The bailout for the car companies
I have reported on the auto bailout on my website, MSNBC, and the John Batchelor radio show. I have been listening to all of you talk about the auto bailout. I have listened to the people on the street, and their suggestions as well. This issue is so big that I have heard people talking about it in the hot tub at my gym.
Clearly, when an issue has become so big that it entrenches on the zen of a hot tub it is time to fix it. Lucky for you, you have me. I have suggestions.
Last week at the hearings General Motors CEO Rick Wagoner, Fords CEO Alan Mulally, Chryslers CEO Bob Nardelli, and the UAW’s President Ron Gettelfinger were embarrassing to watch. Most embarrassing was when one Senator asked Gettelfinger the particulars of job banks. Gettelfinger actually told the Senator he wasn’t sure, and that he would get back to him.
A few of the adjectives used to describe the heads of the auto groups were, ill-prepared and arrogant. I believe those adjectives could be a correct assessment, especially the arrogant part. Three CEOs flying in three luxury jets to beg for money does seem arrogant.
But Congress, my Mommy always told me, two wrongs don’t make a right. And my Mommy was always right, just because she said so. This is not the time for you to be arrogant.
I didn’t agree with the $700 billion bailouts. If you got an email that said, “let them rot in the hell they created”, that was from me. But you voted for the bailout and before you give it all to the banks with no stipulations lets show the nation what due diligence looks like and make stipulations on four percent of the bailout money.
I was at the 2008 Los Angeles Auto show. I interviewed most of the executives and asked them all the same questions.
a. How are you managing in this economic freefall?
What percentage are you cutting production?
What percentage are you cutting employees?
b. Are your sales down because of credit problems?
Do you see any stabilizing of liquidity?
c. If one or two of Detroit 3 went out of business how
would it affect your company and the auto industry?
If an Indian auto mfg bought Chrysler and/or a Chinese
auto mfg bought GM how would that affect your company and
the auto industry?
After talking to these executives I have come to realize that a bailout is not only necessary but not enough.
Here are my suggestions:
1. Make the UAW give up job banks.
Job banks allow people who would otherwise be laid off to get paid their salary and benefits while playing gin rummy. It is probably the one part of the contract that is symbolic of the contentiousness of the UAW. Its been a while since I got my degree in accounting, but I believe the basics still apply, an accountant does not make a variable expense into a fixed expense.
It’s fine that the UAW agreed to allow new hires at $14 an hour, a level below non-union workers. But that just means they had to hire another person to work when they were paying 3,000 people not to work. David Cole, Chairman, Center Automotive Research, emailed me that “The fully burdened cost of a UAW employee is about $45 per hour with pay at about $ 28 or so per hour (the total fully labor rate including retiree coverage is about $70 per hour). They don’t quite earn full pay in the Jobs bank”.
Cole said a couple of thousand newbies had been hired by General Motors since the new agreement. That means you’ve got about 3,000 job banks people not working at $70 an hour, and yet you have to hire another couple thousand at $14 an hour plus benefits.
Cole says that the new hires were probably already let go by now. Not those job banks people they’re still collecting their salary and benefits and playing a mean game of gin rummy.
Give the auto industry $24 billion of the bailout
I know Detroit 3 wants $25 billion of the bailout, but after talking to executives from other companies I have realized that unless you give the consumers a stimulus to buy these vehicles all you are doing is giving them a bridge to nowhere. I suggest you hold back $1 billion of this bailout for a federal tax credit if they purchase a car. Yes, Obama is planning a stimulus package, but let’s face it, a thousand dollars is not enough to make many people go spend $25,000.
Sen. Barbara Mikulski, D-Md. has a proposal to allow buyers to write off the interest on a new vehicle loan. Let’s stimulate the economy even further by giving the purchasing consumer a stimulus to buy a car. Let’s make it available at the same time the stimulus package comes out.
Only apply this interest-free tax credit to vehicles that get an EPA combined miles per gallon of 30 mpg or better. And allow it to be applied to all manufacturers, not just the Detroit 3.
Give the credit to any auto that meets the 30mpg?
Yes, for two reasons:
1. Detroit has made the case that if they fail the suppliers and parts will fail and down will go other auto manufacturers. Part of the reason you, Congress, are looking at the bailout for auto companies is you don’t want that to happen. In order to help all involved, we need to sell parts.
2. If you’re only going to give the credit to the domestic manufacturers a case could be made to give it to only cars made in America. It gets convoluted. Just give a tax credit to the vehicles that meet the mileage program and you’ll get the end result you want.
There is a difference between a consumer and a customer
The banks can just get a bailout and continue to function with their customers. The auto companies depend on new sales – new consumers – in order to stay alive. The customers in the banks now feel better that their money is safe, but you haven’t found a way for that customer to become a consumer.
Make stipulations on the auto company
no dividends to stockholders
no buyouts, just layoffs
Do not allow the DOE $25 billion to be used for anything other than future advanced technology retooling.
The DOE $25 billion is supposed to go towards future advanced technology, and to businesses that are “financially viable”.
Don’t allow the Detroit 3 to use it to payback expenses already made. They are getting the $25 billion bailouts for that.
If you would like to see the executive interviews from the 2008 Los Angeles Auto show click below: