LAT analyzes Big Three bailout arguments

In an editorial today, the LAT reviews the Big Three carmakers' financial situation and then analyzes some of the arguments for and against a government bailout. In doing so, the LAT assigns undeserved significance to some arguments and fails to take up others.

For example, the LAT says, "There's little difference [between the Big Three and foreign automakers] these days in the average wages paid and benefits offered to new (emphasis added) employees, or in the time spent producing each car." True but unimportant. It's wages paid and benefits offered to long-time employees and former employees that put the Detroit automakers at a disadvantage.

The LAT argues that no "large gaps remain in quality, reliability and innovation" but then laments "the public's perception that their [the Big Three's] products are inferior." The LAT thinks Detroit's cars are as reliable, innovative and of high quality but car buyers don't. It's car buyers who matter. Their perception make take years to change.

The Big Three have made a satisfactory case for temporary help from the government, the LAT believes. The foreign carmakers have suffered from lower sales in recent months too, the LAT points out, suggesting the Big Three may not be such poor marketers after all. Either way, the taxpayer is going to be on the hook for billions of dollars because of "massive liabilities for workers' pensions," the LAT says. "We think there would be less pain caused by restructuring into smaller and more efficient units without dipping into liquidation."

It's true that Japanese and German carmakers have suffered recently from lack of demand. But the Big Three have suffered for years. Because workers' pensions are guaranteed by the underfunded Pension Benefit Guaranty Corporation, a government entity, it's true that taxpayers will be on the hook whether or not the Big Three are bailed out. But the bailout alternative will be more expensive and will not force the carmakers to reorganize and restructure. No one is talking about liquidation, only reorganization under Chapter 11.

In the final analysis, no government entity, official or agency can make the Big Three competitive and profitable. Congress can't. Neither the outgoing or incoming president can. The carmakers must do it themselves. They will not until they face a "come to Jesus" moment. That moment is almost here. A bailout can only postpone the moment for a few months.