The lack of political acumen consistently demonstrated by the Big Three auto executives is mind-boggling. At its heart, politics is about salesmanship. The Big Three need to sell the bailout to Congress, and to do that they need to help Congress sell it to Americans–many of whom are facing their own economic troubles and aren’t in a particularly forgiving or generous mood.

So at the first round of hearings, the Big Three show up with a patently invented figure–$25 billion–that they demand from Congress. They make no effort to downplay their own massive salaries or the massive salaries of their boards, even while they complain about union contracts and talk about the need to lay off workers. They fly their in their plush corporate jets, and then seem puzzled that Congress cares about the symbolism of it all. Most importantly, when asked what they would do with that $25 billion, they offer vague generalities. It was an awful performance, and Congress sent them home to get their act together and try again.

And so back they came. This time, they all drove–mostly in hybrids. They all promised to work for $1 per year until they repay the loans they ask for. They each submit a proposal for what they are going to do with the billions of government money they are asking for, and also open up enough of their books to demonstrate the dire consequences that will result if they don’t get that money. Then they make the rounds on the cable news shows to take their case more directly to the public. It was a much better showing all the way around.

Better, but still not great. Yes, they showed up with detailed proposals: but in the process, they asked for a significantly larger figure than they first demanded. While the $34 billion may be more accurate, it glared a huge spotlight on just how unprepared they were for the first round of meetings when they asked for $25 billion. It also made Congress’ job of selling the plan to the public all that much more difficult; after all, in what kind of negotiation is your second offer worse than your opening offer? (”I’ve gone back and talked to my manager, and we’ve got a great deal for you! You know how the sticker price is $20,000? Well, we’re going to charge you $25,000!”)

The real culprit there is General Motors, who has asked for $18 billion by themselves. In case you were curious, that’s more than $60,000 for every person on the planet employed by General Motors, and is enough to pay the operating expenditures of that company through next summer. Surely General Motors doesn’t actually need that much money to continue to operate; they are consciously putting down a high figure to bargain down to a more reasonable price. But in this case, they overshot the mark; if this figure is even close to accurate, it would indicate an incompetence at General Motors that borders on the criminal.

What they should have done is come back with a minimal number. If GM needs $4 billion to get them through to next year, then they should have asked for that plus a bit–maybe $6 billion total. Figure that they are the largest of the Big Three, and the one in the most trouble, so add in another $5 billion for Ford and $4 billion for Chrysler, and you get a nice round number of $15 billion. Moreover, stress over and over again in your interviews with both Congress and the media that these are loans–and in fact, stress that they are interest bearing loans. Congress is loaning money to these companies in the short-term to make up for the fact that the credit and financial markets are in such turmoil that these important bastions of American capitalism can’t get the loans that they need on the free market. Moreover, include provisions within the law that further lines of credit will be opened up to each company if they meet certain criteria for following through with their reorganization plans and if their initial payments to pay back the loan are made on time. In other words, if these companies can demonstrate that they are faithful stewards of American taxpayer dollars, then more money (perhaps coming closer to the $34 billion figure they claim to need) will be made available.

That’s something that could be sold to the American taxpayer–and more importantly for the automakers, could be sold to Congress as something that they could sell to the American taxpayer. It also just might make a good law. After all, while the conservative critics of the bailout are fundamentally correct–that the mess these companies have gotten themselves into could be solved in bankruptcy court–it’s also true that bankruptcies on this scale can take years to sort out and will hit the American economy at a time when it can’t easily absorb the blow. By legislating a reorganization, including renegotiation of Union Contracts and other outstanding obligations that these companies have, and by underwriting a loan to get them through the rough patches, Congress can essentially speed along the bankruptcy process without forcing them to contract mightily or putting them through a three-year crisis in consumer confidence that bankruptcy would necessarily entail. A good law–and I am by no means confident that what the Big Three have proposed would add up to a good law–could save these companies (perhaps even help them become great companies once again) and not cost the American taxpayer a dime.

This entry was posted on Friday, December 5th, 2008 at 9:26 pm and is filed under Business And Regulation, Debt and Deficit. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.