Car Wreck Waiting to Happen: Why Block the Auto Industry Loan

The Senate recently blocked a House bill to bolster the failing US auto industry, where the House passed the measure (H.R.7321) to loan funds to the failing industry. Interestingly the HR bill, unlike the TARP measure (H.R. 1424), required the auto companies to pay back the loan with interest. A measure that favored tax payers. However with the death of HR 7321 in the Senate, the fault of both Democrats and Republicans alike, a new strategy emerges and firmly places the responsibility of rescuing the auto industry in the executive branch.

Curiously, Senate Minority Leader Mitch McConnell cited labor union resistance to concessions as the cause of HR 7321's failure. McConnell and other Senate members wanted the UAW to cut wages in half. Maybe the opposing Senate members rode the false assumption that auto workers make $70+ an hour (see the The New Republic article), and thought that needed cut to a more reasonable level. But more likely, the Senate used the UAW's resistance as an impetus to push for a different direction in the auto industry bailout.

Since the death of the HR 7321 the only option for automakers is to tap into the Wall St. funds, which the current administration controls. If Bush extracts funds from the Wall St. bailout the auto industry will receive the funds under similar stipulations as the financial institutions; that is none. Rather than receive a loan from the bill passed by the House, the auto industry may stand to receive money without any return to tax payers. Congress may block or add contingencies to a new disbursement of the Wall St. bailout, but significant oversight measures are unlikely. Most likely Congress will simply allow distribution of the funds with fewer or no requirements as compared to the Bill passed by the House.

The political wrangling forces the hand of the president to include the auto industry in the long list of recipients of the tax payers money, no questions asked. And in the end the auto industry, like Wall St., will squirrel or squander away the money received from the federal government, making no improvement on the job outlook of autoworkers or the economy at large.