The Big Three return to Washington

Published: December 5, 2008

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Detroit's auto executives have the most tenuous grasp of their grim situation. Two weeks ago, they said they needed $25 billion from taxpayers. By last Tuesday they were asking for $34 billion. Now they say they have plans to turn around their companies.

The plans are fairly credible, but the chief executives from the Big Three auto companies left two things in Detroit. One was a believable commitment to transform themselves into businesses that make fuel-efficient cars, even when gas is cheap. The other was their letters of resignation.

Before giving General Motors, Ford and Chrysler the money they need, Congress should require much tighter commitments on fuel economy. It should establish a stringent system to ensure compliance and demand that top management be replaced.

From a financial standpoint, the restructuring plans offer a reasonable chance that the companies can emerge as viable businesses, better able to compete with the Japanese transplants. GM, which asked for $18 billion in loans - $4 billion of it to get through the year - offered to get rid of several brands, close nine factories, slash its work force by 20 percent and cut some $30 billion worth of debt. Chrysler, the smallest and most vulnerable of the three, asked for $7 billion now in exchange for cutting costs by $4 billion in 2009. Ford, which said it could survive without taxpayer cash but asked for $9 billion just in case, presented a plan to be profitable by 2011.

The autoworkers' union is on board and is offering concessions that include allowing the companies to delay paying into the fund that would take over the burden of providing health insurance for retirees.

All three companies laid out plans to change their mix of models. GM said it would offer 15 hybrid models by 2012. Its Chevy Volt, which can travel up to 40 miles on electric power, is scheduled for production in 2010. Chrysler also said it would offer an all-electric automobile. Ford said it would cut trucks, vans and sport-utility vehicles to 40 percent of its portfolio from 52 percent in three years and would put more fuel-efficient engines in most of its cars.

Congress should ask for more. There are solid grounds to mistrust Detroit's Bit Three. As the price of gasoline drifts back below $2 a gallon, they face a powerful incentive to slip on the drive for better mileage and new fuels and to fall back on the gas-guzzlers they know.

Congress, hardly blameless in this crisis, must not allow that to happen. For starters, it must demand that the three companies' top executives resign. Only new management can enforce the deep cultural change needed to overhaul the industry. And, it must impose real, enforceable environmental rules. The European Union is aiming for a fleetwide fuel-economy of 50 miles per gallon in 2015. In the United States, Congress last year enacted a target of 35 mpg by 2020.

Experts say that Detroit's automakers could achieve 43 mpg by then even without technological breakthroughs. If the companies were willing to make smaller cars, they could achieve 50 mpg. Congress could consider demanding that Detroit simply phase out SUVs and vans by a certain date.

If the economy were growing, it might have been a better idea to let one or more of the three go bankrupt, restructure and emerge smaller and lither. But in a bitter recession, the risk that a bankruptcy filing would snowball and produce catastrophic unemployment is too large to take. A bailout offers a chance to put the car companies on a track to a more fuel-efficient future.