Nov. 19 2008 12:00 AM

Any bailout for the Big Three must be seriously questioned and come with conditions because we can't let these companies hold us hostage anymore.

(Courtesy Capital Area District Library)

At 2 p.m. on a Friday at Gus’s Bar along Michigan Avenue in west Lansing, Phillip O’Conner has at his fingertips a pack of Pall Mall cigarettes and a cold glass of Sprite. And in his mind, he has 30 years’ worth of memories of working for General Motors Corp. at plants in Lansing and Flint.

Gus’s Bar is across the street from a wasteland that used to be two auto factories, and a little bit to the east from the local United Auto Workers union hall. O’Conner retired in 2005 and lives in an apartment above Gus’s. He should be enjoying retirement. But, especially now, he’s worried about his pension.

“If they can give $700 billion to the banks, they should give some to the auto industry,” O’Conner says, referring to the $25 billion proposed, but not yet written, bailout for GM, Ford Motor Corp. and Chrysler LLC.

“If they go bankrupt, two to three million jobs could be lost. The whole goddamn country would go bankrupt then,” he said.

And by some standards, O’Conner is right. According to a study by the Ann Arbor-based Center for Automotive Research (its acronym, yes, is CAR), a cut of even 50 percent of Big Three production would cost hundreds of billions in lost personal income. The scenario CAR projected for a loss of all three automakers? It would be Armageddon. Millions of potential lost jobs and billions lost in personal income. Not to mention the hit governments would take in income taxes and unemployment payments.

The horrors being predicted by proponents of a bailout are, truly, horrifying. It seems that a bailout — or “bridge loan,” preferred by some as a gentle alternative to “bailout” because the $25 billion would be paid back to the government after the automakers regained solvency — for the Big Three is more important than that $700 billion that was approved a few weeks ago. The Big Three are too, too, too big to fail because the companies’ tendrils reach to parts suppliers, car dealerships and right down to bars in Lansing.

But, while we sympathize with O’Conner and his pension and his worries about all the friends he has who are still working in the factories, we are having some serious doubts about this bailout.

When a reporter called Adam Benson, the press spokesman for U.S. Rep. John Dingell, the powerful Detroit Democrat, and asked why the congressman would support a bailout for the Big Three, the question was met with a gasp and a stutter.

“OK, OK. It seems like kind of an odd question,” said Benson, whose boss, who chairs the House Energy and Commerce Committee, is probably the biggest enemy of fuel efficiency standards in the world.
Benson shouldn’t be surprised, though, that some would question a bailout for these companies. Just take a look around this state. Take a drive down Grand River Avenue in Detroit between Interstate 96 and Martin Luther King Jr. Boulevard and see for yourself the economic ruin left by decades of a declining auto industry. Go to Flint, Pontiac, Saginaw or, for that matter, Lansing. Michigan has the worst economy in America because of all those auto industry jobs have gone down the drain.

But there’s more than just the blight and poverty given to us by the Big Three. There’s also our environment, which is filled with a little more carbon monoxide after years of having gas-guzzling SUVs, trucks and eight cylinder car boats peddled to us because a bigger car equals more profit. Never mind the promise the Big Three made in 1993 to Bill Clinton and Al Gore that they would develop zero emissions “supercars” by 2004. General Motors made the all-electric EV-1 in limited production and for lease only. And in 2003, GM took all the EV-1s out to the desert and destroyed them. Now, it struggles to build the Volt, an electric/gas-powered car it hopes to start mass-producing by 2010.

But aside from the mistakes and the hurtful things these companies have done, there are some logical questions. What, exactly, is $25 billion going to do for these three companies, anyway? It would be illogical to assume that $25 billion would be enough to do much in keeping these companies afloat — GM alone spends $2 billion a month on operating costs.

And, if you insist on calling this a “bridge loan,” where exactly does that bridge lead? Is it a bridge to nowhere? Can we reasonably believe that this chunk of money will allow these three giant corporations to “re-tool,” regain market share and again be atop the industry?

No. Like giving spare change to an alcoholic outside a liquor store, it would be a waste to hand these companies $25 billion and expect everything to be OK. Except, with the alcoholic, only his personal safety is at risk; with the Big Three, at risk are thousands or millions of jobs, some of which are being done right now by our friends and neighbors.

Nothing that would be more satisfying than to wipe that disgusting smile off Rick Wagoner’s face by letting his company go under, but we can’t do it at the expense of all those jobs. Maybe just his job.

What everyone is saying

Lansing Mayor Virg Bernero left here Monday night around 7 p.m. bound for Washington. He took with him — besides an unhesitant scorn for anyone opposed to the Big Three — City Council Vice President Derrick Quinney, a former auto worker and now the health and safety director for the Michigan AFL-CIO.

(For more from Virg Bernero click here)

The Lansing delegation is going to lobby politicians to come out in favor of a Big Three bailout.
Bernero was a little angry and excited at an airport press conference he hosted before he left for D.C., pledging to hound federal lawmakers and practically turning his tongue out in distaste at anyone opposed to a bailout.

“For a city like Lansing, there’s nothing more important than the survival of GM,” Bernero said vaguely in an interview last Thursday. Bernero is speaking of the 5,770 employed in Delta Township and in Lansing by General Motors, according to the company’s Web site.

But, getting specific about the bailout is hard. When Quinney was asked what $25 billion would be a bridge for, he didn’t quite know — he could only offer that it would be to “re-tool” in order to survive until Barack Obama gets into office and, presumeably, saves everyone. And Bernero, well, when asked, he couldn’t name which politicians he would be meeting with in Washington.

But both Bernero and Quinney’s hearts are in the right place: saving jobs.

“We are going to advocate for the survival of the auto industry,” Bernero said before he left. When asked what conditions he or his fellow mayors would asked be included in a bailout, Bernero said, “We are not going to legislate, but to advocate.”

Outside of Lansing, there are tens of thousands of auto industry jobs in Michigan.

Gov. Jennifer Granholm has been the fiercest advocate for the $25 billion bridge loan for the Big Three. As a member of President-elect Obama’s 17-member economic advisory panel, she appears to have put the bug in his ear, and he’s been noticeably more vocal in his support.

Although Granholm has said that “there should be and there will be strings attached” to the cash for labor and industry, she hasn’t delved into specifics. She shoots down critics who claim that the domestic automakers can file Chapter 11 bankruptcy and survive like the airlines have.

“Who will buy a car from a company that has gone bankrupt?” she asked rhetorically on a recent conference call.

Meantime, the Bush administration has been pushing for Congress to re-appropriate $25 billion from last year’s energy bill to help the ailing automakers. That money was set aside so the Big Three could adapt to higher-fuel economy standards. But Granholm spokeswoman Liz Boyd calls that plan “shortsighted.”
“If they use the money as a bridge loan, once they get to the other side, they still won't be making American-made competitive products of the future,” Boyd said.

U.S. Rep. Mike Rogers, the Michigan Republican whose district holds many of Michigan’s automotive jobs and stretches from Lansing to Lake Orion, opposed the Wall Street bailout, but he favors this one. Rogers, in an interview last week, said he feels that the Big Three have been victims of government mandates — like minimum standards on miles per gallon. Rogers says that there are “so many exciting things that can happen in the car industry if we just let them do it.”

Rogers says the first priority should be give Detroit the $25 billion approved in last year’s energy bill for more fuel-efficient cars, and that the “bridge loan” should be used to speed development of the Volt and other “green” cars.

“It it’s a loan program that will be paid back plus interest, I think that’s in the interest of taxpayers to keep these folks going while they’re trying to meet $80 billion in government mandates. That’s a much better deal for the taxpayer than what that $700 billion giveaway was,” said Rogers.

So, a lot of people and politicians in Michigan are terrified that the state’s iconic industry could collapse. Maine would still have its lobsters, Florida its oranges, but what would Michigan be without Billy Durant, Henry Ford and all the rest?

The view of a Big Three bailout outside our state — especially in the south — seems to be unsympathetic. (In the south, by the way, Toyota, Honda and Nissan operate non-union plants — Toyota is finishing a plant in Blue Springs, Miss., while GM just finished a plant outside St. Petersburg, Russia.)

“They’re not building the right products,” Sen. Richard Shelby, R-Ala., told The Associated Press on Sunday. “They’ve got good workers, but I don’t believe they’ve got good management. They don’t innovate. They’re a dinosaur in that sense.”

Influential pundit Thomas Friedman wrote in a Nov. 12 New York Times op-ed column called “How to Fix a Flat” that he shouted at his television screen when he saw an item about a Big Three bailout.
“We have to subsidize Detroit so that it will innovate?” he wrote.

David Yermack, a professor of finance at New York University’s Stern School of Business, pointed to Detroit’s bad history in his “Just Say No to Detroit” op-ed, which appeared in the Nov. 15 Wall Street Journal. The Big Three, Yermack wrote, has already wasted a staggering amount of capital, which he called “national savings” the country can ill afford to lose. Between 1980 and 1990, he wrote, GM and Ford destroyed $110 billion in capital. General Motors alone between 1998 and 2007 burned $182 billion.
“Investing in the major auto companies today would be throwing good money after bad,” Yermack wrote.

Michael Levine, a law professor at New York University, argues that bankruptcy is the best option for GM because “Chapter 11 would better preserve the valuable parts of the company than an ad hoc bailout.” Writing in Monday’s Wall Street Journal, he cites the successful reorganizations by airlines and large retailers under bankruptcy protection from creditors and unions, whose agreements could be torn up. As for customers’ not buying cars from a bankrupt GM, he said the stigma argument would be “largely irrelevant to a major company undergoing a well-publicized positive transformation, almost certainly under new management.”

In the recent documentary about climate change titled “Heat,” produced for the PBS series “Frontline” by journalist Martin Smith, General Motors shows amazing incompetence. In one scene, GM allows Smith to film a test drive of the Volt. When the car fails to work properly — unable to even climb a hill or exceed speeds over 20 miles per hour — the GM personnel on scene suggested to Smith that he speed up his tape to make the Volt appear to work.

Smith said that he discovered that the Big Three had turned away from developing hybrid or zero emissions cars over the last few decades in favor of gas guzzling SUVs and trucks, which brought in bigger profits than small cars. But while Detroit was building large vehicles, foreign automakers were building big trucks and at the same time working with their governments to develop hybrids, like the Toyota Prius. The foreign automakers were hedging their bets.

“Gas was cheap and (Detroit) continued to just stick their heads in the sand,” Smith said in an interview. “When oil prices went up, (Detroit) had not hedged their bets.”

(For more from Martin Smith click here)

But none of that really matters now. Smith said that that denying the Big Three a bailout as a punishment for its mistakes would be wrong. And, so far, the most comprehensive look at a Big Three meltdown — the CAR report — is what proponents point to as a great reason to move forward with a bailout.

David Cole, chairman of the Center for Automotive Research, authored the report. He says the current crisis among automakers (or, at least, the top three American automakers) can be blamed on the frozen credit market. If buyers and dealers can’t get credit to buy cars, then no cars will be sold.

Cole is one of those people who say that the bailout should be called a “bridge loan.” And so far, Cole is the only one who could explain to us where that bridge goes. The $25 billion is meant to see the automakers through until either the credit market is stable, or another stimulus package is handed out.

The timing is key, says Cole. If the financial market begins to stabilize soon and credit is approved for car buyers, the $25 billion could be all the government would have to pitch in. But if the credit market stays the way it is, the federal government might have to loan money to Detroit again — what’s ironic is that Detroit is in the same credit bind that a lot of its customers are in.

Again, Cole warned of how awful even a partial shutdown of the Big Three would be.
“The taxes alone that we’d lose are greater than the bailout costs,” Cole said.

(For more from David Cole click here)

So now what?

Ed Mahinak was sitting a few feet from Phillip O’Conner, drinking beer and had been reading a copy of the Detroit Free Press; it’s one of the five newspapers he reads every day, including The New York Times and The Wall Street Journal. So, he knows his news.

He also knows the auto industry. Mahinak has worked “all around” auto plants, mostly in painting. He retired in 1995, but still comes to Gus’s twice a month, because it’s where he used to come when he was working. Mahinak had retired from GM just as the famed EV-1 was about to begin production.

“We’ve made too many mistakes,” he said of General Motors. “I’m not sure we’re going to recover from this.”
The companies have made mistakes and need to change, Mahinak says. So what’s $25 billion?
“It’s not the $700 billion on Wall Street,” he said.

Gus’s was kind of empty for a Friday afternoon. So was Harry’s Place just up Verlinden Avenue. The UAW office was closed for Veteran’s Day — the Friday after Veteran’s Day is taken as a holiday for union autoworkers because it’s the first day of deer hunting season.

(For an interview with with Gerald Holloway, a former autoworker, click here)

With a burning Pall Mall in his hand, O’Conner qualified his support of a bailout — he never refers to it as a bridge loan. Company big wigs need to get paid less and the money shouldn’t be spent overseas; there have to be rules to regulate the money.

“I don’t want my tax dollars to go to them building a plant in China,” O’Conner said.

(City Pulse Intern Nathan Harris and MIRS reporter Susan Demas contributed to this report. Mike Rogers' comments were taken from the City Pulse radio show, which airs every Wednesday at 7 p.m. on 88.9 FM.)