was a better deal than he offered hapless Chrysler, which has just 30 days to complete a merger with Italy's Fiat or face dissolution.
Given that Daimler-Benz couldn't make a go of Chrysler, it's hard to imagine that Fiat would do better -- assuming that a deal between the firms can even be reached. The company that gave us the minivan, one of the most successful innovations in the history of the industry, is probably toast.
GM, on the other hand, has what amounts to a guarantee from the White House that it will continue in some form, even if it fails to reinvent itself before the deadline and has to go through bankruptcy. In any event, the GM of the future is likely to be smaller than the GM of today. It is almost certain that plants will have to be closed and product lines discontinued.
Maybe this is the least disruptive solution for GM's workforce. It is worth pointing out, however, that the $17.4 billion the federal government has lent GM and Chrysler since the bottom fell out of the automotive market last fall is dwarfed by the more than $1 trillion we've poured into the financial sector.
Our tough-love message to the banks: Would you mind, possibly, lending some of that money we gave you? If it's not too much trouble, that is. And would you like another pillow?