Editorial on auto-industry bailout

Walt Minnick - Right for Idaho

December 23, 2008

Like the many Idahoans who own and operate businesses, I have spent my entire adult life paying my bills, looking for ways to reduce costs and meeting a payroll. I never expected the taxpayers to bail me out when I made bad decisions, nor did I expect to keep my job if those decisions had led to the failure of my company.

Those values led me to promise during my campaign that I would demand fiscal responsibility from our nation’s leadership. That’s why I opposed the federal government’s bailout earlier this year of Wall Street fat cats. And that’s why I now oppose the President’s plan to give $15 billion of taxpayers’ money to the Big Three automakers, who - best case - will limp along for another month or two.

The American auto industry is too important for us to let it disintegrate. But to survive it must radically restructure - and do it now. To become competitive with its foreign competition, The Big Three must introduce new, fuel-efficient cars, close surplus plants, abandon corporate jets and luxury office space, slash executive overhead, restructure labor agreements, radically change supplier contracts, and write off its bad debts. Each company also needs “best in the world” new management, not some politically selected “auto czar” who second-guesses the same bad CEOs whose greed and poor decisions caused the problem in the first place.

The only way to quickly save the industry and the majority of its jobs is for government to force each of the companies to go through a “pre-packaged” bankruptcy. Under this process an impartial and experienced bankruptcy judge approves each company’s reorganization plan after weighing the objections and suggestions of those affected. These plans would force each company to scour the world for the best new management, and then order each company to restructure its balance sheet, most likely wiping out the interests of existing management and investors.

Part of the plan could offer taxpayer debt guarantees to induce private banks and bondholders to provide the necessary credit to keep the companies solvent. If done right, it shouldn’t require any direct taxpayer investment.

This is “tough love,” but it’s what the airline industry did to survive. Half measures like those the President just promised, or like most in Congress unfortunately seem to favor, simply won’t get the job done. They just prolong the agony, waste billions we taxpayers don’t have and leave a crippled, inefficient auto industry which still can’t compete with its more nimble foreign competitors.

Free enterprise only works when business is free to fail as well as free to succeed, and where CEOs are fired without any “golden parachutes” when their companies fail. Dedication to this principle is what for years made American business the envy of the its foreign competition, allowed each generation of Americans for 200 years to live better than their parents and made our country the most powerful nation in the world.

Bailouts to prop up bloated, inefficient big companies is what other countries do. It’s what caused socialist systems to fail. We must do better.