The actual headline reads: White House to Loan Auto Industry $17.4B. I believe mine is more accurate.
Yes, it would be devastating if GM and/or Chrysler failed. But this loan is not the only option. Yesterday it was reported President Bush was considering managed bankruptcy for the automakers, as a last resort "to be used only if an agreement for a voluntary overhaul of the industry could not be reached". The UAW and auto executives fought bankruptcy because they do not want to overhaul the industry. Union leaders especially do not want to make the drastic concessions necessary for the automakers to survive:
In a traditional bankruptcy proceeding, the U.A.W.’s contracts could be voided and the union forced to renegotiate benefits like health care.
Health care benefits, especially for retirees, are crushing the Big Three:
GM, for instance, has about 450,000 retirees - more than three times the number of its current full-time employees - to whom it pays pensions and for whom it provides medical care. By some estimates, medical costs alone add $1,500 to the average cost of each GM automobile. And the company is facing an unfunded liability of more than $80 billion, about half its annual pre-downturn gross sales, for future health-care costs for employees and retirees and their dependents.
Which explains the old joke that GM is no longer a car company that provides health benefits, but a health-care company that happens to make cars. Unfortunately, the joke's on us. It is now the responsibility of the taxpayers to insure the continued funding of bottom-line busting health care benefits.
UAW President Ron Gettelfinger has consistently maintained bankruptcy is not an option. Yes, it is. No it's not something most companies want to do but when faced with overwhelming costs and a need for drastic restructuring, bankruptcy is the most viable option. Bankruptcy courts exist for this very reason. As for the (supposed) main objection to bankruptcy, that no one would buy a car from an automaker in Chapter 11, surveys don't back it up:
A pair of new surveys suggest buyers aren't completely unwilling to buy a car from an auto maker in bankruptcy court, as long as the federal government is willing to play a role in helping the company restructure.
This contradicts the conventional view of Detroit auto makers that suggests consumers would shun a bankrupt auto maker over fears related to the resale value of a car, the warranty and the ability to secure service and replacement parts.
Too bad the survey didn't ask another question: Would you be more willing to buy from a company in bankruptcy or one in "bailout"?
It will be interesting to see exactly what concessions the UAW is making in exchange for $17.4 billion.