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Let Big Oil bail out Big 3 Auto Companies

The Detroit News

Wednesday, December 10, 2008

Paul Mongerson and Gerry Storch

The U.S. auto companies say they need an infusion of tens of billions of dollars to survive. The oil companies have tens of billions of dollars in cash just sitting around. The two industries depend on each other. President Bush (and President-elect Barack Obama) should ask, persuade, force the oil companies to lend the money as needed to the auto companies.

Sometimes the easiest, most obvious solution is the best one, and certainly this is a better alternative to consider than bailout or bankruptcy. No government subsidies would be needed. Private enterprise would revive private enterprise. Bush could leave office looking better, and Obama would be saved having to deal with a huge problem from scratch.

And surely the oil companies would insist on reforms and improvements by the auto companies as a condition for the loans to maximize their chances of getting repaid and even making some money on the deal. Everybody could be a winner.

Americans thus far have declined to roll over for a rescue of up to $34 billion for the once-dominant General Motors, Ford and Chrysler. It seems unlikely they will.

The leaders of the Big Three blew their chances with their symbolic blunder of pleading poverty on Capitol Hill after being whisked in from their lush private planes. The fact that they meekly made the trip back for a second hearing in their hybrids to mollify their critics meant little; the damage had been done.

Now they may face a further credibility problem in that their request for aid rocketed up from $25 billion just two weeks ago. How high can they go?

Politically, the industry lacks support. While many of the controlling Democrats in Congress are anxious to maintain the financial base of the UAW to keep their dues checkoff contributions coming in, others are more aligned with environmental groups that despise the auto companies. Republicans are strongest in areas that host competing foreign-owned auto plants, which have not begged for a bailout.

In addition, much resentment simmers toward the UAW. Many ordinary working people wonder why they are being asked to subsidize unionized auto workers who receive much more than them in wages and benefits, who receive a far more favorable package of health benefits, and who get much better layoff arrangements.

Bankruptcy has been suggested by some as the best way for the Big Three to reorganize and redo their union contracts. Perhaps in a narrow financial sense that may be so. But we doubt it would wash well with most Americans. It would simply be too much of a blow to the national psyche. It might have unintended consequences of wiping out many suppliers, dealerships and other companies that feed the industry. Bankruptcy should be the last resort.

It’s unfortunate that the auto crisis comes just as the industry is changing for the better. No one can deny it is doing what it needs to do … readying the next generation of electric and hybrid automobiles. It has closed if not overcome the quality gap with overseas competitors and, through cooperation with the union, is greatly reducing the cost differential with competing foreign makes and tackling the problem of huge medical costs for retirees.

The American automakers, at this critical moment, deserve a chance to continue making progress. By process of elimination, there’s no one left to give them that chance but the oil companies. If the U.S. car industry isn’t viable or becomes even more weakened, doesn’t that take away the oil companies’ No. 1 customer?

A Google search of the most recent financial information from the major oil companies shows ExxonMobil alone with a stash of $34 billion. Chevron had cash on hand of $10 billion, Shell of $7.8 billion, BP America of $9.8 billion (at the end of 2007). It sounds like plenty to go around to give the Big Three a helping hand.

Big Oil may not want to do it but if so, President Bush, start being persuasive.

Paul Mongerson is the retired chairman and CEO of Stanadyne Corp. who founded the political discussion/media analysis web site, Gerry Storch, the site’s editor/administrator, is a former Detroit News reporter and editor.


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