by George Harris Kansas City Star Reader Advisory Panel 2008

The Associated Press reported this afternoon that a bipartisan group of Senators had reached a tentative agreement to lend money to troubled domestic car makers to get them through the financial downturn. But lawmakers first want a business plan that demonstrates how car executives will make their companies viable.

Critics of the proposal to loan money to American car companies, such as GM, argue that GM should go through bankruptcy and reorganize. In this process the companies would likely get new management and shed many built-in debts and obligations, such as pension and health care costs, that are strangling them.

One problem is that there is no guarantee shaky financial markets would lend GM money to get them through the reorganization. Financial markets shuddered yesterday with the prospect of a liquidation of the car manufacturers, which would send ripple effects through the economy and increase already growing unemployment. Lawmakers apparently got the message and have recognized the impact of letting domestic companies liquidate.

The costs of the failure of domestic car companies would be enormous. In the event of either restructuring or liquidation, pension obligations would likely fall to the federal pension benefit guarantee corporation (PBGC), and taxpayers would foot the bill for this because the program is already underfunded because of inadequate employer contributions, short over ten billion dollars.

Retired auto workers would likely lose health care benefits, which are not covered under the PBGC, though federal tax credits are available to offset some of the costs of private insurance. However, these costs would also represent a loss of tax revenue to the government, making the cost of a government loan to car makers seem a good bargain.

Meanwhile, J.D. Power ratings released for 2008 show American manufacturers improving in quality measured by number of initial complaints. The JD Power web site states, “Non-luxury brands that earn 4 Power Circles and are considered better than most in terms of sales satisfaction are, in alphabetical order: Buick, Chevrolet, Ford, GMC, Mercury, Pontiac and Saturn. All rank above the industry average.” These ratings contradict widespread belief that American manufacturers are not producing high quality vehicles, though such criticism was no doubt valid through the 1970’s and 1980’s.

Though market share for domestic manufacturers has fallen, the fact is that GM remains the nation’s leader in sales, and Ford and Chrysler also hold significant domestic and international market share. These facts are stark contradiction to opponents of government intervention who say that domestic manufacturers are making vehicles that no one wants.

Some critics of domestic manufacturers, even conservative market-oriented critics, say these companies should have been producing “green” high miles per gallon or hybrid vehicles. But a market based producer makes what people want, and the sales figures for trucks and SUV’s demonstrate that there was high demand for these vehicles. Domestic manufacturers are, in fact, developing and selling hybrids, but no one should believe that these vehicles yet have sufficient market demand to rescue a company.

It may be a legitimate criticism for lawmakers to say that car makers did not adequately anticipate the changing marketplace. But it is equally fair to say that lawmakers also did not anticipate the changing real estate marketplace that produced our recent financial meltdown. If failure to predict points to incompetence, there is plenty of incompetence everywhere. Most importantly, pointing to anyone’s incompetence does not clearly point to what we should do in the future.

The debate over the auto “bailout” proposal is filled with contradiction and strange bedfellows. Liberals such as Michael Moore criticize GM along with Republican Senator Richard Shelby of Alabama. On Larry King Live Moore criticized GM for making “crap” and called for loan conditions requiring the company to begin to focus on mass transit. Moore’s anger is directed mainly at GM management, though his documentary “Roger and Me” was not about current GM management but previous management that closed plants that were no longer economically viable, exactly what conservative critics say should be done.

In addition to criticizing management, Shelby’s opposition to aiding domestic manufacturers may be because foreign companies have invested heavily in nonunion plants in his home state of Alabama.

And some of the public animosity toward domestic manufacturers likely stems from their ties to the United Auto Workers, who are seen as greedily protecting their jobs, salaries and benefits at the expense of the rest of us.

But the origins of the problems of the domestic car manufacturing industry are decades deep. Union and management fought bitterly to get their share of profits in the 60’s, 70’s and 80’s.. GM, Ford and Chrysler did not easily give in to union demands for pension and health care costs and can hardly be blamed for giving away those legacy costs that now weigh down the industry. Likewise, unions should not be blamed for trying to protect their workers at a time when only adversarial relationships could do so.

The reality is that foreign car makers, Toyota and Honda, entered the U.S. market, established nonunion plants, and began producing good cars that sold well. They were allowed to establish themselves in the U.S. market without meeting the same labor conditions that domestic car makers had. It is also true that they were able to establish working conditions that allowed workers to be creative and highly productive, in large part because they were free of the strife that the union versus management “American” environment created in domestic companies. The American culture is, by nature, combative and adversarial, and we are slowly learning that this does not always work.

The Japanese business model worked, but it is not in this nation’s interest to blame either the domestic car companies (or management long since retired) or unions (or union leaders long since gone). America needs manufacturing jobs and has companies that have made great progress in changing manufacturing processes, reforming labor agreements, and developing competitive products. The loss of domestic car production would be devastating to the American economy, doubly so in a time of general economic decline.

A quite reasonable political concern about government intervening in the auto marketplace seemed sparse when financial institutions recently were calling for help. Is this because of the anger toward unions? disregard toward Main Street workers? desire to protect Wall Street?

The practical reality is that we cannot afford the job losses that would occur were domestic car makers to disappear. It is clear that those manufacturers need additional restructuring, but it is not certain that bankruptcy would permit this to happen without dissolving the companies.

There does need to be examination of ways to streamline domestic manufacturing while protecting workers adequately. And though auto workers should share in some of the sacrifice, how much sacrifice is fair for people who worked hard and played by the rules of their time.

The loan to the car makers should proceed. It is a reasonable risk for the country, given the alternatives.

(Note to readers of similar posts: Yes, there have been several articles on this site on the car bailout, and many of your earlier comments still apply. I don’t know how to get this all on one thread, so please comment at will, make links if you wish, and, as always, let’s have a good debate. I am very appreciative of your comments and feel that I have learned from them, so thanks!)