Answer to Mickey Kaus

by Walter Olson on December 11, 2008

A. Because protecting the UAW’s contract, and the entrenchment of auto dealers under horrible state laws, and the executives’ perks, and the CAFE-law irrationalities, and the various goodies a half-dozen other constituencies want to hold on to, is the whole point of structuring the bailout the way Congress is structuring it. You’re welcome. (Dec. 11).

P.S. At Forbes, Dan Gerstein wonders why Chrysler’s rich parent Cerberus deserves bailing out.

{ 4 comments }

1 Ted 12.11.08 at 1:56 pm

Don’t forget the part of the bill that forbids the auto companies from protecting their self-interest by challenging illegal environmental laws. The Congressional plan appears to be to make the money-losing auto industry stop selling its profitable large vehicles and sell more money-losing small cars. Oy.

2 CarLitGuy 12.11.08 at 4:02 pm

While I have strong personal feelings here, due to my direct involvement in the situation, I will not be commenting on this issue – though I understand the poison pill preventing the manufacturers from protecting themselves against a patchwork of state regulatory changes to vehicle emissions requirements was removed from the Senate version of the proposed bridge loan yesterday afternoon.

3 krs 12.12.08 at 9:52 am

I had the same question about Cerberus cross my mind, but I’m much more naive about these things than most people who read this blog. Does anyone know the answer to Dan Gerstein’s question?

4 vr 12.12.08 at 7:38 pm

I don’t *know*, but Gerstein question is kind of beside the point. I’ll wager Cerberus has more money they could invest. But they won’t invest more for the same reason no other private entity will invest in Chrysler, either through equity or bonds–it’s a high-risk investment that has little chance of coming out favorably, given what I assume are the roughly 20% yearly returns they require of any investment. (Compared to the US government, which can currently borrow at 2% and could live with a 5-10% yearly return).

This is somewhat beside the point for the question of whether the US should invest. It seems like they’ve built a case that says that if any of the big 3 go down, their employees are out of work, many suppliers then go down without a large customer, the other big 2 go down, more suppliers go down, “1 in 10 jobs in the US that are dependent on auto industry” go down, and given that our economy is contracting already, this chain reaction pushes us into deep recession/depression. (I’m exaggerating for effect). Just the social service costs (unemployment, lower taxes, etc) of these economic negatives could be equal to the 30 billion we’re being asked for.

Is this line of argument real or overhyped? Is 30 bn really all they’ll need? I don’t know. But Cerberus’ investment equation is far different from that of the US as a whole.

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