Bush Auto Bailout Illegal, Bailout Supporter Admits

Clinton Administration Labor Secretary Robert Reich, who supports bailing out the Detroit automakers (whose unionized workers are paid $70 an hour), nevertheless points out that the Bush Administration’s plan for an auto bailout, using financial-system bailout funds, is illegal and unconstitutional. We, the Heritage Foundation, and many others earlier reached the same conclusion.

The Bush auto bailout is a waste of billions of dollars in taxpayers money. It will be less successful in restructuring the auto industry and restoring its competitiveness than it would be for the Detroit automakers to file for bankruptcy under Chapter 11.

A similar auto bailout in Britain in the 1970s failed miserably, allowing inefficient work rules, unsustainably high wages, and inept government-promoted business practices to destroy whatever chance the British auto industry had left to survive. British taxpayers lost billions in the failed bailout, which just delayed the eventual takeover of British car production by foreign automakers. Bush’s bailout similarly fails to require any meaningul reforms, such as changes to outmoded and rigid union work rules that impede productivity and put the Detroit automakers at a competitive disadvantage.

Bailing out American automakers probably won’t be limited to the initial $17.4 billion in (unlikely to be repaid) loans the Bush Administration has given the automakers. Analysts have predicted that repeated infusions of cash will be needed to artificially prop up the industry, costing perhaps $125 billion.

In pushing the bailout, the Bush Administration and liberal lawmakers have ignored simple alternative measures that would help the Detroit automakers at no cost to taxpayers, such as repealing expensive regulations (like CAFE rules), and preempting state dealer franchise laws that make it very expensive for automakers to get rid of redundant auto dealerships.