Auto Industry: Congress Weighs Financial Assistance
The current economic downturn has brought significant financial stress to the auto manufacturing industry. Recent deteriorating financial, real estate, and labor markets have reduced consumer confidence and available credit, and automobile purchases have declined.
While auto manufacturers broadly have experienced declining sales in 2008 as the economy has worsened, sales of the “Big 3″ (General Motors, Chrysler, and Ford) have also declined relative to those of some other auto manufacturers in recent years because higher gasoline prices have particularly hurt sales of sport utility vehicles.
In addition to causing potential job losses at auto manufacturers, failure of the domestic auto industry would likely adversely affect other sectors. Officials from the Big 3 have requested, and Congress is considering, immediate federal financial assistance.
The following is based on the Government Accountability Office’s extensive body of work on previous federal rescue efforts that dates back to the 1970s.
From their previous work on federal financial assistance to large firms and municipalities, they identified three fundamental principles that can serve as a framework for considering future assistance.
These principles are (1) identifying and defining the problem, (2) determining the national interests and setting clear goals and objectives that address the problem, and (3) protecting the government’s interests.
First, problems confronting the industry must be clearly defined — separating out those that require an immediate response from those structural challenges that will take more time to resolve.
Second, Congress should determine whether the national interest will be best served through a legislative solution, or whether market forces and established legal procedures, such as bankruptcy, should be allowed to take their course. Should Congress decide that federal financial assistance is warranted, it is important that Congress establish clear objectives and goals for this assistance.
Third, given the significant financial risk the federal government may assume, the structure Congress sets up to administer any assistance should provide for appropriate mechanisms, such as concessions by all parties, controls over management, compensation for risk, and a strong independent board, to protect taxpayers from excessive or unnecessary risks.
These principles could help the Congress in deciding whether to offer financial assistance to the domestic auto manufacturers. If Congress determines that a legislative solution is in the national interest, a two-pronged approach could be appropriate in these circumstances.
Specifically, Congress could authorize immediate, but temporary, financial assistance to the auto manufacturing industry while concurrently establishing a board to approve, disburse, and oversee the use of these initial funds and provide any additional federal funds and continued oversight.
This board could also oversee any structural reforms of the companies. Among other responsibilities, Congress could give the board authority to establish and implement eligibility criteria for potential borrowers and to implement procedures and controls in order to protect the government’s interests.
Jim Kouri, CPP is currently fifth vice-president of the National Association of Chiefs of Police and he’s a staff writer for the New Media Alliance (thenma.org). In addition, he’s the new editor for the House Conservatives Fund’s weblog. Kouri also serves as political advisor for Emmy and Golden Globe winning actor Michael Moriarty.
He’s former chief at a New York City housing project in Washington Heights nicknamed “Crack City” by reporters covering the drug war in the 1980s. In addition, he served as director of public safety at a New Jersey university and director of security for several major organizations. He’s also served on the National Drug Task Force and trained police and security officers throughout the country. Kouri writes for many police and security magazines including Chief of Police, Police Times, The Narc Officer and others. He’s a news writer for TheConservativeVoice.Com and PHXnews.com. He’s also a columnist for AmericanDaily.Com, MensNewsDaily.Com, MichNews.Com, and he’s syndicated by AXcessNews.Com. He’s appeared as on-air commentator for over 100 TV and radio news and talk shows including Oprah, McLaughlin Report, CNN Headline News, MTV, Fox News, etc. His book Assume The Position is available at Amazon.Com. Kouri’s own website is located at http://jimkouri.us
Jim Kouri, CPP is currently fifth vice-president of the National Association of Chiefs of Police and he's a staff writer for the New Media Alliance (thenma.org). In addition, he's the former editor for the House Conservatives Fund's weblog. Kouri also serves as political advisor for Emmy and Golden Globe winning actor Michael Moriarty. He's former chief at a New York City housing project in Washington Heights nicknamed "Crack City" by reporters covering the drug war in the 1980s. In addition, he served as director of public safety at a New Jersey university and director of security for several major organizations. He's also served on the National Drug Task Force and trained police and security officers throughout the country. Kouri writes for many police and security magazines including Chief of Police, Police Times, The Narc Officer and others. He's a news writer for TheConservativeVoice.Com and PHXnews.com. He's also a columnist for AmericanDaily.Com, MensNewsDaily.Com, MichNews.Com, and he's syndicated by AXcessNews.Com. He's appeared as on-air commentator for over 100 TV and radio news and talk shows including Oprah, McLaughlin Report, CNN Headline News, MTV, Fox News, etc. To subscribe to Kouri's newsletter write to COPmagazine@aol.com and write "Subscription" on the subject line. | More from Jim Kouri, CPP
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