Auto Bailout Hits the Skids

It seemed inevitable that Congress would do something for the car companies. No matter how badly the Big Three’s CEOs botched the public relations, a Democratic-dominated Congress and an exhausted Republican administration were likely not going to let the Big Three go down the tubes, at least not yet — and not before forking over billions in taxpayer funding. Still, the tide of public opinion may have turned, and the Republican tolerance for bailout evaporated, just in time to stop the bailout in its tracks.

The big “break” for the Big Three came last Friday when the unemployment figures showed an astounding loss of more than 530,000 jobs. Without regard to the long-term prospects of these particular companies, Congress was not willing to add to our short-term economic woes.

Now some Republicans, chief among them the savvy Sen. Bob Corker of Tennessee, warned this was foolhardy. Unless labor costs and debt were sliced and unless real restructuring was undertaken, they cautioned, the companies would be back for more  — as much as $125 billion by one estimation. The public seemed to agree and opposed the bailout by a significant margin.

But Speaker Nancy Pelosi was the first to buckle, relenting from her demand that bailout money not come from a previously authorized fund for the Big Three’s conversion to green technology. Then President-elect Obama got into the act on Meet The Press, suggesting that some bailout with conditions attached was the way to go.

By Monday night a draft bill was in the works and by Tuesday details emerged. In exchange for the $14 billion in loans, there would be a car czar installed, limits imposed on executive (but not union) compensation, and warrants taken by the government in the recipient companies to “protect” the taxpayers. Then everyone would be back, presumably for even more loans, in a few months.

Those expecting real concessions from the unions were badly disappointed. Those opposed to throwing money at failing companies were outraged. And those who thought it was a good idea for the government to run car companies were nowhere to be found. (Even the New York Times thought that to be an awful idea.)

Senate Minority Leader Mitch McConnell went to the Senate floor on Tuesday to throw cold water on the emerging deal:

A good proposal would force automakers to get control of their benefit costs.

A good proposal would make wages at struggling companies competitive with other automakers — not tomorrow, but today.

A good proposal would end the practice of paying workers who don’t work.

And a good proposal would rationalize dealer networks. Just as struggling airlines adjust their capacity to respond to market conditions, automakers must respond to market demands as well.

I regret to conclude that this proposal Republicans saw yesterday afternoon does not do enough to fix the whole problem. It subsidizes it. A real solution must protect the taxpayers by forcing the changes needed to put these companies on a path to long term success.

And then the deal hit the skids.  In a flashback to the Henry Paulson $700 billion bailout earlier in the year, it seemed that the Republicans are not going for it. Belatedly the White House scrambled for Republican votes.

Wednesday morning word came of a finalized “deal” between the White House and Democrats that looked pretty much like the draft: upfront money and no meaningful conditions. There would be promises that the companies come up with plans to remain viable, but that was down the road.

Not surprisingly Republicans (who had been largely ignored in all the deal-making) objected to the plan. Sens. John Ensign, Jim DeMint, David Vitter, Richard Shelby, and Tom Coburn promised to slow down the train. The House Republicans came up with an alternative plan that called for upfront concessions by the UAW, restructuring of debt, and a pre-packaged bankruptcy.

Last minute arm-twisting by Bush Chief of Staff Josh Bolton couldn’t convince Republican senators to come aboard.  Pro-bailout lawmakers couldn’t even agree on a single bill to go before the House and Senate. A Senate aide confided that “Schumer and Durbin seem strangely silent. If they felt this was something really important or good for them, I’d think they’d be out there pushing it.” President-elect Obama also remained on the sidelines, apparently wary of watching his efforts be rebuffed.

Wednesday evening the bailout passed the House 237-170, with thirty-two Republicans voting in favor and twenty Democrats opposed. But now, the bill (or some version of it) will face a cloture vote in the Senate on Thrusday or Friday. Unless Republican senators wilt, the end of the car bailout (at least in this form) seemed just around the bend.

So what went wrong for the Big Three? A combination of a lame duck president, a remote president-elect, a divided Democratic Party (pitting pro-labor forces and environmentalists), a disgusted public, and a determination by Republicans to revive their political and fiscal reputations may have swamped concerns about the loss of potentially millions of jobs.

Whether any version of the bill can pass the Senate and whether the Big Three can survive until the Obama administration takes power remain very open questions. But even before Barack Obama takes office we have seen the begining of the end of bailout mania.