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The midst of a recession is no time to let a major component of the manufacturing sector, one with a large workforce, go under. Thus the consensus in Washington seems to be that Detroit’s Big Three will get some kind of bailout. But there is an impasse over how best to do it.
The Bush administration and a number of congressional Republicans want to allow the automakers to divert a previously approved $25 billion loan program to tide them over until car sales pick up.
The Democratic congressional leadership, backed by environmental groups, is opposed. They want the program to stick to its original purpose — funding the design of a new generation of fuel-efficient vehicles. But if GM, Chrysler or Ford goes under, it is not going to be building vehicles, fuel efficient or not, of any kind.
The Democrats instead want to tap the $700 billion bailout fund for the $25 billion, meaning the taxpayers’ exposure in Detroit would now be $50 billion. The bailout fund has already morphed once, from relieving financial institutions of their least salable assets to taking equity positions in banks. This latest strategy by the Treasury should be given a chance to show it can work, especially now that a special inspector general has been named for the fund.
If an exception is made for the auto industry, every other troubled sector of the economy will be lining up at Treasury’s door for a piece of the bailout. In a way that’s already happening with firms converting themselves into bank holding companies in order to qualify for federal cash.
Moreover, the bailout was specifically tailored for the financial industry. Any rescue package of the auto industry should be equally specific. In any event, time is of the essence, especially with Congress scheduled to adjourn for the rest of the year Friday. Redirecting the existing $25 billion loan is the fastest and simplest way to go.