The Right Way to Bail Out the Auto Industry

There is a way to bail out General Motors, Chrysler, and Ford that free market advocates can enthusiastically endorse.

In fact, given the potential exposure involved in an open-ended bailout ($125 billion, maybe more), this proposal might even make those who would otherwise be reluctant willing to structure the bailout funds as grants instead of loans.


What a principled bailout requires is a signed list of admissions, written into the bailout law and incorporated into all underlying agreements, by:

  • The creators of what I have been calling the POR economy — namely Nancy Pelosi, Barack Obama, and Harry Reid.
  • The CEOs of the Big Three.
  • The United Auto Workers.

There should be no bailout unless all admissions are made.

* * *

Admissions by Pelosi, Obama, and Reid

We acknowledge and admit that:

  • In June, our statements (Pelosi, Obama, Reid) opposing any expansion of exploration or drilling for domestic energy resources caused businesses large and small to cancel or defer expansion and hiring plans, and consumers in general to curtail their spending.
  • Our consistent advocacy at that time, and throughout the election campaign, of punitive increases in Social Security and federal income taxes on the nation’s highest earners, to take effect as soon as possible, have led those who would be affected to seriously curtail their spending and investing.
  • Our political party’s decades-long insistence that banks approve mortgage loans which violated prudent lending standards led to the collapse of government-sponsored enterprises Fannie Mae and Freddie Mac and insolvency at many financial institutions, thus creating the conditions that led to the blackmail-driven passage of the financial services industry bailout in early October.
  • The three items just mentioned have transformed what had been a difficult but manageable economic situation in early 2008 into a serious downturn.
  • The election of Obama as president, and the concurrent increase in Pelosi and Reid’s House and Senate majorities, are the primary reasons why employers reduced payrolls by 634,000 in November, compared to hiring over 300,000 during November 2007.
  • The collective effect of the aforementioned actions and events have caused sales at the Big Three automakers, which had already been falling at double-digit rates on a year-over-year basis (12% to 22% in May), to decline calamitously (30% to 47% in November), gravely damaging the companies’ already difficult positions and leading two of them to the brink of bankruptcy.

Admissions by Big Three management

We acknowledge and admit that:

  • For over 25 years, in the face of a growing competitive threat from more efficient foreign-owned companies with manufacturing plants in the U.S., we failed to implement a lower, more efficient cost structure in our negotiations with the United Auto Workers union, and failed to effectively manage our salaried workforces.
  • We have often failed to adequately respond to vehicle market conditions and consumer desires.
  • We have poorly utilized our research and development dollars.
  • We have failed as stewards of our shareholders’ money and trust.
  • The funds to be disbursed by the U.S. Treasury represent a bailout.

Admissions by UAW President Ron Gettelfinger on behalf of the United Auto Workers

We acknowledge and admit that:

  • Our militant abuse of our virtual monopoly position in the 1960s and 1970s led the Big Three to enter into contracts that brought about their serious financial difficulties in the late 1970s and early 1980s.
  • For decades, we have run our union for the benefit of our more senior members at the expense of less senior members, including but not limited to two-tier wage structures and, more recently, permanently lower pay for new members.
  • We have negotiated and enforced antiquated work rules and ruinous “jobs banks” that have caused the Big Three to be much less efficient than other vehicle producers in the U.S. We unconditionally agree to eliminate the jobs banks and all work rules that are not directly relevant to members’ on-the-job safety or health within six months after the first bailout funds are disbursed.

Joint admissions by Big Three management and the UAW/Gettelfinger

We acknowledge and admit that:

  • Instead of permanently fixing the domestic auto industry’s structural problems in the early 1980s, we prevailed upon then-President Ronald Reagan to establish “voluntary” vehicle import quotas. These quotas led foreign makers to build manufacturing and supporting parts plants in the U.S.
  • Our continued existence is not a prerequisite for a healthy U.S. economy.

Additional requirements

The parties hereby agree that the bailout disbursements, not to exceed a combined $22 billion, will be the only bailout disbursements made.


Any subsequent statement made by any party to this agreement that contradicts the admissions contained herein will cause funds previously disbursed to become immediately repayable to the U.S. Treasury without recourse.

* * *

These admissions are a small but necessary price that Pelosi, Obama, and Reid must be made to pay to keep their most favored union alive. Similarly, Big Three CEOs must accept their share of the admissions medicine to stay afloat. Finally, the UAW must admit its responsibility for pushing its employers to the brink.

If the parties involved want the bailout badly enough, they will end the posturing and reality avoidance, and make these required admissions. If not, bankruptcy for GM, Chrysler, and perhaps even Ford is the only option that makes sense.

So sign on the dotted line, folks, and you can have your precious bailout money — this one time.


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