My friend Danielle Goodman sends this interesting proposal for the auto industry bailout. Though written before David Brooks' column today, it anticipates some of his objections, and as someone who works in a parallel industry, Danielle is well aware of the challenges. It's worth a read.
Give GM real help, not guilt-driven charity
As the cliche goes, give a man a fish, feed him for a day, but teach a man to fish and you feed him for life. When the homeless man asks for money we know we are not helping, but we throw him a bone to ease our guilty conscience or we ignore him and rationalize it by saying we do not want to be part of the enabling process, the 'tough-love' approach. This is the dilemma the country faces with the auto industry. We want a quick fix; we do not want to spend the time and money and take the difficult decisions to expose the fundamental causes of the problem and really do something worthwhile to help cure it. Here's how to teach the US auto industry how to fish.
The US auto industry is bankrupt due to three major factors: the global financial crisis, manufacturing a product which is no longer attractive in the market, and a healthcare and pension debt to retired workers whose obligation makes the industry uncompetitive.
The government cannot fundamentally help with the first 2 issues, but they can use the bailout money to set up a new universal healthcare and pension plan, releasing the industry of this massive obligation and giving them the opportunity to be competitive and a strong force in the marketplace.
The US auto industry has collapsed due to these factors:
-A severe downturn in sales due to the global financial meltdown and the current recession.
-A rigid company vision, based on SUVs and large pickup trucks that are no longer appealing or marketable due to high gas prices and a public demand for economical green vehicles.
-Thirty years of shortsighted negotiated bargaining between management and the unions, which never addressed the consequences of building up a massive healthcare and pension liability. These indulgent benefits have made the US auto industry uncompetitive against its unencumbered foreign rivals, and have guaranteed its failure.
The industry is hemorrhaging cash, and without an emergency government bailout bankruptcy is inevitable. This would have a domino effect on supporting industries and local businesses, resulting in job losses for at least 3 million people, and devastating communities in existing high-unemployment regions.
The government has the following dilemmas:
-A bailout will have absolutely no effect unless the fundamental issues are addressed; the money will simply be wasted.
-If bankruptcy is allowed to happen, government liability for unemployment benefits, government assistance, foreclosures, emergency healthcare assistance and increased crime will be equal or greater than that associated with an initial bailout
-Since there has been a bailout for the financial industry, it will be difficult for the government to allow the highest profile blue collar industry to fail.
-The unions have traditionally supported and bankrolled the Democratic Party, and the industry will lobby hard for a favorable response.
The solution is to address the healthcare and pension burden, which will free the industry to concentrate on designing, manufacturing and marketing the new breed of automobile demanded by the market.
The bailout money should be allocated to a new government healthcare and pension plan, which will absorb the industry's liability of the retiree debt and free it from this catastrophic burden.
The industry's current retiree healthcare and pension expenses can then be used to fund the day-to-day operations, thus making the core business attractive for investors and traditional financing.
The government will be given the opportunity to design a practical universal healthcare and pension system based on the needs of the nation's largest employment pool.
Instead of the usual government-sponsored initiative being presented to the public, this will be rigorously negotiated and refined upfront - as it has to address the concerns of all three diverse groups before being agreed upon by consensus. The intense public scrutiny of having to make this plan practical and equitable for all gives it a greater opportunity for success.
The new universal healthcare and pension plan will be initially funded by the bailout money to cover the existing retiree liability. The current employee component will be funded by the auto industry at the lower rates negotiated with the unions.
Both management and the unions must agree to this format before any bailout money is allocated, and if an agreement cannot be reached, then the auto industry will be allowed to fall into bankruptcy, with everyone - management, workers, retirees, supply companies and the local community - losing their jobs and benefits.
This plan thus addresses these major issues:
-It gives the auto industry the opportunity to be competitive in the market once again, without the crippling accumulated liability of healthcare and pensions for both current and retired employees.
-It initiates a practical universal healthcare and pension plan which covers the concerns of all parties; it is initially funded by the government's auto industry bailout plan, with ongoing funding by the auto industry.
-It creates a bailout fund which helps everyone in practical ways: blue-collar workers, management, and the supporting businesses and employees in the industry and in local communities.
Finally, the responsibility for and consequences of the solution and its application will rest solidly with those who are involved.