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The following is a Q&A e-mail interview by OurBlook on the auto bailout issue with Thomas Hopkins, professor of economics at Rochester Institute of Technology.
QUESTION: What is your opinion of the partial $15 billion bailout being considered by Congress this week?
ANSWER: A smaller bailout is less troublesome than a larger one ... but neither strikes me as a good idea.
Q: It looks like the $15 billion is going to happen to get them through March ... but suppose on April 1 the Big Three come back and say hey, we need more money again, how should the government respond and what should the auto companies be doing specifically before then and after to make themselves viable regardless of getting another infusion of money?
A: If in fact this initial $15 billion gets approved, I'd be most surprised if no subsequent additional request is made. I would think, by April, the new administration and Congress would have settled upon numerous other uses of funds with sharply higher priorities, which with a bit of luck might help firm up resistance to further aid to Detroit. In the meantime, the Big Three should be tackling those parts of their accumulated problems with the best prospects of yielding the largest near-term cost savings ... and speeding up that selection should be an immediate focus of their boards.
Q: What is your opinion of the full bailout of up to $34 billion requested by the auto companies?
A: Simply the start of further requests, none of which are palatable.
Q: Do you see Chrysler as an issue separate from GM and Ford as it is privately owned? In particular, should Cerberus be forced to reveal its finances to see how much cash it has to determine if Chrysler really needs to borrow from the government?
A: Since I oppose any of these bailouts, I'd not single out Chrysler for greater scrutiny.
Q: Are there separate issues you see for GM and Ford or should we just glom the two together when we think of this problem?
A: Ford is the stronger company, and ... if ANY government aid is to be offered ... I'd certainly oppose being less generous to the one company that's been most prudently managed.
Q: Is it totally the fault of the Big Three that they have sunk to this predicament or are they battling some forces beyond their control?
A: They, and much of American business, have been subjected to economic gales that few anticipated and that have causes extending to many other players. But the Big Three over recent decades were far too complacent and too accommodating to union demands.
Q: What do you think of bankruptcy as an option?
A: If suitable credit can be arranged to avoid chaos during bankruptcy ... and this could be a sensible role for government ... this option seems viable to me.
Q: What do you think of the following suggestion for a solution ... namely, to have Bush and/or Obama ask, persuade or even force the oil companies to make these loans? After all, the auto industry and oil industry depend on each other, and the oil companies have tens of billions of dollars in cash on hand just sitting there. Let private enterprise take care of a private enterprise problem. Surely Big Oil could make needed reforms as a condition for the loans, and who knows, maybe they could end up making money on the deal.
A: An interesting idea, but not one I'd be inclined to support. Oil companies are, in my view, acting quite responsibly in handling and reinvesting their profits, which can easily vanish as quickly as they arrived. They should not be penalized or subjected to any form of "excess profits" tax either explicitly or implicitly.
Q: I saw the transcript of a CBS-TV report that mentioned substantial political contributions by the Big Three to Dingell and other auto favorites in Congress, but it conspicuously did not mention the political contributions by the UAW. With this in mind, do you have an overall opinion as to the fairness and competence of the press coverage of the auto bailout issue?
A: The press coverage to which I pay attention is that of sources such as the Wall Street Journal and The Economist, and I've no complaint about their fairness on such issues.
Q: It looks like the $15 billion is going to happen to get them through March ... but suppose on April 1 the Big Three come back and say hey, we need more money again, how should the government respond and what should the auto companies be doing specifically before then and after to make themselves viable regardless of getting another infusion of money?
A: If in fact this initial $15 billion gets approved, I'd be most surprised if no subsequent additional request is made. I would think, by April, the new administration and Congress would have settled upon numerous other uses of funds with sharply higher priorities, which with a bit of luck might help firm up resistance to further aid to Detroit. In the meantime, the Big Three should be tackling those parts of their accumulated problems with the best prospects of yielding the largest near-term cost savings ... and speeding up that selection should be an immediate focus of their boards.
Prof. Hopkins has served as dean of RIT's College of Business and as president of its MBA program U.S. Business School in Prague. He held senior management positions in two White House agencies during the Ford, Carter and Reagan administrations; in 1979, President Carter appointed him a charter member of the federal government’s Senior Executive Service. In the early 1980s, he served as deputy administrator, Office of Information & Regulatory Affairs, in the Office of Management & Budget. His research on business burdens of government regulation has been sponsored by the Organization for Economic Cooperation & Development (OECD) in Paris and the U.S. Small Business Administration (SBA) in Washington. He has testified on regulatory policy issues before committees of the U.S. Senate and House, and Canada’s House of Commons. He co-authored a 2001 SBA report, “The Impact of Regulatory Costs on Small Firms,” as well as National Research Council reports on marine transportation, the Exxon Valdez oil spill, and trucking/rail/barge transportation. He previously was on the faculty of American University, University of Maryland and Bowdoin College. He holds a B.A. from Oberlin and a Ph.D. in economics from Yale.
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