Bailing Out Detroit: Wrong Vehicle for Change
James Gattuso /
Nothing gathers a crowd in Washington like the sight of money being handed out. Thus, in the wake of last weekend’s federal takeover of Freddie Mac and Fannie Mae, lobbyists for the automobile industry could be found stalking the halls of Congress, asking for help from the government too. Specifically, they are asking for $50 billion in federal loan guarantees to develop alternatives to conventional fossil fuel vehicles.
The idea has garnered surprisingly broad support — with both Barack Obama and John McCain both expressing support for aid to the industry, which is based in the critical swing state of Michigan. (Ralph Nader, meanwhile — who made his reputation as an anti-Detroit crusader, is opposing the move).
Reports out today indicate that Detroit is unlikely to get the full $50 billion it wants. Congressional leaders, however, are moving quickly to get $25 billion out the door — the amount provided for, but not appropriated, in energy legislation last year. The lower amount is unlikely to disappoint Detroit’s lobbyists. Like good car salesmen, their initial offer was perhaps intentionally high, to leave room for such ‘reductions.’
No matter what size, however, the bailout would do little to solve the very real long-term problems of the U.S. automobile industry, and in fact could exacerbate them, by delaying needed industry restructuring. Meanwhile, American taxpayers would be left to pay the tab for years of bad business decisions by Detroit. And the costs are unlikely to end there: if carmakers receive a federal handout, still more industries will doubtless come for their own dollop of aid.