Obama on 60 Minutes: Under normal times, bankruptcy for Detroit automakers would be appropriate, but these are not normal times
There’s been an interesting debate going on about whether the Detroit automakers should be bailed out by the federal government. On the one hand is Tom Friedman who on Meet the Press, argued that if he thought giving the industry $25 billion would get them back on track, he would be supportive. However, due to their past and pervasive failures, he has no faith that this would actually happen. As a result, we should only give them the money if it is in conjunction with a concrete plan that would fundamentally change the way they do business. Otherwise, just handing the old management a blank check would just guarantee that they burn through the money, only to return in a few months to ask for another $25
As an op-ed in the WSJ notes, “Like AIG, [GM] will be back for more, and at the same time it will be telling us that it’s doing a great job under difficult circumstances.”
When Tom Brokaw asked Friedman, “Can Barack Obama, the newly elected Democrat, as president of the United States look Detroit in the eye and say, ‘Drop dead,’” Friedman replied, “I think he can. He may have to.”
However, on the other (and notably bigger) hand, on 60 Minutes on Sunday night, President-elect Obama was asked by Steve Kroft what he thought needed to be done, and Obama had a very interesting take on the situation. He noted that under normal circumstances, restructuring the company under bankruptcy protection might be the right path. But given the current credit crisis “you could see the [finance] spigot [being] completely shut off so that it would not potentially permit GM to get back on its feet. And I think that what we have to do is to recognize that these are extraordinary circumstances. Banks aren’t lending as it is. They’re not even lending to businesses that are doing well, much less businesses that are doing poorly. And in that circumstance, the usual options may not be available.”
As a result, Obama “hope[s] that over the course of the next week, between the White House and Congress, the discussions are shaped around providing assistance but making sure that that assistance is conditioned on labor, management, suppliers, lenders, all the stakeholders coming together with a plan what does a sustainable U.S. auto industry look like. So that we are creating a bridge loan to somewhere as opposed to a bridge loan to nowhere. And that’s, I think, what you haven’t yet seen. That’s something that I think we’re gonna have to come up with.”
To be honest, we’re torn. Both sides of the argument have merit. If these were normal economic conditions, Detroit should absolutely be left to fail. But given the shaky national economy, we can see the argument for keeping it on life support. But if we do (and we’re still not sure that we should), we need to extract a pound of flesh, and more. As Obama indicated, “labor,” “management,” “suppliers,” “lenders,” etc., all need to make sacrifices.
And despite GM CEO Rick Wagoner’s protest that he won’t resign, since “It’s not clear to [him] what purpose would be served,” completely new management must, at the most basic level, be a part of any potential bailout.
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