What Should Detroit Do for Taxpayers’ Money?

When the government gave Chrysler loan guaranties at the start of the Reagan presidency, there were lots of strings attached.

Jerry Flint

September 22, 2008

3 Min Read
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Detroit auto makers finally are asking for the $25 billion in government-backed loans approved but not paid for in last year’s energy bill.

Both presidential candidates say they want to help, so it seems likely some serious proposals will come before Congress.

The question is what taxpayers should demand in exchange for the money. And don’t fool yourself; this is risky business. When the government gave Chrysler loan guaranties at the start the Reagan presidency, there were lots of strings attached. For one, the secretary of the treasury demanded stock options.

As I recall, Lee Iacocca even gave up his beloved company jet as part of the deal.

There’s no reason Congress should not lay out specific conditions in addition to those already specified in the energy bill. The money is supposed to be targeted only at developing new technologies and retooling old plants for much more efficient new models.

But should taxpayers ask for more?

What about stock options at GM and Ford and a 10% ownership position in Chrysler, which is privately owned?

It would be foolish to lend money to Chrysler only to have the owners sell the revived company down the road to foreign interests, such as the Chinese. So how about a taxpayer veto over any sale for 10 years?

And what about equality of sacrifice? Should there be management changes and white collar and blue-collar pay cuts? Thirty years ago, Congress wouldn’t help Chrysler until the union took a pay cut. Add some more concessions if taxpayers are to risk their money to save those jobs.

Then there is the issue of foreign auto makers with plants here. Should the money be lent cheaply to them, too, even though their borrowing costs are lower than the Detroit Three?

Toyota has decided to build Prius hybrid-electric vehicles at its upcoming plant in Mississippi, rather than less fuel-efficient Highlander cross/utility vehicles. Should it get help? Should Mercedes get help to import diesels for the CUVs it builds in Alabama?

And what about help for Nissan, Honda, BMW and Volkswagen? These auto makers are not asking for money. You might think helping foreign companies sink Detroit is foolish. But governors and legislators from Alabama, Mississippi, South Carolina, Georgia, Tennessee and Kentucky might disagree.

Maybe it is unfair to impose harsh preconditions and ask concession-battered factory workers to chip in to save their jobs. But the Detroit Three have to be more aware of how unsympathetic taxpayers and many in Congress are to their plight.

Auto makers, their employees and government representatives from the key manufacturing states of Michigan and Ohio need to make their case more clearly to America.

And they need to remind taxpayers that the last time the government backed loans to an auto maker, it didn’t just save Chrysler and tens of thousands of jobs. The U.S. government also ended up making a lot of money on the deal: including a profit of $250 million from the stock options it demanded.

Jerry Flint is a columnist for, and former senior editor of, Forbes magazine.

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