THE BLOG
12/13/2008 05:12 am ET | Updated May 25, 2011

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.