The Big Question, May 2: The Auto Industry

The Big Question is a feature where influential lawmakers, pundits and interest group leaders give their answers to a question that’s driving discussion in news circles around the country.

Some responses are gathered via e-mail, while others are gathered in person via tape recorder.

Today’s Big Question is:

Has President Obama treated the auo industry fairly?

Read responses below from Dean Baker, Grover Norquist, Lanny Davis, Robert Shapiro, and Daniel Ikenson.

Read the last big question here.

Dean Baker, Co-Director at the Center for Economic Policy and Research, said:

While it is certainly reasonable to demand sacrifice from all parties involved in exchange for bailout money from the taxpayers, it is hard to see any consistency with the treatment of the financial industry.

At the exact time that Larry Summers was lecturing the public about how the “sanctity of contract” necessitated paying the AIG bonuses, he was insisting that the autoworkers surrender retiree health benefits for which they may have worker 30 years. Read the full response here.

Robert Shapiro, Director of the Globilization Initiative at the New Democrat Network, said:

Similar to Churchill’s famous observation about democracy, the Administration’s new plans for General Motors are a dismal idea, except for all of the alternatives. Under the plan, GM has to come up with a detailed strategy by June 1 that plausibly will allow it to survive and so receive nearly $12 billion more from the taxpayers or file for bankruptcy. By then, the government will have lent GM $27 billion.

What’s new in the plan is that the Treasury will swap half of that debt for equity (GM shares). In the end, the government and a healthcare trust managed by the United Auto Workers will hold 89 percent of the auto giant. Unsecured bondholders will own the rest, if they agree to swap their debt for equity too. (Even as they complain bitterly, the bondholders will have little choice, since if they don’t go along, GM goes belly-up and they get nothing). With the clarity that often accompanies impending doom, GM is finally taking serious steps to restructure itself — something it could have done a decade ago and avoided all this. Toppled last year by Toyota as the world’s Number One automaker, the former Detroit titan is now headed for much leaner territory. In exchange for the government’s billions and the UAW concessions that have kept it afloat for the last six months, GM has already announced plans to close down Pontiac (Saturn and Hummer will follow soon), shutter nearly 30 percent of its plants and, by the end of 2010, reduce its workforce by one-third and pare its dealership network from 6,200 to 3,600. If all of this works, GM will end up the Number Three automaker operating here and Number Four or Five in the world. Read the full response here.

Lanny Davis, former Special Counsel to President Bill Clinton, said:

The U.S. Auto Industry needs help–and President Obama delayed Chrysler from inevitable bankruptcy and has delayed bankruptcy for GM by buying significant time for it to save themselves. The President has been more than fair–he has been helpful.

Grover Norquist, President of Americans for Tax Reform, said:

I really, really want to live in an America where the question, “Has President Obama treated the auto industry fairly,” is not asked and would be considered asinine a comment such as “Has Obama treated the Methodist Church fairly.” Apart from buying a car, the president of the United States should not have a relationship with an industry or company worthy of comment. General Motors has relationships with its customers, bond holders, shareholders, employees. It does not have a legitimate relationship with the president of the United States. Or vice versa. Read the full response here.

Daniel J. Ikenson, Associate Director for Trade Policy Studies at the Cato Institute, said:

President Obama mistakenly refers to GM and Chrysler as “the” U.S. auto industry when, in fact, the industry comprises many more companies than that (do the names Ford, Toyota, Honda, Nissan, Kia, Hyundai, VW, BMW ring any bells?). Government support to certain companies within an industry is, at a minimum, an implicit tax on all the companies within the industry that receive nothing. Thus, President Obama – like President Bush before him – has not been fair to the auto industry.

In a competitive enterprise system, the firms that are least profitable or unprofitable are naturally deprived of resources to continue operating or to invest in new product lines, while the successful firms improve market share, revenues, profits, and the ability to raise capital. Read the full response here.