One Final Blow To Fiscal Sanity

As this report makes clear, the terms of the Bush administration car bailout are actually less stringent than those that Democrats in Congress agreed to:

The deal’s ambitious targets for the companies include replacing two-thirds of their debt with stock; using more stock instead of cash to fund retiree health-care obligations; eliminating much-criticized union “jobs banks” that pay laid-off auto workers; and establishing wage structures and workplace rules that are more competitive with foreign rivals.

Only the Bush administration could come up with a plan that is even less effective than what Nancy Pelosi and Harry Reid would find acceptable. As Larry Kudlow put it, this was “a lousy way to go out of office.”

Sure, the government “suggests” the way to viability is to slash debt and align the Big Two’s labor agreements with their foreign-owned competitors, but it’s essentially just that — a friendly suggestion. Chrysler and GM can just come up with other ways to show they are “viable.” But the chances that the Obama administration will hold their feet to the fire are slim:

In essence, Mr. Bush’s plan lets the auto companies survive through March. He leaves it to the Obama administration to decide many tough questions after that. Obama officials must wrestle with how much in wage and benefit concessions to demand from the United Auto Workers union, which strongly backed Mr. Obama’s campaign and helped him carry Michigan over Republican rival John McCain; how to wring savings from the companies’ politically powerful dealerships; and what concessions can be squeezed from debt holders, suppliers and other groups.

Mr. Obama and his aides on Friday were generally supportive of the White House approach, especially the decision to avoid a bankruptcy filing. At a press conference, Mr. Obama warned Detroit executives that “the American people’s patience is running out” and said the companies must use this opportunity to chart a course for their companies “that is sustainable.” He also declined to say the White House is asking too much of the UAW. While workers shouldn’t bear the entire burden of the restructuring, he said, “there are going to be some painful steps that have to be taken.”

UAW leaders and their congressional allies were already signaling Friday that they would seek to ease the terms of the deal next year as they expect more friends on Capitol Hill and in the White House. Top Democratic leaders complained about the administration’s aim of reducing worker wages and benefits. Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, termed the provisions “an unfair assault on working men and women.

Perhaps with the passage of time and more billions spent without profitability, both Congress and the public will revolt against the notion of subsidizing failure.  But fiscal conservatives will need to make the case — as they somewhat successfully did this time — that it is both unfair and unwise for voters (whose own wages on average are far less than those of the UAW workers at GM and Chrysler) to keep these companies on the dole.

This will be one of many battles a reduced Republican minority in Congress will need to wage next year. They may lack the votes, but the distinction between the parties in the post-Bush era will be clear. And ultimately if the Obama administration continues down the road of semi-nationalization the only recourse will come at the ballot box in 2010 and 2012. But billions and billions may have been spent by then –money which even many Democrats would agree could have been spent far more productively.