The Right Way To Bailout The Auto Industry
I've been reading the various proposals about how to bailout the auto industry. Some of the ideas are good but one piece floating around in the punditry is foolish and dangerous. This has to be done right -- and it has to be done in a way that does not attack the workers of the industry.
Let's start with the situation. General Motors is this close to bankruptcy:
G.M. shares, pummeled for weeks, fell an additional 13 percent on Tuesday to $2.92, its lowest point since 1943. G.M. on Monday warned shareholders that it might not be able to continue as a "going concern."
And:
Its cash cushion has been shrinking by more than $2 billion a month this fall. If that continues, G.M.'s reserves will fall below the minimum of $10 billion in cash it needs to run its global operations by January, the company said in its third-quarter S.E.C. filing.
In that event, G.M. said it might be unable to pay its suppliers, meet its loan covenants or cover health care obligations in its labor contracts. The extent of G.M.'s financial crisis, revealed in greater detail in its filing than it acknowledged before, is proving to be far worse than investors and analysts expected just last week.Only an emergency federal bailout seemingly stands between G.M. and a bankruptcy filing, according to industry analysts.
This is serious stuff. You can rant all you want about the short-sightedness of the auto industry, but up to 3 million jobs -- directly in the industry and secondary jobs that rely on the auto industry's output -- would be affected by a collapse of the industry. That can't happen.
President-elect Obama is doing the absolutely correct thing by insisting that any assistance be linked to a requirement that the companies develop hybrid, fuel-efficient cars.
The most dangerous and ludicrous proposals I've seen call for the union contracts to be torn up. Today, for example, the extremely wealthy columnist Thomas Friedman has the audacity (if I may use that term in a negative connotation) to parrot a line from The Wall Street Journal:
But if we are going to use taxpayer money to rescue Detroit, then it should be done along the lines proposed in The Wall Street Journal on Monday by Paul Ingrassia, a former Detroit bureau chief for that paper.
"In return for any direct government aid," he wrote, "the board and the management [of G.M.] should go. Shareholders should lose their paltry remaining equity. And a government-appointed receiver -- someone hard-nosed and nonpolitical -- should have broad power to revamp G.M. with a viable business plan and return it to a private operation as soon as possible. That will mean tearing up existing contracts with unions, dealers and suppliers, closing some operations and selling others and downsizing the company ... Giving G.M. a blank check -- which the company and the United Auto Workers union badly want, and which Washington will be tempted to grant -- would be an enormous mistake." [emphasis added]
Let's be clear: tearing up union contracts equals deep wages and benefit cuts.
This is dangerous and ludicrous not just because I'm a UAW member. Dangerous and ludicrous because, by trying to blame some of the victims, we will end up hurting the economy.
Let's get some facts straight. People who want to blame the UAW for the problems of the auto industry are off-base. Would I have liked the union to be more aggressive about pushing the auto companies a decade ago to move towards more fuel efficient cars? Sure. But, respectfully, the union does not control those kinds of decisions--it doesn't control the board and, as recent history has shown, has struggled mightily to just preserve its wage base (and has had to agree to some painful wage and benefit concessions).
Now, some will say: well, why should UAW members get such "rich" contracts? Let's first get real. UAW members are not living large, though compared to Wal-Mart workers they are better off.
And its not UAW pensions that are a problem. Its CEO pensions, for example, that are weighing down the auto companies, particularly GM.
But here is the larger point: if you tear up union contracts and cut wages and benefits, how the hell do our brilliant leaders think the consumer-driven economy will work? People are totally maxed out on their credit cards. Home equity cash is gone. If you cut wages, exactly how will 70 percent of the economy--consumer spending--be generated?
So, here are the things I think we should support, in exchange for any taxpayer dollars:
1. Any taxpayer dollars invested in the Big Three will come with a government equity stake in the companies.
2. Clean house and demand the resignation of the managers and top executives of the companies. They screwed up. Fire them all.
3. Do not -- I repeat -- do not mimic the so-called cap on executive compensation that Congress thought it imposed on the bankers' bailout. That was a sham. When this came up, I pointed out that all the bankers' bailout bill did was say you can't get a tax deduction for compensation over $500,000 for executives who are part of an institution being bailed out for at least $300 million. The right way to do this is: no executive will get paid more than ten times the average worker's wage.
I can hear the cries and wails now: we can't find someone for that wage in the "free market" competitive salary market. Well, guess what: when you are getting taxpayer money, it ain't the "free market" anymore. And I know a lot of very smart people who can manage a company for that salary -- which still would put the CEO in the top one percent of wage earners.
4. Restructure the board so that two-thirds of the seats are occupied by people who do not have prior links to the sacked management. At least one -third of the board seats should be held by the United Auto Workers.
5. Ask Al Gore to serve as the chairman of an industry-oversight panel that guarantees that taxpayer money will, in fact, be used to develop hybrid cars.
6. Any assistance come with a commitment to support single-payer health care. The foolish behavior by the industry on fuel efficient cars was only exceeded by the way in which its ideological blinders blocked it from seeing single-payer as the obvious solution to the weight of billions of dollars of health care costs--money that could have been used to build fuel efficient cars. This isn't a new point: I've pointed this out here and here and here. And, actually, the last deal struck between GM and the UAW called for GM, at the union's insistence, to throw in $15 million to set-up an institute to focus on changing America's health care system.
We have to act. But let's make sure actions taken help our society and do not attack those people who did no wrong.
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GM needs new leadership that is not committed to old Lock-ins if it is going to ever be a viable competitor. Only someone from outside the industry will be able to implement necessary Disruptions and create White Space that will allow GM (or Ford or Chrysler) to address long-term shortcomings. I don't know why Jobs would take the job, but someone who is Jobs-like is necessary. Read more at http://www
If the boss of the UAW hadn't come out and said the pickle they're in was none of their fault he might have an ounce of credibility. That kind of stupidity must not be allowed to continue. Sucks for the workers, but they need to blame their bosses and their short sightedness and greed that drove them to make a quick buck instead of plan for the future. It's that simple. They can keep their jobs on new terms or not have jobs. With the way things are heading, they'll still be among the lucky ones
Simply ask the highly paid white collar executives to take a 30% cut in pay!
And ask the Union to take a 15% cut in pay to keep their jobs!
It is not just the BIG 3 who are losing customers! All car companies are hurting but they are not near bankruptcy!
CORRUPT Banks who still make profits recieved $250+ Billion to help merge BIG BANKS into MEGA BANKS!
SO we can certainly help Auto Companies with 1/5th that or $50 Billion to save 10% of the JOBS in AMERICA!
__________
Certainly, high paid white collar people should be required to take a 30% cut in pay and union workers should take a 15% cut in pay! And these companies should only produce cars with 30+ MPG ratings.
Sell the "GAS GUZZLERS" at losses to get rid of them and stop producing them!
Replace Top Executives with Hybrid and Green Car Experience!
Wow, is it true a GM auto worker with benefits is getting $73 an hour? Is it true that GM has got lots of people that it has no jobs for sitting around doing crossword puzzles getting $31 an hour? Is it true that the Japanese firms doing business in the US are paying with benefits $48 an hour?
Is it true that the Japanese car makers have half as many dealerships than GM and that they sell more cars out of those dealerships?
Bailing out GM right now is a joke. It wouldn't be a bail out it would be the theft of American taxpayer money to finance outrageous union contracts, bloated dealerships and incompetent executives. Be you socialist, liberal or conservative this bailout doesn't make ideological sense. It's cronyism. We are just about to leave the eight years of horrible Republican cronyism that has hobbled the US with grotesque spending and out of control borrowing. Is the only change that his election has brought about going to be to switch Democratic cronyism for Republican cronyism?
What about the products?
Go to the Ford UK web site and look at the range on sale in Europe.
Go to the Ford US web site and look at the range on sale in the US.
Is the US populated by Hippos? do most people haul brick as part of their job?
On the beltway in the morning most of the vehicles have one person in them. Most people can't drive on the roads so don't tell me they need off road vehicles.
Don't spend a penny of tax payers money until there is a real debate about the type of vehicles that the US needs today and in the future. Slimmer is better for TV design, why not with vehicles.
Hmmm they can do what other co. did offshore them, they can offshore their exec. positions.
I'm sure there are ambitions and successful execs. in India.
I'm not sure if it is legally possible , but I would :
1) Bring in the best experts who have experience in designing and building fuel efficient cars.
2) Invest in production / purchasing of equipment to build the new models.
3) Freeze expences (except salaries, and then cut those maybe 25 %) for 6-9 months.
4) Offer great tax / credit incentives to buy an American car.
5) Marketing program that tells Americans that if you don't buy American, please refrain from complaining about either the ecconomy or manufacturing jobs being shipped overseas. So suck it up and be patriotic.
6) Top management salaries - bonus only and based on performance.
or
Just let the industry die and maybe a new industry will be born, or everybody can just buy foreign company cars made in the US. This is what Americans are choosing to do, it seems.
If the govermment decides to let the auto companies fail, then the dominoes will start to fall. At minimum, 3 million jobs will be lost. Countless buisnesses, large and small, will also collapse. As the dominoes fall, I hope that you all can hold onto your jobs. Be prepared to hold on tight.
Let them go bankrupt and re-organize under the bankruptcy laws.
No taxpayer bailout.
2. As part of the country’s Devil’s compact with the ex-Confederate states “right to work” was enshrined as part of the new states’ rights. Automakers such as BMW, Toyota, Mercedes-Benz, etc. have opened plants in the South because these plants have anti-union laws and these companies operate cheaply while capitalizing on the fact that their home countries all have national health insurance. Hardly fair. And this is the same region of the country that whines that manufacturing jobs have moved elsewhere. Payback is a b**tch.
3. The Founders – last refuge of the Right – demanded an informed citizenry. As our role as citizens has morphed into our role as consumers, we should at least be informed consumers. President Bush asked Americans to “shop” after 9/11 – how about making making informed choices regarding purchases as a new patriotism?!? We all want more and want it cheaply with little thought to what that means. We want 50 pairs of underwear yet give little thought to what it means that we pay $8 for five pair of underwear. Wal-Mart used to “sell American,” and now it thrives on cheap imports from China, etc.
4. If a bailout of the auto industry happens, let’s insure that the Michigan delegation does not protect them from bad habit and bad products, but let’s also call on Americans to step up and understand that everyday consumer choices have consequences.
1. Thomas Friedman does, in fact, have some good ideas regarding a "green economy" and advocating a new direction that capitalizes on the flexibility, adaptability, and innovation of American companies and workers (productivity is never a problem despite conditions or setbacks), but his Lexux-Olive Tree-World
Friedman is never wrong because he moves from advocating one thing to another without looking back. He was for Iraq war and he's been peddling globalist Utopia (flat world, etc) that is largely responsible for the situation we are in now. He is an ideological propagandist for the evil system that has brought us this disaster. Even when he seems right he's more likely to be wrong. I've just stopped reading Friedman.
How about incentivizing both the consumer and the Big Three automakers at the same time? Provide a $5000 rebate for any purchaser of a vehicle that gets EPA 25/25 mpg City/Highway, $7500 for 30/30 mpg, and $10,000 for 35/35. I know there are at least a few vehicles from these automakers in the first two categories (very few vehicles, though). I'm not sure about the last category, but I guess that is a statement in itself.
First, the proposal seems to be a bailout of several companies, not the auto industry. If GM and Chrysler go bankrupt, their productive assets and workers will not disappear, they will be purchased and hired by others more capable of utilizing them. There are lots of auto plants in the USA from the Prius plant by Toyota to start-ups in California. The same number of autos will be bought whether GM makes them or not.
Second, why the select companies in the auto industry rather than helping companies in lumber, electronics, chemicals, retailing, hospitality, software or any other industries that are also having hard times and in many cases represent the future economy?
Picking the losers for support and letting the potential winners twist in the wind (or worse draining resources from them) is a recipe for disaster.
This has to be the worst idea out of Washington in 20 years.
Not only should they be required to invest in fuel efficient and environmentally friendly cars, but the money should also be put aside for a fund to help their customers with money who want to buy a car without extortionary interest rates.
Well said..
I read somewhere a while back that a $25,000 car actually costs around $3000 to build..
Wish I could find that info again..
Michale...
I still think we should make Mitt Romney go and save Detroit like he promised in the primary. Make him keep those campaign promises.
But if we have to bailout anybody, I'd rather bailout the guys that actually make a product, rather than the ones that sell bets (which is my basic understanding of what derivatives are). Wall Street pushes paper. But there are so many industries and small businesses tied to car companies, it doesn't seem right to bailout the guys that sold bets and not the people tied to selling cars.
If you look at the GM website, according to GM, GM's problems are caused by the credit crisis. What is the value of the inventory sitting in dealers' lots? If that inventory is worthless, a bailout for the manufacturers doesn't make any sense. The industry will make more worthless cars. Is the problem JUST a credit problem? What will it take to start moving that inventory? Does ANYBODY want those vehicles? Finance the automobile buyers - if they exist - not the manufacturer.
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