NEWS ANALYSIS
Taking risks with bailout for U.S. automakers
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WASHINGTON: When President-elect Barack Obama talked on Sunday about realigning the American automobile industry he was quick to offer a caution, lest he sound more like the incoming leader of France, or perhaps Japan.
"We don't want government to run companies," Obama told Tom Brokaw on "Meet the Press." "Generally, government historically hasn't done that very well."
But what Obama went on to describe was a long-term government bailout that would be conditioned on government oversight. It could mean that the government would mandate, or at least heavily influence, what kind of cars companies make, what mileage and environmental standards they must meet and what large investments they are permitted to make — to recreate an industry that Obama said "actually works, that actually functions."
It all sounds perilously close to a word that no one in Obama's camp wants to be caught uttering: nationalization.
Not since Harry Truman seized America's steel mills in 1952 rather than allow a strike to imperil the conduct of the Korean War has Washington toyed with nationalization, or its functional equivalent, on this kind of scale. Obama may be thinking what Truman told his staff: "The president has the power to keep the country from going to hell." (The Supreme Court thought differently and forced Truman to relinquish control.)
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The fact that there is so little protest in the air now — certainly less than Truman heard — reflects the desperation of the moment. But it is a strategy fraught with risks.
The first, of course, is the one the president-elect himself highlighted. Government's record as a corporate manager is miserable, which is why the world has been on a three-decade-long privatization kick, turning national railroads, national airlines and national defense industries into private companies.
The second risk is that if the effort fails, and the American car companies collapse or are auctioned off in pieces to foreign competitors, taxpayers may lose the billions about to be spent.
And the third risk — one barely discussed so far — is that in trying to save the nation's carmakers, the United States is violating at least the spirit of what it has preached around the world for two decades. The United States has demanded that nations treat American companies on their soil the same way they treat their home-grown industries, a concept called "national treatment."
Yet so far, there is no talk of offering aid to Toyota, Honda, BMW or the other foreign automakers that have built factories on American soil, employed American workers and managed to make a profit doing so.
"If Japan was doing this, we'd be threatening billions of dollars in retaliation," said Jeffrey Garten, a professor at the Yale School of Management, who as under secretary of commerce in the 1990s was one of many government officials who tried in vain to get Detroit prepared for a world of international competition. "In fact, when they did something a lot more subtle, we threatened exactly that," referring to calls for import restrictions.
Garten said he was stunned by the scope of the intervention that Washington was now considering. "I don't know that we've seen anything like this since the government told the automakers what kind of tanks to make during World War II," he said. "And that was just for the duration of the war — this could be for much, much longer."
It is hard to measure just what kind of chances Obama may be taking with this plan, in part because so many parts of it are still in motion.
In the short term, Democrats are floating the idea of linking $15 billion in immediate loans to the designation of a "car czar" who, in doling out the money, could require or veto big transactions or investments — essentially a one-man board of directors. The White House indicates that President George W. Bush, who has spent his entire presidency proclaiming that the government's role is to create an environment that spurs free enterprise and minimizes government regulation, would very likely sign the rescue plan.
The first $15 billion and the car czar who oversees it, however, are only the beginning. "After that, we're in uncharted water," said Malcolm Salter, a professor emeritus at Harvard Business School who has studied the auto industry for two decades and, until a few years ago, was an adviser to General Motors and Ford. "Think about this: Who in the federal government would have the tremendous insight needed to fix this industry?"
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