Should Congress Bail Out the Big Three?

Not even First Class is good enough for the CEOs of the biggest three automakers, Rick Wagoner of General Motors Corp., Alan Mulally of Ford Motor Co., and Robert Nardelli of Chrysler Corp. Each CEO flew in style in one of their company’s luxurious jets hoping to make their case to Washington that the auto industry is running out of cash and needs $25 billion in taxpayer money to avoid bankruptcy.

Wagoner, who flew in GM's $36 million luxury aircraft to ask for $10-12 billion for GM alone, cost his ailing company an estimated $20,000 for the trip to Washington! Even as the companies are running out of cash, Ford Motor continues to operate a fleet of eight private jets for its executives. GM and Ford say that it is a corporate decision to have their CEOs fly on private jets and that is non-negotiable. This is a slap in the face of taxpayers" said Tom Schatz, President of Citizens Against Government Waste. If the Union of Automobile Workers (UAW) is blamed for costs that add about $2,000 to the cost of a car, one wonders how much the executive multimillion legacies add to the cost!

Detroit's automakers burned through nearly $18 billion in cash reserves during the last quarter—about $7 billion at GM, $3 billion at Chrysler and $7.7 billion at Ford. GM said it may run short of funds before the end of 2008, and Chrysler said that survival would be difficult without aid.

The CEOs claimed to congress that what exposed them to failure now is the global financial crisis which has restricted credit availability and reduced sales. They claimed their problem is neither their business plan nor their long term strategies but the financial situation we are in now. However, for years the Big Three kept building what they wanted without paying attention to the economics of the world around them and the needs of consumers who started to prefer cheaper and safer cars with better millage. At the same time foreign car companies were building better performing, more reliable and fuel efficient cars. The truth is that the American car industry for the most part had snoozed.

No matter what your political persuasion, no one thinks the auto company executives are doing a good job. It is hard to be sympathetic to an industry that has been so grossly mismanaged. People fear that they are going to take this money and continue the same stupid decisions they have made for 25 years. Let them go down, they say. Taxpayer money will go up in smoke if given to such incompetent management. Money to bail out GM will go to build a $300 billion factory outside St. Petersburg in Russia to continue making SUVs! Redesign and retooling will end up with jobs shipped overseas! Companies fail every day and others take their place. We will still get automobiles, but they won’t be made by American companies!

Easy to say, but there is so much at stake. If just one of the automakers declared bankruptcy, if we also include the workers that produce materials and parts and the people that work in dealerships, some estimates put U.S. job losses next year as high as 2.5 million. A GM shutdown alone could push the U.S. unemployment rate next year to 9.5 percent. According to a forecast, a GM collapse would cost the government as much as $200 billion for expenses associated with unemployment insurance and other programs. Other statistics suggest that a 50% reduction in U.S. automaker operations will cause over $108 billion losses in Federal, state and local governments in tax revenue over three years. Therefore, some argue, it is a choice between $25 billion in loans now or several times more billions in lost taxes in the future. It is estimated 850,000 retirees and their families depend for pensions and health care on the Big Three. The Big Three contribute $21 billion a year to Social Security and Medicare. If we add in all the businesses that depend on the auto industry, and we are talking about one-tenth of the U.S. labor force.

Japanese and Koreans are setting up factories in USA. Do we want them to pick up all the slack? We bail out Wall Street plutocrats and big banks. To let the auto industry die is to write America out of much of the economic future of the planet. The truth is that our auto industry is important to our country and its industrial basis. A lost manufacturing capacity, if needed in war, will raise a threat to national security. If this is true, why don’t we think like President Roosevelt during WW2?

President Roosevelt kept the American workers busy with the manufacturing of what was needed. Yes, we can bail them out but with big stipulations. Just asking for a plan for "viability and accountability" is not good enough. We can demand "radical" changes. Then, leave the ball in their court, so they can be considered responsible in case they refuse to comply. "Off with their hands". They can take it or leave it. Otherwise, we may as well suffer the consequences of their fall now, because if such a deal is not made, America will lose the industry anyway along with the taxpayer money.

What are these "radical" changes? The incompetent managers will have to be replaced. The buck stops here! No golden parachutes. No outsourcing. The government needs to have decision making, voting-stock, to ensure that the industry will help us build a nice transit system, and create inexpensive, fuel efficient cars that are environmentally friendly. Of course all this work must be done domestically. By playing their role in reducing our dependence on foreign oil, the auto companies can be part of a much desired solution. Such a transformation would help the US economy in countless ways, and I am sure most of us would be happy to see our taxpayer money be used for that purpose.

Coddie Adwar

PS. More than anything, what would really help relieve the auto makers is a National Health Care Plan. There is a lot of controversy, so this should be the subject of another article.