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Telling Detroit "No"

This column was written by The Editors.
The Detroit automakers will not get a bailout from Congress this year, and a handful of Republican senators are due thanks. Senate GOP leader Mitch McConnell left the door open for an eleventh-hour compromise, but Democrats slammed the door in his face when they rejected an amendment, proposed by Bob Corker, that would have required meaningful concessions from the autoworkers' unions. The Detroit three and their apologists will now take their tin cups to the White House - to Treasury Secretary Hank Paulson and his $700 billion.

President Bush could have burnished his spotty record on domestic policy by following his party's lead and telling the automakers no. Unfortunately, the White House issued a statement today indicating that the president lacks the will to do so.

The Big Three's CEOs, the leaders of their unions, and their taxpayer-funded lobbyists (disguised as lawmakers from Michigan) have done an excellent job of sowing fear and confusion, particularly in the media. The failure of the Big Three would bring about an unprecedented economic calamity, they claim, costing millions of jobs, deepening the recession, and exacerbating the credit crisis. One of Chrysler's top executives has warned that it could cause another Great Depression.

To give these complaints a sharper edge, they drew attention to the bank bailouts and protested that they are just as deserving. In fact, neither the banks nor the automakers deserved a bailout, but no economy will survive without a banking system.

What's more, the failure of one or more of the Detroit car companies would not lead to the total collapse of the industry that some are predicting. Chapter 11 bankruptcy will allow the companies to continue to function so long as they secure "debtor-in-possession" financing, which would allow them to avoid immediate liquidation. If there is a role for the federal government in this, it is perhaps as a facilitator of these DIP loans. But bankruptcy is a necessary condition if the government is to put taxpayer money at risk. Otherwise, the automakers and their unions will not make the painful changes that will allow them to become competitive again.

The Detroit three and their defenders say they have plans to restructure - all they need is the cash. But Senate Republicans, in their clumsy attempt at compromise, exposed these plans as shallow façades. Corker offered an amendment that would have conditioned taxpayer assistance on real change and accountability: The federal "car czar" envisioned in the bailout bill would have been given the power, under Corker's plan, to impose a deadline and force the automakers into Chapter 11 bankruptcy if they failed to bring their expenses (average hourly labor cost: $73) into line with those of the foreign transplants - factories in the U.S. operated by companies such as Honda, Nissan, and Volkswagen, which employ a non-union workforce of more than 100,000 Americans (average hourly labor cost: $49).

This plan was not without flaws. The Big Three really need to settle their fundamental business problems with a bankruptcy judge, not a federal bureaucrat taking orders from Congress. But Corker's proposal at least would have addressed the problem of labor costs, which is why the unions and their allies in the Democratic party rejected it out of hand. Detroit cannot solve this problem on its own, and Congress can only make the problem worse. Bankruptcy court is the place where cooler heads can sort through Detroit's Byzantine labor contracts and decide what makes sense and what doesn't.

For that reason, the Bush administration's decision to use the bank-bailout funds to rescue the auto companies is both disappointing and wrong-headed. Congress directed the administration to use those funds to save the financial system, not three car companies. Congress's intent cannot be misconstrued, especially after it explicitly rejected the automakers' pleas for help.

House Republicans stood firm on the auto bailout, with most voting against. Senate Republicans did an outstanding job, with McConnell and Co. taking the heat for blocking the bill even after the Detroit lobby prophesied Armageddon if it didn't pass. There is a political party in this country that seeks to nationalize the automotive industry, and it is not the one to which the president belongs. His reversal on this issue is a sad affront to his party and its philosophy - not the exit we would have hoped for.
By The Editors
Reprinted with permission from National Review Online