The Automaker Bailout: Questions Congress Must Ask the Automakers

(By Andrew M. Grossman, The Heritage Foundation) - This week, Congress will hold hearings on the big losses being racked up by the Big Three automakers. The automakers, particularly General Motors, want federal dollars to keep out of bankruptcy and, in order to secure it, have been working overtime to scare lawmakers that the consequences of denying them a bailout would be severe. As part of that effort, Big Three representatives have stated repeatedly that they have no other options and that bankruptcy, in particular, is off the table. Some have implied that, if there is a bankruptcy, it will be a Chapter 7 liquidation that results in the implosion of much of the industry.

It may be, however, that in trying to twist Congress’s arm, the automakers have turned their backs on their fiduciary duties under corporate law. Congress should ask automaker executives who testify point-blank about their legal duties, the state of their preparations for bankruptcy, and what they plan to do if they are ultimately forced to file for bankruptcy. These topics, more than any other line of inquiry, will inform Congress and the public about a bailout’s prospects to turn the Big Three around, whether the automakers can be trusted with the investment of taxpayer dollars, and whether bankruptcy—instead of a bailout—would be a better option.