The legislative powers in Washington D.C. believe that they have reached an agreement in principle to a sweeping bailout of the auto industry. Word is that the vote passed in Congress already Wednesday morning with little trouble. The newest iteration of the plan has the government loaning the auto makers $15 billion initially, giving General Motors (GM) and Chrysler time to stave off bankruptcy while a long term restructuring and loan package is determined.  The plan also calls for the initiation of a new “car czar” to oversee the whole process, and this czar will have far reaching authority to lead the restructuring effort. Of course “czar” has been used to describe other leaders at the forefront of government initiatives, but never has it seemed more appropriate than as the head of a quasi-socialist bailout program such as this. The auto bailout should pass with little trouble in the house but could meet significant opposition from Senate Republicans, who are pushing for amendments.

A few significant issues come to mind, not the least of which is the question of how much will this actually change the industry for the better? In the media coverage of this initial $15 billion loan, there has been little discussed about how the companies are going to reign in labor costs: the Achilles heel of the industry. The United Auto Workers union has begun to make statements that they were willing to work with the automakers in order to restore their solvency, but is this simply a ploy in the short term to keep the gravy train from derailing? Also, how will this bill treat emissions standards proposed by the government? Here you have an industry that cannot make it another quarter without a bailout from the government; it’s probably not the time to be implementing emissions standards that will further prohibit profitability. Let’s make sure that the company can survive before we start imposing restrictions on their business.

We continue to be in favor of a Chapter 11 restructuring that would allow a bankruptcy judge the ability to cast away the labor and other contracts that are making these companies uncompetitive. However, now that a bailout (possibly with some additional tweaks) looks inevitable, it might be the automakers not participating in the bailout that truly benefit.