For auto industry to move forward, government needs to take its foot off the brakes

The proposed bailout recipient de jour is the U.S. auto industry. Detroit is going broke and many in Congress think the solution involves pumping 25 billion taxpayer dollars into the coffers of the Big Three. I disagree.

If they really want to see the U.S. automakers get back on their feet, the government should encourage them to file bankruptcy and get out from under the bloated union contracts that make it impossible for the Big Three to turn a profit. Ford actually loses something like $1,400 for every vehicle it sells. Collective bargaining agreements require Ford, GM, and Chrysler to pay workers about $25 per hour more than American autoworkers receive in non-union shops. And that's just part of the story. The Big Three must pay UAW employees these exorbitant wages even when there's no work to do, which is increasingly the case. They're also required to fund pension obligations that are clearly beyond the companies' means.

The proposed bailout appears to be consciously aimed to prevent the automakers from filing bankruptcy and getting out from under the UAW contracts. In essence, therefore, it's a bailout of the unions at the expense of the automakers, rather than a bailout of the automakers themselves.

A serious program to revive the domestic auto industry would go beyond merely reforming union contracts. It would also include doing away with CAFE standards, which restrict Detroit's ability to manufacture the larger, more profitable -- and safer -- vehicles that Americans traditionally covet.

Unfortunately, Congress doesn't seem to understand that businesses need to make money if they are to survive. Left to their own devices, the Big Three would make whatever styles and sizes of cars the public was most eager to buy, thus maximizing their profits. Congress, however, wants U.S. automakers to build smaller cars with higher fuel efficiency, and it uses CAFE standards to achieve that goal. Consequently, Detroit sells far fewer cars, and makes much less money, than it should. As a result, Americans don't get to buy the cars they really want and the entire economy suffers from Detroit's financial travails. It's a lose-lose deal for consumers and taxpayers alike.

A federal bailout would be, at best, a temporary means of averting an industry collapse. It will do nothing to solve the underlying problems, much of which are of Washington's own creation.