The Auto Bailout – a few ideas
OK. So, the big auto companies want us tax payers to bail them out. Why US?!
Doesn’t it seem that we did something like this just a few years ago to Chrysler back with Iacocca was their chairman? Hasn’t the auto industry learned anything from history?
It is also said that the auto industry is way too big to allow to go under. Really? I don’t see anyone wanting them to go under, but I do see a lot of people that think that perhaps Chapter 11 may be a good idea for them. And, yes, they are a strategic asset to the military, after all back in World War II, the assembly lines at Cadillac had to be converted quickly and on the fly to make tanks instead of cars. Were we to get into another mess of that size, it would be nice to have a Cadillac to make tanks from.
But, alas, while the Republicans are busy fighting the Democrats, and the Democrats are too busy fighting the Republicans, nothing will happen.
There are many that think the auto industry is run by a bunch of overpaid fat cats that kowtow to a union of over paid workers which has a chokehold on the industry. I’m kind of leaning to giving some credibility to that statement.
Since I happen to like driving a Chevy truck and don’t want to see them go the same path that GM sent Oldsmobile, much less totally out of the marketplace, I’ve given this some thought.
So, here’s a few ideas:
Chrysler is owned by a very well funded holding company. Perhaps they should invest in their own subsidiary and not require the tax payers to do the investing for them. Frankly, I think this should be the preferred solution for Chrysler. It may make them more efficient and leaner sooner.
Let’s give Ford and GM a LOAN with these caveats:
1. It has an attached interest rate and repayment plan. This rate is the prime rate as published in the Wall Street Journal.
2. A manager is placed over this loan to make sure payments are made on a timely manner
3. ALL cash dividends, if/where applicable, are canceled. I didn’t say postponed, I said canceled. This includes preferred shares as well. There’s nothing like a big group of pissed off share holders to keep their feet to the fire. And since you’re not making any profits, no reason for any dividends.
4. All bond note payments, if any, are suspended until this loan is paid off. The alternative to any complaining financial institution is that they could easily get nothing if the companies went under. Payments to resume after debt paid to the US Taxpayer, commencing at the point of corporate resolvency.
5. Effectively immediately, the UAW is disbanded as the bargaining instrument of the auto industry.
6. All bonuses for senior management are canceled. Not postponed. Canceled. Clearly, if they had done their job in management, we wouldn’t be having this conversation and they’d be getting their bonuses. An incentive structure, based on common stock, could be implemented at some time in the future.
7. Effective immediately, across the board, tiered, pay cuts are implemented. These cuts will range from 0% to 40% depending on how much one makes already. Now these estimates will need some serious refining by the bean counters and personnel types, but they’re a start. Immediately, I’d recommend something like:
a. $0 – $25 per hour – no cut
b. $25 – $30 per hour – 15% cut
c. $30 – $35 per hour – 20% cut
d. $35 – $40 per hour – 23% cut
e. $40 – $50 per hour – 27% cut
f. $50 – $60 per hour – 35% cut
g. Over $60 per hour – 40% cut
8. Effective immediately, all golden parachutes are canceled. We don’t need to be paying for an over paid and under performing executives personal bailout package.
9. This loan is senior to any and all outstanding debt. This means, this loan gets paid first and has first rights to assets upon liquidation.
10. The auto manufacturing companies develop a business plan for their futures which will include things like:
a. Higher fuel efficient performing vehicles
b. Priorities for alternative fuel sourced engines (solar, hydrogen, etc)
c. Plans for how to recycle the exhausted products required for these alternative means – ie., how are they going to recycle the spent and unrechargeable batteries from electric cars, etc…?
11. Don’t constrain the auto manufacturers from producing profitable and currently in demand vehicles. You can’t kill the goose which lays the golden eggs right now, but you can plan for the future nest eggs and needs.
12. Companies may go back to using corporate airplanes and other means of corporate transportation in a judicious manner. In many cases, these are the most efficient means of getting needed personnel where they need to be and in a timely manner.
13. Address the issue of poor resale value of domestic cars. The resell value of US made vehicles is very low. We’ll talk about that more in a follow up article later.
I’m very sure there’s other items I could put in here and in time may amend my list. And I’m sure that the congress will want to add their share of pork to the pile as well, that is, once they stop fighting each other’s political party long enough to actually get something done for the country.
I’m Don Rima and that the way I see it, From Where I Stand.
If you enjoyed this post, please consider to leave a comment or subscribe to the feed and get future articles delivered to your feed reader.
Don,
I like your style. I’m a retired HR manager with considerable bargaining experience. I did my Masters research in an ag/imp factory and have negotiated with the likes of the ILWU and the Steelworkers.
With the ILWU, their bargaining position was so restrictive, I agreed to a peaceful contract and my employer sold the facility!
In the UAW factory, I worked with the local union president, who had a cinderblock office outside the factory entrance, from which he dispensed coffee and peppermints to employees who came to work under the influence of alcohol or drugs. The UAW is very bureaucratic: their numbers never shrink, they get paid the same (complete with COLAs) and the in-plant stewards are paid by the company, but focus on processing/generating grievances, not working.
Employees at Caterpillar decertified the UAW and John Deere endured a 163-day strike in 1986 that resulted in a permanent loss of 43% of Deere’s U.S. workforce. Expansion since then has been offshore.
The steel sector may be the best predictor of what will happen to auto companies. The USWA still represents US Steel employees, but it’s unlikely to grow. The government has helped the domestic industry with import price restrictions, which have only weakened those companies. Nucor Steel competes head-to-head with foreign importers, but Nucor is union-free and expands with its market, not before it …so it has never laid off any employees!
I don’t believe the union founded by Walter Reuther, which has supported Democrats, and senses it is in a death spiral will be abandoned by President Obama. Your item #5 cannot work without repeal of U.S. labor laws and that flat isn’t going to happen.
Something very creative will come out of the bailout scenerios, but that “Car Czar” better be a really tough guy. As a taxpayer, if it turns out that I’m supporting employee representatives with the UAW’s historic mentality, I’m going to get very politically active!
Dave