VCU expert says ‘car czar’ key to auto bailout

Economist George Hoffer says money isn't the most important part of the bailout package that Congress and the White House have proposed for the U.S. automobile industry.

The $15 billion in loans for two automakers would be a fraction of what the industry needs to survive, while the power of a proposed "car czar" is the most critical piece of the package, said Hoffer, a professor at Virginia Commonwealth University and an expert in transportation issues who has studied and written about the auto industry since the 1960s.

"The legislation has to give the czar and whatever [oversight] committee is created the power of a bankruptcy judge, or it is worthless," Hoffer said yesterday.

The legislation's proposed overseer has to be able to cut through labor agreements, state automobile-dealer franchise laws, debt structure and other obstacles to the industry's ability to restructure itself and become economically viable, Hoffer said. But the money will go only so far in an industry that's hemorrhaging cash.

"The cash flow is so negative -- that $15 billion seems like so much, but it's just a pittance of what they need," he said.

The money would go to General Motors Corp. and Chrysler LLC but not Ford Motor Co., which said it doesn't need the aid now. However, one local Ford dealer said the loans are essential to prevent one company's collapse from taking down suppliers and other automakers.

"We're really calling it a bridge loan," said Ronald Kody, president of Richmond Ford, which straddles the Richmond and Henrico County line. "They're really not asking for anything for nothing."

Virginia car dealers aren't sure how they feel about the details, but they're adamant that the industry can't survive without loans to weather an economic storm that stems primarily from paralyzed credit markets.

"I don't think our economy can take another blow," said H. Carter Myers, a Petersburg native who owns 12 dealer franchises in five locations in the Richmond and Charlottesville areas. "This is going to hit Main Street and dealers all over the country. It's going to hit the supply industry."

Myers, who said he personally has lobbied U.S. Sen. John W. Warner, R-Va., to support the proposed legislation, estimates the automobile industry supports more than 55,000 jobs in Virginia.

As for the creation of a "car czar," he said, "I guess it depends on who it is and what power he has."

Hoffer argues that the country needs a bailout with the same kind of solution it applied in the 1970s when several large railroads went into bankruptcy and a restructured industry emerged because of independent government oversight.

"General Motors and the automobile industry is just as important to the American economy as the railroads were" in 1970, he said.

Jimmy Whitten, co-owner of Whitten Brothers Inc., agrees. "If they don't bail it out, they're gone," said Whitten, who owns dealerships in Midlothian, Petersburg and Ashland. "When they go away, it's just a matter of which supplier goes" first.

Federal oversight is preferable to filing for bankruptcy protection, which dealers say would cast a pall over consumers who are considering buying a vehicle.

"How much does it do to destroy their confidence, regardless of how good the product is?" said Richard Carter, general manager at Haynes Jeep Chrysler in Henrico.

Dealers are frustrated by the public perception of their industry and the strings attached to the proposed bailout, especially compared with the huge subsidies given to banks and financial institutions, many of them healthy, with little oversight.

"I think they're going the opposite direction from what they did with the bailout for the financial institutions," Carter said.

That frustration is magnified by the role the financial institutions played in drying up the credit that the auto industry needs for people to buy cars.

Whitten says his sales are down 50 percent and that half of the people who walk into his dealerships would buy a vehicle if they could get a loan. "It's not that there isn't demand out there," he said.

Contact Michael Martz at (804) 649-6964 or .