Think government can’t fix the auto industry? Then how did it manage to fix the railroad industry

[Earth Bound Misfit]

--twice?

The massive corporate bailouts that Washington is undertaking as a result of the economic crisis have left most of us feeling deeply nervous. It’s not just the price tag, measured in incomprehensible trillions. It’s also the fear that the problems of the financial and auto industries may be so deep and so tangled that no one can fix them—and certainly not a bunch of politicians and bureaucrats in Washington.

But here’s the funny thing: any honest reading of history suggests that the federal government has quite an impressive record of rescuing institutions considered too big to fail. In addition to almost routine workouts of failed banks conducted in good and bad times by the Federal Deposit Insurance Corporation and other regulators, the list includes many large industrial companies as well. In 1971, for example, Congress extended emergency loans to failing aircraft builder Lockheed and wound up not only saving a company vital to America’s national defense and export manufacturing base, but earning a net income for the Treasury of $5.4 million in loan fees.

In 1980 it did the same for Chrysler, this time extending loan guarantees in exchange for stock warrants that, after the company returned to health and paid back its loans, yielded the government a cool $311 million in capital gains. More recently, in the aftermath of 9/11, Congress granted airlines $5 billion in direct compensation for lost business and up to $10 billion in loan guarantees, again in exchange for stock warrants. That wasn’t enough to save many individual airlines from having to undergo restructuring plans imposed by bankruptcy judges, but when Americans took to the air again they found the industry intact and offering plenty of flights. Moreover, by February 2007, airline stocks had recovered enough that the Treasury was able to sell its warrants for a net profit of $119 million, with no loans left outstanding.

Now, however, comes the prospect of something much larger. Government has already thrown billions at the gigantic mess that is the American auto industry. With Detroit continuing to hemorrhage jobs and cash in a deeply troubled economy, it looks as if government will have to take a much more hands-on approach to reengineering the industry, if not through the bankruptcy courts then through direct executive supervision. Should we be worried that government will make a hash of it? Of course. But there is a bright shining example from not so long ago of government bureaucrats engineering the revival of an industry easily as troubled as today’s automakers and, if anything, more central to the economy. And it all turned out better than anyone dared hope, with a dazzling return to profitability. It is the story of the railroad industry, and while the parallels with today’s auto industry are not exact, they are close enough to provide many useful lessons. Its example suggests that, as the automakers return to Washington for a second round of assistance, the greatest danger may well be not that government will intervene too much, but that it won’t intervene enough.

More at link: http://www.washingtonmonthly.com/features/2009/0903.longman.html

[elleng]

1. Government did NOT fix the RR industry, but rather a segment,

with great difficulty over many years. I would hesitate to compare the situations, and would NOT compare the industries.

[Earth Bound Misfit]

2. There is no quick fix to the cluter%$%k that the US Auto industry finds itself in

and can only be "fixed" with, as you noted was the case in the RR industry, "great difficulty over many years." The notion that the same Auto Execs who are largely (but not solely) responsible for the situation they find themselves in today can come up with some "magical" plan in a period of about 3 months, which is the time frame they have been given in order to receive additional Govt.loans, is ludicrous.

While a solution to this problem is certainly more than my admittedly feeble mind can comprehend, the point is that it's been done before and those who contend that a Govt takeover, (or segment of Govt) of GM & Chrysler (Ford?) would automatically be doomed to failure are ignoring recent history that says otherwise.

Do you have, or have you read of, any good ideas on how to accomplish this?

EDIT spelling.

[elleng]

3. Wise and experienced people must be in charge,

that's about it.