For the past few weeks, the idea of a loan program to the auto companies has been gaining momentum.
According to today’s Wall Street Journal, Overdue Budget, Auto-Maker Bailout Will Top Democrats’ Agenda. Here is their comment on the idea:
The proposal to throw a lifeline to Detroit’s auto makers could prove particularly challenging, and its future is unclear. Democratic presidential nominee Barack Obama has endorsed the plan, as has John McCain, his Republican rival. Both are battling to win Michigan in the race for electoral-college votes.
General Motors Corp. Vice Chairman Bob Lutz said Detroit’s Big Three have been hit by a “perfect storm” of rising gas prices, a slumping economy and new fuel-efficiency rules that will force them to invest heavily in new technologies. “The American auto industry is deserving of loans to get credit that it may well need,” Mr. Lutz said, noting that none of the auto makers would be able to get loans from financial institutions in today’s tight lending markets.
But the White House remains cool to the idea. Tony Fratto, a spokesman for President George W. Bush, said the administration is “very reluctant to consider government intervention.”
Last week, the Washington Post said basically the same thing: Car Makers to Press for Loans:
Automakers plan to urge Congress to support funding up to $50 billion in low-interest loans over three years to help them modernize their assembly plants and develop next-generation fuel-efficient vehicles.
Industry officials said the loans, which are twice the amount authorized in last year’s energy bill, are a top priority when Congress returns next month because of the declining fortunes of Detroit’s automakers and tightening credit markets.
Auto industry officials have argued that the loan program would not represent a bailout, but would be similar to aid lawmakers have given to Wall Street investment banks and struggling mortgage firms.
“We don’t see it as a bailout. We see it as government assistance to help retooling tied to the production of these advanced technology vehicles,” said Alan Reuther, legislative director for the United Auto Workers union.
This proposal generally would tie any financial assistance to creation and utilization of new energy technologies. Let me make two suggestions, however. First, that there are conditions similar to the Chrysler guarantee – which actually paid back the taxpayers after the company turned itself around.
Second, the US taxpayers get a part of the intellectual property. The companies should be required to put up their IP as collateral to the loan. This would both protect the taxpayers’ investment and give a jump start to the idea that IP is and should be treated as important collateral in financial transactions.
I would also require that there be some sort of technology transfer process on any new technology created as part of the program. I know that this will be unpopular with some – but it will be important to make sure that the technology does not get locked up.
If the taxpayers are going to assume the risk, the taxpayers should reap some of the benefits — both financially and in the introduction of new technologies.