Driving Forces Behind the Bailout

U.S. Senator Bob Corker on aid to the auto industry
Sen. Bob Corker (R-Tenn.) is the former mayor of Chattanooga, Tennessee and was elected to Congress in 2006. He was very visible during the debate over the Senate’s auto industry bailout proposal. He shared with the HPR his thoughts about his bill — which emphasized short-term assistance to the industry — its rejection by the Senate, and what that rejection means for the future of the auto industry.
Harvard Political Review: In an interview on C-SPAN, you alluded to your belief that the government should be wary of the slippery slope inherent in bailing out private firms. If this is the case, why did you call for consideration of an auto industry bailout?
Bob Corker: I thought the very best way to deal with these companies was to allow them to go through the normal process that occurs in a Chapter 11 [bankruptcy]. Under the circumstances, a solution that would work would be to create a bankruptcy-type scenario where, in essence, you force the bondholders to reduce their indebtedness by seventy percent. And if we could make all that happen outside of bankruptcy, outside of the stigma, and let the government’s money, in essence, be like debtor-in-possession financing because it was being done with this tough-love concept, that [would be] a solution that would be worthy of doing. But what ended up happening — and this is sort of a hollow victory — [was that] the Bush administration in their extension … included the Corker criteria in their loan documents. Now it’s up to the Obama administration to decide if they’re actually going to enforce those, which I hope they will.
HPR: In Business Week, writer Ed Wallace reported that you were partly responsible for the new Volkswagen plant in Chattanooga that received hundreds of millions of dollars in tax incentives. Does the providing of government incentives to these foreign companies then justify direct aid to domestic companies?
BC: The state government in Tennessee and the local government in Hamilton County and Chattanooga are the ones that extended those particular benefits. Many of them are tax concessions, where property tax rates are kept low for some period of time, for example. That was not a decision made by the federal government. And by the way, General Motors and Nissan came [to Tennessee] about the same time over twenty years ago, and they both received equal incentives from the state. So, you know, state incentives for car companies, both domestic and international, have happened for years. … Another misperception: people think all the transplants, all the Toyotas and the BMWs, the Nissans and the Volkswagens, want the Big Three to fail because they have a better competitive situation. Nothing could be further from the truth. The overlap between the domestic manufacturers and transplants, as it relates to the suppliers, is about seven percent, meaning that they rely mostly on the same supplier base. If one of the companies in the Detroit Three were to go bankrupt, it would create a major disruption in the supplier base. … There’s a symbiotic relationship between the transplants and the domestic companies; they each compete on a daily basis for market share but they want themselves in general to all be healthy.
HPR: How likely do you think it is that the automakers will meet the benchmarks by March 31 and do you think they will be successful in the long run?
BC: I was at the Detroit show and I saw some awfully good products there, and of course the people in Detroit asked me if being there and seeing the products changed my mind. It actually made me even more committed to the things that were laid out because I do think that these companies have some good products that are coming to the market. But I know that with the capital structure they have — the huge amounts of debt, the obligations that they have right now to the VEBA accounts [Voluntary Employees’ Beneficiary Accounts] which they cannot possibly pay, and the fact that they have a built-in anti-competitive labor agreement — would mean that every car that comes off the line is noncompetitive. … It’s my hope that we’ll use this [economic] crisis to rectify that, so these companies can be strong for the long haul.
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