WALKER: Radical reconstruction

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By David M. Walker

With or without a formal bankruptcy filing, the American auto industry faces a drastic restructuring, and at considerable public expense. But as a new era of government intervention in a major American industry opens up, the federal government must not only avoid the mistakes of its chaotic rescue of the financial sector - but it must apply the lessons learned from these bailouts to itself.

In shaping a new automobile industry following a $17 billion loan announced in December, Congress and the President need a clear set of principles, sensible safeguards, adequate transparency and appropriate accountability for taxpayers.

The same can be said of the federal government's own gigantic fiscal challenges that lie ahead. The sad and simple truth is that like the auto industry, the government needs to engage in a fundamental transformation. After all, no one will be there to bail out America. We must solve our own problems - before they reach crisis proportions.

There are in fact many similarities between the plights of the auto companies and of the government. Both have huge legacy pension and retiree health-care costs that must be restructured. In the government's case, most of these costs relate to the Medicare and Social Security programs whose huge numbers - in the tens of trillions of dollars - are off the balance sheet.

Both situations also require an independent advisory entity that can guide stakeholders to sound solutions that might be politically difficult. The auto-bailout legislation that recently failed in Congress, for example, called for an industry overseer to lead or at least monitor a restructuring among the workers, creditors, dealers, suppliers and other key participants. A "car czar" may also play a role in insuring that the facts, figures and comparisons being used to transform the industry are transparent and understandable, and that both Congress and the taxpayers can effectively assess whether the bailout is working to achieve a viable and sustainable auto industry.

In the measure proposed by Speaker Nancy Pelosi, some of the required auto-industry oversight is supposed to be carried out by the same inspector general overseeing the Troubled Asset Relief Program (TARP) that was set up to inject hundreds of billions of dollars into the banking and financial industry. TARP actually has not one but two overseers, including a congressionally appointed board that is supposed to oversee the whole process.

However, except for a recent Government Accountability Office (GAO) report, the track record on TARP oversight so far does not inspire much confidence. According to the GAO, the U.S. Treasury had provided more than $155 billion in capital to 87 institutions as of Dec. 5, and additional funds to the American International Group and Citigroup. But the GAO found that while Treasury and its regulators called on the recipients to use the funds "in a manner consistent with the goals of the program," these goals have not been adequately defined, making it virtually impossible to determine whether they are being met.

The GAO has urged Treasury to develop "a range of metrics to evaluate the overall success" of the TARP program. Not only is the GAO right, but the same type of metrics should be developed for any auto-industry assistance program.

For example, American and foreign-owned automakers need to be clear about the cost of their wages, benefits and work rules so that taxpayers can see clearly whether American manufacturers and workers are "on par" with Nissan, Toyota, Honda and other companies. There should also be clear explanations of the billions of dollars in tax breaks that the United Automobile Workers (UAW) maintain are benefitting foreign makers as opposed to their American competitors.

Other metrics that should be established for the American vs. the foreign-owned auto industry include the ratio of workers to vehicle production, plant capacity and utilization, warranty costs, work rules and productivity measures, the cost of sales and distribution, average fleet fuel economy, customer satisfaction, and of course, the total compensation for both average workers and top executives.

A similar set of metrics and goals should be developed to help the federal government to get out from under the huge and escalating fiscal deficits and debt burdens projected for coming years. These are driven by the rapid rise in Medicare, Medicaid, Social Security and other entitlement program costs, and the widening gap between overall projected federal revenues and expenditures.

The auto industry may be restructured with the help of qualified, independent and respected experts. Similarly, I have supported the concept of a "Fiscal Future Commission" to develop sweeping reforms for Social Security, health care, and the tax code that could help set the table for the Congress and the President to act once we get past the current crisis.

Whatever course of action is taken, there needs to be a mechanism to ensure that the objectives of each program - whether saving the automobile industry, the financial sector or the ability of the federal government to discharge its responsibilities and deliver on its promises - can be met at a cost that Americans can support and afford.

If radical restructuring is good enough for the car business and Wall Street, it ought to be applied to America's finances, as well.

David M. Walker is President and CEO of the Peter G. Peterson Foundation and former Comptroller General of the United States.