Engineering a better bailout, a gift to economy
The economy is circling the drain while the CEOs of the Big Three automakers fly three separate corporate jets to Washington to beg for a bridge loan (read bailout). Congress sends them home empty handed, saying, in effect, show us a viable plan for reorganization and maybe we’ll show you the money. They return, flying commercial, but probably not coach, with something that resembles a plan that’s not solid enough to suit Republican senators. They warn of dire consequences-plant closings, layoffs, bankruptcies among suppliers and dealers-if the money is not forthcoming.
“Prepackaged” reorganization in Chapter 11 is not an option for them, they say. Can you spell extortion?
Banks were given hundreds of billions to loosen credit but they aren’t loaning even to each other, much less to the automakers. Not a penny. Nothing is loaned to small businesses, to refinance dodgy mortgages, to fund purchases of Detroit-mobiles? No way, Jose. Credit is still as frozen as a Montana winter.
In his first show for “Meet the Press” new anchor David Gregory assembled a panel of really smart business leaders, not the usual pundits and reporters, and there was considerable agreement among them. They certainly seemed to respect each other’s views. Michigan Gov. Jennifer Granholm, former Gov. Mitt Romney, Google CEO Eric Schmidt, Wal-mart President and CEO Lee Scott and former Hewlett Packard CEO Carly Fiorino, all brought first-string business minds to the table.
Fiorino said, “Banks should be required to loan to businesses.”
Well, Duh! Why didn’t Treasury Secretary Paulson include that as a condition on how the bailout money was to be used?
Romney added, “We need action now. We can’t wait for Obama to take office. We need a business stimulus package now, one without earmarks.”
They all made great sense, but were the senators listening? Our president was on a stealth trip to Iraq, so he wasn’t hearing it. And would he be inclined to step in anyway? Obama says we can’t have two presidents at once. Sen. Barney Franks, who is working 24/7 to save the auto industry, says we don’t have even one president at the moment.
The airwaves and op-ed pages are loaded with conflicting opinions: Let the auto makers go belly up; Chapter 11 restructuring is the only way to get the industry out from under untenable contracts with the UAW; Republicans are using this as a way to break the union; nobody will buy a car from a company in bankruptcy; government will suffer because it will have to pay all the unemployment insurance for laid-off workers; the nation needs to have its auto industry; the ripple effect will drive the economy deeper into recession; government shouldn’t be in the business of picking winners and losers in business.
Too late on that last one. Government already had its way with the financial markets.
Franks says bankruptcy protection would allow carmakers to refuse to pay their suppliers and other creditors, which in turn would cause them to fail. Good point.
So who is right? All of the above have some basis in fact. And some measure of probability. But does a lame-duck Congress want to weigh in even when told time is of the essence? The new Congress, more heavily weighted Democratic, may be kinder to the Big Three but that’s crowding the deadline. And Bush is too busy trying to patch up his legacy and picking up shoes thrown at him.
Most experts say the automakers sewed the seeds of their own destruction long before the economy went south. The credit crunch was simply the last straw. Personally, I think it’s asking a lot for taxpayers to shell out, even temporarily, for lousy decisions made by industry leaders motivated by greed.
To succeed in business, a company has to make products people want to buy. U.S. automakers made big, costly, inefficient vehicles because that’s where the short-term profit was. Then they promoted those behemoths with hugely expensive advertising campaigns, which added to the cost of each vehicle. The crunch came long before banks stopped lending. It came with pricey gasoline.
Company executives have cried for years that pension and healthcare entitlements demanded by unions added $2,000 to the cost of every vehicle. There is genuine disagreement on this, but for sure at least that amount was spent on promotion. And even more was spent on lobbying to quash higher fuel efficiency standards and on loopholes for SUVs.
If only they hadn’t lied to us for so long, swearing they’d go broke if they were forced to add seatbelts, catalytic converters, airbags. Ralph Nader and good sense prevailed, safety was mandated, many lives were saved and nobody went broke.
So how about this: the CEOs take $2,000 per vehicle out of their own inflated compensation and deduct it from the price of each unit making U.S. cars more competitive and allowing workers to make a living wage at least until we reform healthcare. Then Treasury mandates a portion of the bailouts to financial institutions be loaned to Chrysler and GM. Ford says it needs only a guaranteed line of credit, so mandate that too. Realizing lower gas prices aren’t here to stay, Congress ignores industry lobbyists and really tightens fuel economy standards. If government wants taxpayers to pony up anything, it goes to research and development of better batteries for plug-in cars and natural gas technology and distribution for trucks.
That might be a very Merry Christmas from Uncle Sam.