Auto bailout - The toy wooden arrow strategy

When the Bush administration first asked Congress for $700 billion to bail out the banks by buying "toxic assets" Congress defiantly said no. It looked like our lawmakers had a backbone for a minute there. Then they held some meetings and strategy sessions and came back to triumphantly announce a much better plan. This one was actually worth about $810 billion, but with a significant difference; toy wooden arrow subsidies and wool research grants.  Now that the spending has been approved, the administration has decided that buying "toxic assets" is not the way to go after all.

You may recall back in the days of the Gore/Lieberman campaign, California congresswoman Maxine Waters made a lot of news by expressing severe apprehension about supporting Leiberman for Vice President. She held a much publicized, brief meeting with the Senator, after which she couldn't praise him highly enough.

It's a simple strategy, but it seems to work. When your constituency is opposed to what you want to do, you have to make a show of making it better. The content of the deliberations really doesn't matter, just the appearance of deliberation. We're about to witness the same play with the auto industry bail out.

Nancy Pelosi and Harry Reid have put their proverbial foot down. They've insisted that the auto makers come up with a plan before they get access to taxpayer money. They've given them until December 2. Obviously the Democrats are not going to leave one of their staunchest support groups, the unions, twisting in the wind. Bankruptcy would mean that the Big 3 could re-negotiate labor contracts, which is something the party does not want to be party to. A bail out will be approved, but not before some plan is very publicly presented to Congressional leaders. What will the plan entail? It doesn't matter. It's not as if any of the Congress persons reviewing it will have any idea whether it's feasible or not anyway. It's all for show.

In the long term, or course, for the automakers to survive and thrive they've got to cut costs, cut prices and develop new products that appeal to consumers on a tight budget. A bail out may buy them a little more time, but they will never be able to produce affordable vehicles while supporting a legion of retirees that outnumbers their very well paid workforce. Fortunately for the current executives, Congress seldom thinks long term. If they were serious about revitalizing the auto industry, they would allow them to go bankrupt and reorganize. At the same time they would look at the volumes of regulations keeping newcomers out of the market and find ways to make it easier for both existing and new companies to compete.