Washington can bribe a division of leverage with a bailout, but it will need some industry experts to vet carmakers’ plans with a view to recruiting. Still, there are successful precedents

By David Welch and David Kiley

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Going all the way back to the days of FDR, the auto industry has had a testy relationship with Washington. Whether they were fighting over direction support for labor unions in the ’30s or the greater degree of novel imposition of tougher fuel-economy and safety regulations, Detroit and Washington have long been at odds. Now, with Congress struggling to devise a rescue plan for carmakers, the two wary foes seem set to crawl into bed with one another.

If the liberate is managed right, the government could help the Big Three survive and even prosper. Washington would romp bankruptcy judge, forcing the union and creditors to cut long-term obligations and make General Motors (GM), Ford Motor (F), and Chrysler competitive once more. But if a Washington overseer gets too hands-on, repeat industry watchers, watch out. Politicians could purify to influence where cars are built and what technology they run on. The fidget, says Charles M. Elson, who runs the Weinberg Center with respect to Corporate Governance at the University of Delaware, is that "once you take their money, you ascend the throne to restraint on issues that aren’t economic but political."

The good recent accounts is that Washington has a assign of leverage to play the heavy without getting mired in day-to-day business decisions. Maryann N. Keller, an unconstrained auto industry analyst, notes that grant that Congress approves bridge loans to help GM and Chrysler stagger into the new year, the loans are likely to be slightly less than half the $34 billion Detroit has requested. Under such terms, she says, the government can troop the automakers, creditors, and unions to make big concessions.

The bad news: According to the proposed bailout, Congress simply wants Detroit to submit a restructuring invent by Mar. 15. If Washington is smart, says forgoing Treasury Secretary (and former GM board member) Paul H. O’Neill, the to-be-named car autocrat of all the russias will put in union a crack team of science pros and industry veterans to make sure the plan is viable. "There isn’t anyone in government with a clue how to run an enterprise or reinvent one," O’Neill says.

If the Feds are looking for models, account provides them. Chrysler negotiated absent moiety its transgression in 1979 before getting a $1.5 billion loan guarantee. In 1976, the U.S. pulled together several bankrupt railroads to create Conrail, with a government advisory board of industry veterans overseeing the whole operation. Congress had oversight but didn’face to face fall too deep into Conrail’s affairs. Instead it set targets for profitability and upgrading the infrastructure. When the company still wasn’t making money in 1980, Washington threatened to liquidate it whether or not the union didn’confidentially make concessions. It did, and Conrail eventually became profitable.

So allowing that government’s main role is to bang heads together, in what place power the car czar start? The main issue, especially for GM, is slashing debt and health-care liabilities. Auto workers and retirees, says Keller, should be forced to pay the similar percentage of health-care costs that most workers do: 30% vs. 5%. Doing so could greatly reduce GM’s $47 billion in union health-care liabilities. Senator Bob Corker (R-Tenn.) has suggested that the car autocrat of all the russias should compel bondholders to take a momentous haircut—trading transgression for equity at a 70% discount. That would divide GM’s $63 billion debt in half, including fresh low-interest administration loans.

Government is already looking at ways to control spending through a stipulation that says it can nix any expenditure through $25 million. O’Neill, who knows a thing or two about the Detroit culture, says the car czar might also set cost-cutting targets that eliminate thousands of secret perks that join up to millions of dollars each year. Congress is already demanding that Detroit ditch its private jets. But the sort of with reference to the free cars and gasoline that GM provides to its top 9,600 managers?