This editorial appeared in The Miami Herald.
When the Bush administration decided to extend a $17.4 billion loan to the Big Three car companies, the move averted an imminent bankruptcy. But this was neither a gift nor a true bailout. Only the industry can bail itself out of its predicament and possible demise. All that taxpayers have done is buy time to see if the U.S. auto industry is still capable of making money by producing cars the public wants to drive.
The loan was needed in order to avoid the harsh consequences of going broke. That could have meant a loss of three million jobs in an economy already stuck in what looks like a severe and prolonged recession. The healthiest of the companies, Ford, would have been placed in deeper jeopardy; and even U.S. operations of foreign-car companies that rely on the auto-parts industry would have been harmed. Without this loan, those few consumers thinking of buying a car would have had second thoughts about purchasing from a company about to go bust.
Still, the loan itself guarantees only that automakers will stay in business until March 31, when they must be able to demonstrate "viability." This term deliberately was left ambiguous so that President-elect Obama and the next Congress will have plenty of leeway in determining whether the industry is living up to its promises and worthy of continued support.
Critics see that ambiguity as a built-in red flag because it leaves too much room for politics and pressure to play a role in deciding whether to continue on this course. It does not seem wise, however, to tie the next president's hands regarding this crucial decision. But Mr. Obama should make sure that the companies live up to their promises.
To read the complete editorial, visit The Miami Herald.