Why not let Detroit's Big Three go bankrupt?

Kevin G. Hall | McClatchy Newspapers • Published December 03, 2008

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WASHINGTON — To hear the chief executive officers of Detroit automakers and union leaders tell it, bankruptcy and economic hellfire await if lawmakers don't craft a government bailout for them, soon.

Probably not, according to legal and economic experts, who warn that what's ailing Detroit isn't fixable with the $25 billion being sought.

Government aid of the sort that's being debated might allow U.S. carmakers to survive a bit longer in their current form, but even supporters acknowledge that it's unlikely to make them thrive.

For now, their fallback argument is that not helping them could be the worse of two bad options.

"If one of the companies was to go into bankruptcy, I would almost bet it would take another one with it, and possibly all three of them," Ron Gettelfinger, the president of the United Auto Workers union, told the Senate Banking Committee late Tuesday.

To get back on the road to viability, experts said, Detroit's Big Three are going to need more than government money. They're likely to need the government taking over their so-called "legacy costs," the pensions and health-care benefits they've made to generations of workers during better times.

"This is not a bailout of the auto industry. The U.S. auto industry is doing just fine. It is a bailout of the United Auto Workers (union), and regardless of what happens to the bailout, it will simply prolong a period of poor performance," said Michael Hicks, an economist at the Center for Business and Economic Research at Ball State University in Muncie, Ind.

Hicks describes himself as a middle-of-the-road, nonideological economist. He carries weight on auto issues, however, since Indiana is, along with Michigan, Ohio and Kentucky, home to a large swath of auto and auto-parts manufacturers for Detroit carmakers and foreign automakers such as Honda and Toyota that build cars in the U.S.

"It's not really the wages of the guys at the factory that are the problem. It's the legacy costs, and the other union or labor costs, that are so damaging," Hicks said, pointing to items such as full pay for idled UAW workers, and janitorial staff getting hefty union wages that saddle carmakers with higher costs than the transplants.

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