'Special Report' Panel on Big Three's New Business Models; Governors Next in Line for Bailout

This is a rush transcript of "Special Report With Brit Hume" from December 2, 2008. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

HENRY PAULSON, TREASURY SECRETARY: We need a solution that avoids bankruptcy, but it has got to be leading to a viable industry.

REP. NANCY PELOSI, D-CALIF., HOUSE SPEAKER: I believe that an intervention will happen, either legislatively or from the administration. I think it's pretty clear that bankruptcy is not an option.

ALAN MULALLY, FORD CEO: I think our plan is more relevant than ever, and I'm just so glad that we all pulled together early so that we are ready to take on the worst of times. And we will get through this and come out of the other end as a turbo machine.

(END VIDEO CLIP)

BRET BAIER, GUEST HOST: There you see the treasury secretary, the speaker of the House, and Ford's CEO all talking about the plans that the three, the Big Three have submitted to Congress now, looking for help. The Big Three CEOs are driving from Detroit to Washington in hybrid vehicles. We understand that trip takes about 10 hours without traffic.

Here is what the Big Three are asking for in this bailout: Ford is looking for $9 billion and a standby line of credit; General Motors a bridge loan, $4 billion now and $8 billion by the end of March; Chrysler, also a bridge loan, $7 billion now, unspecified amount of money later.

So, will they get it?

Some analytical observations from Fred Barnes, executive editor of The Weekly Standard, Mort Kondracke, executive editor of Roll Call, and syndicated columnist Charles Krauthammer -- FOX News contributors all.

Sorry for the voice, guys. Just lost it right before the show. Fred, what about this? Do you think that these big three automakers will be bailed out by this Congress?

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: Maybe not by this Congress, although I think it probably will bail them out, but certainly the next Congress when it comes in January will do it with President Obama. They will do it for sure.

Certainly these auto companies don't deserve it. If they can come up in three weeks or less with plans that the president of Ford declares "Our plans are relevant," well, they were relevant three years ago and four years ago and five years ago when they were losing money.

They have been losing money even in years 2005 and '06, and so on, when the economy was very strong. Why didn't they come up with those plans then?

I think -- the first conclusion I draw from this is that if they can do this stuff now, if GM can reduce Pontiac to a niche car and get rid of Saturn and Hummer and a few of these other things, why didn't they do that years ago? And the reason is incompetent management.

Now the guy at Ford, Alan Mulally, has done some things a little better. They want a $9 billion line of credit. If they don't need it now, then don't give them anything. You can save $9 billion that way.

GM wants all this money because they are, in effect, bankrupt.

And so far none of these plans deal with the single biggest problem that these companies have, and that's the healthcare costs to workers and retirees.

BAIER: Mort, last time they bombed on Capitol Hill. They flew in on private jets. Now they're coming in to testify on Thursday and Friday driving hybrids from Michigan. Is this hokey?

MORT KONDRABARNESKE, EXECUTIVE EDITOR, ROLL CALL: Well, it's little hokey. The subcommittee chairman will say why didn't you come on your hands and knees all the way from Detroit, or flagellate yourself on the way. This is PR, basically. But the question is, can they come up with a viable strategy to convince Congress and the administration that they can make it. And I think that Ford is laying down what sounds like a fairly reasonable plan to get started.

Now, I don't know what Chrysler and General Motors are going to come up with. But here we are in the midst of a deep, deep recession. The idea of throwing 3 to 5 million more people out of work is going to deepen it even further and could create a panic. So nobody wants them to go out of business.

And, you know, it may be that they need to go into Chapter 11 bankruptcy. It's not Chapter 9, where they get liquidated. But they could restructure themselves under court supervision by halving of dealerships, by renegotiating their labor contracts, by reducing executive compensation, et cetera, et cetera.

And it may only be possible under the kind of regimen that a bankruptcy court could provide, because Congress can't, you know, renegotiate contracts and stuff like that.

BAIER: But is your feeling that this Congress will deal with that, or do they have to wait for the next Congress, the 111th Congress?

KONDRACKE: In order for GM to survive, it has to have some sort of a short-term bridge loan. And if GM can come in with an arguable case, my guess is that it will get the money.

BAIER: Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: I think it will probably get the money out of the already appropriated stuff that was supposed to be for energy independence.

BAIER: Through the Department of Energy?

KRAUTHAMMER: Right. And that's already out there. The Bush administration would approve it. The Democrats have resisted.

I think it's unlikely the big bailout will happen under this administration, but it will certainly happen under Obama. And I think I sort of like the executives arriving in their hybrids after an exhausting trip. It is a major grovel, which is exactly what you need on the Hill.

But there is one element in here which I think is missing. It's not just the problem of the structure that the auto companies are going to do, which itself is problematic -- and what's missing is what's mentioned earlier, is any concessions on the part of labor for a completely unsustainable high labor cost.

But the Democrats are also insisting on having companies that are not only efficient but are responsible, which means green companies. They want to impose production requirements on these companies which will destroy them.

The reason that Detroit is in trouble today is because preexisting mandates have forced them into producing autos, small autos, on which they lose money every single one.

And with that risky technology, with the demand, which is very uncertain, with a dollar at a $1.80, if the Democrats insist on the green mandate, it will destroy Detroit and will undo all of these efforts at producing solvency.

BAIER: Last word on this one.

The nation's governors are the latest folks to come to the president-elect with hats in hand. We will get reaction from the panel about that after the break.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GOV. ED RENDELL, D-PA.: We are not here asking for money for governors. If we're asking for any money at all, it's for the citizens of our state.

GOV. ARNOLD SCHWARZENEGGER, R-CALIF.: I think I made it very clear that I will not ask the federal government for help until we get our act together in California.

PRESIDENT-ELECT BARACK OBAMA: We are not, as a nation, going to be able to just keep on printing money. So at point we are also going to have to make some long-term decisions in terms of fiscal responsibility.

(END VIDEO CLIP)

BAIER: There you see Pennsylvania Governor Ed Rendell, California Governor Arnold Schwarzenegger, and the President-elect meeting today in Philadelphia, where the governors had a message -- they need help; maybe not for themselves, but for their states.

We're back with our panel. Mort, this is another instance where these states are hurting and these budgets are not adding up.

KONDRACKE: Well, as President-elect Obama observed, 51 states face budget crises. That means there are nine that don't face budget crises. And perhaps what the National Governors Association should have a school where the nine governors teach the other a 51 how they manage --

BAIER: Wait -- 41.

KONDRAKE: Whatever, 41; 41, yes, right.

BAIER: We added one there.

KONDRACKE: You got it. My math is always bad.

KRAUTHAMMER: It's the new math.

KONDRACKE: Anyway, so that's my idea, a school of National Governors' Association school of budget balancing.

But, look, the new administration is going to help the states with infrastructure spending, with Medicare, Medicaid costs. The new Congress will pass an S-CHIP children's health initiative extension and expansion. So there is going to be help for the states.

It seems to me that one option here would be for the -- on these infrastructure programs, which Governor Rendell said should cost $136 billion, that you might suspend Davis-Bacon's requirements, law requirements, that where every worker has to be paid a union level wage.

I mean, if we're going to have all these projects that we're going to do, and people need jobs, you could spread the jobs around more and employ more people if you didn't have to pay them so much.

BAIER: Fred, there are a handful of governors who are saying hold on, let's not ask for too much. But it's only a handful.

BARNES: It is only a handful. And, look, I went back and did the math on increases in state spending over the last few years, and it's been going up five percent or more, 5 1/2 percent in the last year, higher than the rate of inflation, which has been around three percent. And spending goes up.

It is not as though these governors and these state legislatures didn't know that occasionally we come into hard times. And in good times it looks great and we can spend this money, but then the hard times come, and then they go begging to the federal government.

And contrary to what President-elect Obama said -- he said they need to make some long-term decisions in terms of fiscal responsibility. They need short-term decisions in favor of fiscal responsibility, like going back and cutting spending a lot.

And Arnold Schwarzenegger was right as well, saying look, we don't want any money from the federal government until we get our act together. And at least 41 of these states do not have their act together, including California.

BAIER: Charles, the president elect and the vice president elect were all ears at this meeting today, and seemed to be receptive to the requests.

KRAUTHAMMER: He was. And he was sympathetic, and he said, for example, that the states now have to face a choice between cutting spending and raising taxes. And we have to do something about that.

BAIER: Why?

KRAUTHAMMER: States ought to cut spending and raise taxes, if necessary, and balance the budget.

Now, I think his problem is he has to make a distinction between stimulus and bailout. There is a case, if you want to make a case, in a recession you want a lot of public works. Yes, states and localities have projects ready to go, and that's a good way to stimulate an economy.

But you do it on the basis of merit, on the basis of whether the project will give a return, an economic return, like a sewer system, or something of that sort. You do it on the basis of whether it's ready to go, but not on the bas basis of how much that state is hurting. That's a bailout.

And if is a stimulus package, which is going to be huge, ends up with the wrong criteria, it will be a disaster.

BAIER: What is the number for the stimulus package when we get to the next administration?

KRAUTHAMMER: What happened is Paulson invented a number--$700 billion. Everyone now uses it as a starting number. So that's where it starts.

BAIER: Mort?

KONDRACKE: I would say over a trillion.

BAIER: Really? Fred?

BARNES: I don't know, but it's going to be a lot.

I would differ with Charles on one thing. The problem with infrastructure -- when you spend more on it, you reduce joblessness, but you do not stimulate the economy, however.

BAIER: Last word.

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