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Will Big 3 bailout work?

2008-11-13 07:34

Chicago - Since his election last week, Barack Obama has largely avoided getting entangled in resolving issues now that will face him later as president, except for one big item: Bailing out the US auto industry.

A heated debate has broken out in Washington over whether to use $25 billion of a $700 billion financial bailout package to provide a lifeline to the Big Three automakers -- GM , Ford and Chrysler -- which are suffering from plummeting sales.

Professing that the United States has "only one president at a time," Obama is avoiding Washington this week as world leaders who would love to take his measure are gathering there for a financial summit.

He is also steering clear of a lame-duck session of the US Congress that will attempt to craft a new economic stimulus package, a job that will be left to him when he takes over on January 20 should an agreement fail to materialise.

But Obama, a Democrat who had solid support of labour unions during his presidential campaign, has come out firmly in favour of the auto bailout, raising the issue at a news conference last Friday and again in talks with Republican President George W. Bush on Monday.

Obama transition leader John Podesta told reporters on Tuesday that Obama wants to ensure that the auto industry survives to produce "the kind of vehicles that the American public need, and complete the job of creating more efficient vehicles that meet our energy needs."

Proponents of a bailout see the auto industry as an important source for millions of US jobs that must be saved, not just in production lines, but rippling down to auto parts companies, car dealers and repair shops.

If the US government is willing to bail out insurance giant AIG with $150 billion in taxpayer funds, surely it can send $25 billion to Detroit, according to this line of thinking.

Millions of jobs

"We're talking about $25 billion to save millions of jobs in this country. I don't think that's unreasonable," said Michigan Democratic Sen. Debbie Stabenow on Fox News Channel.

Detractors say the auto companies should be left to resolve their own problems after refusing for years to offer innovations such as more fuel-efficient cars in favor of gas-guzzling vehicles that have fallen out of favour after Americans got a taste of $4-a-gallon gasoline last summer.

New York Times columnist Thomas Friedman wrote on Wednesday that the auto industry has avoided innovation for years, shielded by Michigan's congressional delegation from environmental and mileage concerns and the full impact of global competition.

The Bush administration has been cool to the idea of using the $700 billion bailout package to rescue the Big Three.

White House spokesman Tony Fratto said if Congress wants to send money to the Big Three, there is already a loan programme in place for the auto industry that only needs to be amended.

"It's strange that Congress' intent here is to take money that was appropriated to deal with an emergency in our financial system and use it for some other purpose," Fratto said. "The emergency has not gone away. We are still dealing with an emergency situation in our financial system, so taking money away from it does not make sense."

Presidential scholar Stephen Hess, who examines what new presidents need to know in his book, "What Do We Do Now? -- A Workbook for the President-Elect," said Obama appears to be on the right side of public opinion on the issue.

"I think it's not only what people consider justifiable, but it's something that presumably Congress can try to do in it's lame-duck session," he said.

But economist Peter Morici of the University of Maryland's School of Business said Obama would be making a mistake to bail out the Big Three without major reforms or else they will end up in bankruptcy two or three years from now.

"It won't work," he said. "Giving them some assistance now won't make them cost effective two years from now."


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