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Editorial: Automakers

The bailout bailout

The Senate's inability to throw a lifeline to Detroit has compelled the Bush administration to step in with loans to the automakers to prevent an economic calamity.

Nobody likes rewarding General Motors and Chrysler for failure. But the economy, which already has lost nearly two million jobs this year, can't withstand the body blow from the collapse of one or more of the Big Three. It could result in the loss of three million more jobs.

In Pennsylvania, which has been hit hard by job losses and mortgage foreclosures, about 120,000 workers are tied to the auto industry.

President Bush and Treasury Secretary Henry Paulson are right to indicate they'll provide aid from the $700 billion Wall Street bailout fund for the automakers. The program wasn't created to aid manufacturers, but its broader aim is to avert an economic meltdown.

Allowing GM, Chrysler or Ford to file for bankruptcy protection might very well put the automakers in a position from which they wouldn't recover. Cars are typically the second-largest purchase in a consumer's lifetime, and many consumers would be wary of buying from a bankrupt car company.

The bailout plan approved by the House wasn't ideal, but it was workable. It called on Bush to appoint an auto "czar" who would force the automakers, labor and other stakeholders to agree to concessions to restore the firms to viability. If not, the loans could be revoked.

The president supported this plan, but it fell apart in the Senate amid a disappointing debate hampered by partisan ideology. Some Republican senators demanded that the United Auto Workers agree to wage concessions as part of the deal, and the UAW balked.

That doesn't mean big labor is at fault for killing the legislation. The UAW had already made concessions, including getting rid of its infamous "jobs bank," which paid workers for not working.

The suspicion lingers that some Southern GOP senators, whose states are home to nonunionized auto plants, were motivated by politics more than policy.

Sen. Bob Casey (D., Pa.) said some GOP senators engaged in "a deliberate attempt to hit organized labor in a calculated, political way."

An appointed auto czar would have been in a better position to demand concessions simultaneously from management, labor, suppliers and other stakeholders.

Detroit does need to reduce its labor costs as part of restructuring, but the hourly wages of its current workers don't spell the difference. GM says its average UAW worker earns $29.78 per hour; Toyota says it pays $30 per hour. The difference is in legacy costs. GM's total hourly labor costs are $69 because it includes pension and health-care costs for 432,000 retirees and spouses. Toyota, which has only about 700 retirees in the United States, says its total costs are about $48 per hour.

A short-term loan will help the Big Three stave off immediate failure. But the demise of the bailout legislation means the new Congress and new president have even more urgent work ahead of them.