If automakers get a federal bailout there should be some serious strings attached

Articles — By forcechange on November 12, 2008 8:58 am

Friedman has a scathing indictment of the Detroit automakers in his column today. 

He asks:  Why do we have to subsidize Detroit so that it will innovate? What business are they in other than innovation?

Friedman answers his own question: “instead of focusing on making money by innovating around fuel efficiency, productivity and design, G.M. threw way too much energy into lobbying and maneuvering to protect its gas guzzlers…. The result was an industry that became brain dead.”

Friedman expands the blame beyond just the automakers, to “the entire Michigan delegation in the House and Senate,” whose votes and maneuvering “shielded General Motors, Ford and Chrysler from environmental concerns, mileage concerns and the full impact of global competition that could have forced Detroit to adapt long ago.” 

We would take this one big step further and expand the blame to the entire Congress and executive branch.  The pathetic environmental and efficiency laws and regulations to come out of Washington are everyone’s fault.  One group of lawmakers from Michigan cannot, on their own, control the policies of the US government– Even if, as Friedman notes, Michigan Representative John Dingell, is the chairman of the House Energy and Commerce Committee and is “more responsible for protecting Detroit to death than any single legislator.”

Nonetheless, the grim outlook for Detroit automakers is what it is, and the question now will be: how much should the government protect them this time?  It seems clear from Obama and Pelosi’s indications that there is going to be a big push to bail out Detroit.  If this does happen, our government better make sure that there are some serious strings attached. 

Friedman suggests these strings should include a complete replacement of the existing boards and management, a loss of remaining shareholder equity, a temporary receiver who will have the authority to implement a new business plan for the company, and an agreement that a plan will be put into place that requires the automakers to shift their entire fleets to hybrid-electric with flex-fuel capabilities (Friedman has confidence in the future of cellulosic ethanol).

While this sounds aggressive, it is no less aggressive than the idea of subsidizing car companies with substantially more money than the value of their entire company.  And it is definitely no less aggressive than continuing down the same old path of oil dependency and environmental destruction. 

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