Auto Industry’s Best Chance for Corporate Welfare is Congress

The U.S. auto industry, comprised of the big three of General Motors Corp., Chrysler LLC and Ford Motor Company, is seeking government aid to the tune of $25 billion, but indications from the White House are that any help would require new legislation rather than a simple executive order. White House spokesperson Dana Perino noted recently, "I’ll just say that Congress will have an opportunity when it returns next week to consider if it wants to do anything in addition for the automakers." If that sounds like passing the buck, it may just be, though it’s understandable given the public sentiment that surrounding the bailout of the U.S. financial system, necessary though that move likely was.

It appears that appeals to Treasury Secretary Henry Paulson are coming from Democratic leaders Nancy Pelosi, the House Speaker and Harry Reid, the Senate Majority Leader, who sent a letter on Saturday to ask the Treasury chief to consider aid to the three automakers. Senator Sherrod Brown (D-OH) has also spoken with Paulson and feels that the U.S. Treasury should take action to "secure the industry and save jobs."

Any would-be bailout of the auto industry is quite different from the bailout associated with the financial and credit markets, and is likely to face public opposition that is greater than that aimed at the controversial $700 billion financial bailout program. Specifically, the weakened financial system is likely to have a greater negative effect on a greater portion of the country, while the auto industry’s problems are more self-contained. For the most part, those working within the industry will be hurt most, and they represent a relatively small portion of the overall population. Any positive economic analysis of the situation would likely lead to the conclusion that more taxpayer dollars aimed at one specific industry is not, on balance, an efficient use of resources.

For their part, the automakers are blaming their recent decline on the global credit crisis, noting that most automobiles purchases are financed and the lack of credit is driving their sales down to historic lows. The $25 billion they are seeking would come in the form of low-interest loans.