The New York Times editorial board makes the case against extending the bailout to Detroit - before supporting exactly that:
The specific request by General Motors and Cerberus Capital Management, the private equity firm that controls Chrysler, is preposterous: billions to help pay for a merger of dubious value. Neither automaker has been able to produce cars that consumers want to buy. Both are losing money hand over fist. Gluing them together would not change this dynamic.
Detroit made its own problems. The auto companies have refused to change their product models even as consumers reject those models again and again. The autos signed over-the-top benefits packages with the United Auto Workers that cripple productivity and efficiency (a sign of what could happen, writ large, if Congress passes and a President Obama signs card-check next year). As their market share diminishes, the autos rely heavily on political connections to sustain their enterprises. It's corporate welfare at its worst. The Times gives two arguments in support of using bailout money to prop up Detroit. Neither argument holds water. The first is that "it is not unreasonable to believe that they might survive as self-sustaining companies if government money can get them over the credit crunch and deep recession that is expected in 2009." Why is it "not unreasonable" to believe this? Because
In 2010, they are expected to offload responsibility for their retirees' health care onto a new fund. It would cost them some $40 billion but would get the problem off their books and stop the hemorrhaging of money. They have negotiated new contracts with the auto workers' union that eliminate retiree health care and allow for lower wages for new hires. They are slashing the production of gas-guzzlers. Some analysts believe they finally have a promising lineup of fuel-efficient cars.
But if this is the case, then why do the autos need the money to begin with? Couldn't they simply speed up offloading their pension commitments into the "new fund"? If they are going to make cars that people will want to buy, can't they rush those product lines? "Some analysts" may believe Detroit could pull through with only a few more billion from the federal government. This analyst is doubtful. The other argument the Times offers is that the government should help Detroit tread water for a year or so, because "the economy and the job market will have their hands full" during this time. The additional responsibility of picking through the wreckage of the big auto companies would prove too much. For whom? The market? Surely there are vulture capitalists who are ready to take over the autos, re-size them, and turn them into leaner, better companies. The government? It's already on the hook. This is economic reasoning on stilts. The economy is probably in recession. But the sooner we hit bottom, the sooner we'll begin to recover. Government intervention to keep failing enterprises afloat may keep us from hitting bottom. But it will also keep us from recovering. Extending the bailout to Detroit is a bad idea.