Auto industry bailout can't wait for new president

11/14/2008

DETROIT - Soon after Franklin D. Roosevelt defeated Herbert Hoover in the depths of the Great Depression, the old president reached out to the incoming president-elect.

The economy was getting worse and worse, and Hoover wanted the president-elect's support for his policies. FDR was, however, no fool. He knew he needed to break with the policies of the past, and that would be much harder if he were tied to them.

So he politely told the man he had defeated that he, Hoover, should do as he saw fit, and that he, President-elect Roosevelt, would pursue his own course once he was in office.

Historians generally agree that was the right course to follow.

Something like that happened this week when President-elect Barack Obama met with President Bush, then told the media that the nation has one president at a time. But these days, the domestic auto industry is living on borrowed time. And there may not be enough of that to keep General Motors alive until the new administration takes office.

Mr. Obama didn't directly defeat President Bush, of course, though he won a solid victory running against his policies.

Yet the nation is gripped by several economic crises, and one that most urgently needs action threatens to devastate the economies of Michigan and Ohio. GM is facing a cash-flow crisis that could cause it to run out of money to pay its bills, possibly as early as January.

President Bush, who enthusiastically backed the $700 billion bailout of the financial services industry, was said to be balking at saving a key component of the U.S. manufacturing sector.

In a bizarre juxtaposition, the President reportedly told Mr. Obama he might be more receptive to an auto industry bailout if congressional Democrats were willing to go along with extending free trade protection to Colombia.

What Mr. Obama said to that is not known. What is known is this: GM is burning through cash at the rate of almost $2 billion a month. Though the company has had a negative cash flow for some time, that has been greatly accelerated since the Wall Street meltdown was followed by a credit crunch.

Selling cars becomes impossible when customers can't get credit. Ford Motor Co., which at one time was seen as being in worse shape than GM, managed to borrow billions last year, when that was still possible. Chrysler, which most experts think is no longer viable as a stand-alone company, does have large reserves of cash.

Desperate for cash flow, GM last month asked for government assistance to buy Chrysler. Washington wasn't interested, perhaps in part because GM was mainly interested in the cash, and most Chrysler workers would have lost their jobs.

Now, analysts like Deutsche Bank's Rod Lache calculate that GM can't wait for a friendlier Obama administration to take over Jan. 20. He puts the long-term value of GM shares at zero.

Were GM another industry, a chain of grocery stores, say, bankruptcy protection might make good sense. Auto industry experts say customers worried about their warranties just would stop buying GM cars, and the company's parts suppliers might collapse.

Congressional Democrats plan to hold hearings next week. In Michigan, however, both parties seem united on the need to save the automakers. "Absolutely," said U.S. Rep. Fred Upton, a Republican who represents the southwestern corner of the state.

"The cost of letting the Big Three fail would be 10 or 20 times the cost of a bailout," said Mr. Upton, 55, who has been in the House since 1987.

"There isn't a single auto plant in my district, but there are all kinds of factories that make parts. If the auto companies fail, it would mean at least a million jobs." (The nonprofit Center for Automotive Research calculated that failure of all the Big Three could mean closer to 3 million lost jobs nationwide.)

The congressman also disputed the Bush Administration's assertion that it was not proper to use any of the $700 billion bailout to save the auto industry.

"We talked about it on the floor of the House - John Dingell and Barney Frank had a colloquy about it," Mr. Upton said.

He is in favor of attaching strings to the bailout, and making sure any automaker that takes the funds establishes a schedule to pay them back, much as the old Chrysler Corporation did successfully in the early 1980s. As he sees it, saving the auto industry is a win-win situation for all concerned.

When hearings start next week, he and his Michigan congressional colleagues will try to persuade the rest of Congress - and outgoing President Bush - to agree.

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Michigan Republicans Catch a Break: Nobody is saying so publicly, but the battered GOP is breathing a sigh of relief today.

That's because Amway heir and billionaire Dick DeVos announced he would not be a candidate for governor in 2010.

Two years ago, when Mr. DeVos did run, his vast resources ($35 million) scared other candidates away, and he captured the GOP nomination without a fight. Unfortunately, he was a dreadful candidate. His speeches were wooden, his debate performance embarrassing.

By taking himself out of the race, Mr. DeVos opens the door for a whole pack of GOP candidates, beginning with Attorney General Mike Cox.