My own conditions for a bailout (update)
November 20th, 2008 • by David Zatz
Nobody asked me for my opinion, but then, I didn’t ask Mitt Romney, Michael Moore, Rush Limbaugh, or any other big-mouths for their opinions, either.
Incidentally, the auto industry economists DID clearly see economic troubles coming, at least six months before it did. Ford and Chrysler acted. GM did not.
So here are my conditions for loans or grants to the auto industry:
- Executive pay has to be cut, if nothing else because we’re asking taxpayers and others to sacrifice. That means six figures. No more. Indeed, because I’m personally so frugal and can’t understand how someone who got over $20 million last year can possibly need money ever again, I’d set a peak of $500,000. That’s enough. Anyone who is dedicated will happily work for that. Anyone who isn’t dedicated can leave. Good riddance, and good luck finding a better-paying job.
- Every executive getting a retention bonus at Chrysler has to give it up. They can do this voluntarily. If they don’t, let Chrysler’s lack of loans be on their head.
- Rick Wagoner gets his walking papers. He has never presented a serious plan for GM’s recovery.
- GM’s board has to refresh at least half its members, since they clearly have not been paying attention.
- Ford and Chrysler, you’ll notice, have not been singled out by me. That’s because Chrysler has been firing on all cylinders since Daimler left; they cut back drastically before they needed to, they’ve slashed warranty claims by around 30% in a single year, and they’re working hard to make their cars more desirable – and far more efficient, now making the most fuel-efficient minvan. Ford, over a year ago, started working on making its lineup more attractive, too, and has been working on gas mileage with notable success. The board of Ford was clearly not asleep as GM’s was.
- The UAW has to make yet more concessions. I’m sorry, but it’s the only way the public will buy a bailout. I know the labor costs won’t amount to much, and everyone else is sacrificing in this economy. I’m looking at relatively minor cuts, though – $1 per hour and a higher medical deductible. I don’t want autoworkers to get minimum wage. It’s a very tough job – filled with noise, excessive heat, unpredictable hours, etc. Finally, I know the job bank isn’t really still used, but the remnant has to be eliminated. The public hates it.
- Yes, the automakers should agree to beat Federal efficiency standards. Not by much, but by more than a trivial margin. Like at least 1 mpg. Come on, it’s symbolic. Show you care.
- All corporate jets have to be sold, period, end of story. It’s symbolic, again.
- No expense accounts for anyone making over $250,000. Yes, I know they can cheat and have subordinates buy stuff for them. That’s why we have #10.
- All expense accounts to be available to the public.
- For Chrysler, the books have to be made available to the government. Yes, they’re a private company. If they take public loans, they give up their privacy.
- No moving capacity offshore. If they want to build production, they can do it right here in North America.
- China… I don’t know what to say about China. Better minds than mine will have to handle the conundrum of shifting to Chinese suppliers. Frankly I think our trade policy with regard to China is foolish and needs to be changed, and that’s a separate issue. It’s not free trade now; the conditions they impose on our exports are far different from our conditions on their exports.
- No mergers! If they want to do that, they can give back the money and THEN merge. We don’t need to waste our tax dollars on lawyers, consultants, and investment bankers. If they find synergies, fine, let them work together like they have in the past. Nobody’s stopping Chrysler from licensing the Malibu or GM from licensing the Ram. Nobody is stopping Chrysler from buying GM transmissions or GM from buying Hemi engines. After all, Chrysler is building Nissan trucks, Nissan is building Chrysler cars… without ownership.
- As the Wall Street Journal noted, there needs to be a lot of thought over where the government is positioned as a debtor. There does have to be compensation for risk. At the least, some equity should be handed over… not a huge amount like 10% of the company, but also not a trivial amount; and it should be written into the law that the government must sell this equity within six months of the loan being repaid.
- The government has to get a seat on the board, just like a major investor would.
- The loans should come out of the $350 billion earmarked for banks. The banks haven’t been using this money the way they should have been. This way it’ll just be eliminating the middleman.
- Every automaker needs to present a detailed recovery plan, just like Lido did way back when. Jimmy Carter turned Chrysler down until they had a plan, and I see no reason why Congress should be any different.
- (New since first posted) The loans would be ON TOP of, not INSTEAD of, the $25 billion already appropriated. I don’t like the White House’s usual games.
- Along with the loans would come a new Federal law pre-empting all state laws on franchises, which would make it easier for GM, Ford, and Chrysler to drop unwanted brands – like Pontiac, Saturn, Mercury, and Chrysler – so they could focus on a smaller number of core brands.
I disagree with this insane new notion that all we need to do is eliminate Chrysler, or force all three automakers into a single company. Some of the same people who scream “socialism!” at loans seem to have no problem with forcing three companies into one. I think that’s exactly the WRONG solution at this time. Think about it – what’s one of GM’s biggest problems? It’s too big and ponderous, right? Now let’s see…how about adding some more brands (with more dealers to eliminate), a bunch more plants, and a few extra research and development centers? Boy, that would work, wouldn’t it? Then we could have our layoffs AND our eventual bankruptcy, too!
I’m not entirely sure these conditions would help sell the plan; a lot depends on the White House’s leadership, which is still, for reasons I can’t understand, blindly followed by many in Congress (which is how the bank bailout went through). However, I think they would do a lot, especially if voluntarily adopted by the automakers, to convince the American public that GM, Ford, and Chrysler are not a bunch of overpaid, egotistical, out-of-touch loons. Which, frankly, is the impression they gave this week – particularly at GM and Ford.
This is a thoughtful analysis. I might add to it the need for the Big Three to have someone speaking for them that can connect with the American people. So far its been the “suits,” the MBA types that could just as easily be leading Lehman Bros. as GM–and they present with the same lack of sympathy. LaSorda or Press should have been speaking for Chrysler, Lutz or Ed Wellborn for GM, or maybe someone from the ranks we don’t even know by name right now. I think the American people could root for these companies if the leaders seemed more like regular Americans that share their dreams and can identify with their frustrations and act like they know what its like to have to live within their means. Or even if they sensed these were guys that loved the companies, that had a passion about the cars. Robert Reich was supposed to be a spokesmouth, yet he couldn’t name any of Detroit’s fuel efficient models when asked about it on that MSNBC program.
We’re still not reaching down to the root of the problem–whether we are going to ultimately turn over the Auto industry to Asia and Europe, or whether the national interest of the US and Canada requires well-thought out actions to preserve a domesticaly owned industry. The “bail out” can be no more than a bandaid on a severed artery unless the industry can operate on a level playing field to Asia and Europe. Otherwise we just delay the collpase of Chrysler and GM’s N. American operations. They must have the option to take advantage of non-union labor. Tariffs on imports must be on the table. That $25 billion for the fuel-efficient cars ought to be pouring into GM’s Volt program and Chrysler’s ENVI–RIGHT NOW.
We have too many politicians influenced by lobbyists for all the wrong interest groups. What’s best for America gets lost, even among people that probably are decent and care about their States and constituents. Free trade theories and MBA business school theories have replaced good old horse-sense. Hamiltonian-style economic nationalism, that built our country’s economy has been forgotten–by us, but not by our competitors. There aren’t too many Harry Trumans watching out for corruption, watching out for the national good rather than their cronies’ good.
It may be that we can only support one large, independent maker. South Korea had to restructure its industry over the past decade–that is the closest analogy I can find to this predicament. They ultimately allowed Daewoo to buy SSangyong, GM to take over Daewoo, Samsung Auto to fold (as I recall). But the government helped ensure Hyundai-KIA survived as a strong entity. They made sure S. Korea had a doemstic auto industry, as an important part of their economy. So it may be only Ford survives as is; GM N. America would basically exist as a sales outlet for GM Europe/ Asia, with much more limited manufacturing and sales here. Bankruptcy might actually let them close Saturn, Buick, Pontiac, GMC without all the lawsuits. I don’t see how we give loan guarantees or bailouts without dealing with that problem. Chrysler will probably be reduced to the Jeep brand, owned by some foreign maker. China has the money, I think Cerberus is determined to cash in its chips.
I hate the whole idea of government “running” businesses, deciding what pay scales will be, even what the product mix will be. I hate the idea of having the same Congressmen that arguably created much of this banking mess, that forced CAFE that would even dicate how long a sedan can be, dictate auto policy. But government has ignored its legitimate role to foster this industry through R&D and import barriers, as is done in the rest of the world, and now finds itself stuck with a sick patient on its hands.
I think the White House / Congress acting in unison on these issues can be explained by the business interests that influence both sides of the aisle–Goldman Sachs execs have held top posts under Clinton and Bush, and will feature in an Obama admin as well.
Repubs are more influenced by the financiers, obviously–thus Paulson and Bush would be okay with GM and Chrysler going out of business a long time ago. The Dems have that “free trade” wing too–but also have many members influenced by the UAW, which explains their actions for the bailout–which, ultimately, will be more of a bailout for Cerberus and the UAW than GM, Ford, Chrysler.
I noticed this “bailout for the UAW” language before. It just surfaced today. Did I miss some commentary?
Fact is, yes, a bailout for the union workers would be good. Why should bailouts only be for those who don’t need them? People like Mulally, Wagoner, and, yes, Nardelli never need to work another day in their life.
We’ll see what happens next…
I think it’s sort of a catchphrase after Glen Beck and others have used the phrase in the past couple of days.
If it went to the UAW workers directly, for the retirement and health benefits they’ve earned and deserve, I’d be less cynical. But I don’t like giving money to the UAW bosses any more than I trust giving it to the leadership of AIG and Goldman Sachs and the like.
Interesting news story on this site about Canada’s aid proposal for Chrysler. I hope someone at Cerberus thinks seriously about it. Makes more sense than what I’m hearing from the US Con-gress.
How much do the “UAW bosses” actually get? You make it sound like they’re disbursing tens of millions in graft.
Agreed in Canada’s proposal, though that’s not a government plan – it’s from an American consultant.
Good set of conditions. I’d like to see Chrysler’s plan for the money they’d get.
I wouldn’t call it graft, but I’d say too much money is at the disposal of the leadership. It’s enough to dole out plenty of political contributions, often to support causes or candidates the workers may not agree with (such as pushing left-leaning tax policies or policies on illegal immigration). The Strike fund alone is kept at a minimum of $500 million dollars–a half a billion dollars. If UAW was more vocifourous about trade issues I might be more inclined to give them the benefit of the doubt.
I understand the political donations. One of the parties is anti-union, and they’re a union. I’m sure if there were pro-union Republicans and anti-union Democrats, they’d go the other way.
$500 million strike fund… interesting. Again, though, it’s their only weapon… but that does seem a little high. Unless they’re planning a protracted strike against GM.
It is interesting. It has to be maintained at $500 million under UAW “rules” so it’s not directed at any one company, just general contingency. In 2000 it was reported at $800 million. I’d like to see some of that go to pensions for the workers that will be hit hard regardless of what happens.
I don’t like either extreme that I’m seeing now–the one side that seems to suggest wages should come down to third world levels, that there is no shame in unlimited executive compensation for doing a lousy job, that the Big Three should go out of business as if it were nothing more important than a convenient store; the other that says the UAW has made all the concessions it’s going to.
Good to read Chrysler’s newest press release pledging $1 a year and outlining what the company is doing right.
Some Republicans are pro union, though probably in the minority. Chris Smith here in NJ is quite the hard line social conservative; yet was endorsed by several labor (including teachers) and environmental groups. But I’d admit he’s a rare bird.
As far as the pathetic performance by the CEOs (Moe, Larry, and Shemp)…..it was almost enough to make me change my mind about supporting aid for the automakers. They were that bad. Did their PR departments have any clue how to prepare them, or did they all just go off the reservation on their own?
Did Wagoner actually object to executive removal because anyone brought in wouldn’t know what they were doing? As opposed to what? An inbred suit that saw the stock go from $90 to under $3?
Could anyone do worse?
Did Mulally actually have the nerve to answer the pay-forfeiture question with ‘I think I’m okay where I am’? Oh really? Ford closed at $1.37, and you’re okay where you are? Seriously?
An entire industry is on the brink and this is what you fools bring to the table? Are you flippin’ kidding me?
Nardelli, at least, offered up his salary. Of course, he can probably afford to since even with the tanking market there’s probably enough of his Home Depot golden parachute left to live on. Still, he must be given credit for doing what Larry and Shemp wouldn’t, and from what I read they didn’t even have to beat it out of him.
Regarding the private jets….one word: Netjets. Fractional ownership in executive jets; all the convenience and a very small percentage of the cost. They should (ahem) consider it.
Down here in the muck a bunch of us are being asked to make sacrifices in order to save our jobs (buh bye raises and bonuses). It’s only fitting that those in the ivory towers join in the fun.
Mind if I bump your comment up to full fledged weblog?
Not at all :)
Dave:
I like your analysis, and I like your conditions. I especially like the part about no Mergers,
especially given the lessons regarding the last one. All of Chryslers brands have strong identies and loyal followers. Just not enough of them thanks to a laundry list of past mistakes. Time to move forward. Personally, I think is is too bad Lee is not much younger.
Dave Lyall
Y’all can attack me. Sure. I think GM needs to file bankruptcy or threaten to do so. Then maybe, JUST MAYBE the republican cry babies would wake up and see the reality of the case! GM needs to boot Wagoner, he is a total dumbutt. He has no plan for the company to change. Ford is bring euro cars and Chrysler has new products in the pipeline. This bailout may secure us a new CHRYSLER Sebring not a nissan or such. Sure the Nissan Sebring would be nice, but why not a CHRYSLER?
Considering the performance Wagoner and Mullaly gave to Congress the other day, it’s a wonder the boards of both companies don’t fire them both next week. Nardelli accepted the concept of working for a buck a year until the loan to Chrysler is paid off. Moot point if there is a merger, though.
We need the companies to be competitive and intact. Maybe their replacements will do it.
First, I agree with much of what is said above.
I believe the time has come to consider national manufacturing/industrial policy. The problems besetting the domestic auto industry has either impacted or will impact all manufacturing companies where cost savings from manufacturing outside of the U.S. more than offset the increased cost of transportation. Remember when Levi’s were made in the U.S.? Right now, we’re just trying to patch the problems with auto manufacturing.
Millions of jobs have been sent outside our border with no consideration for conditions mandated by outside forces, mainly our government. I think the majority of Americans would agree that our government has a role in insuring the safety of working conditions for our workers as well as protecting our environment. While a balance must be struck, our government does have have role in both of these. Additionally, our government has turned a blind eye to the fact that China keep its currency artificially low for a trading advantage. As mentioned above, Korea intervened to preserve its auto industry. European Union subsidizes Airbus. In the United States, states with right-to-work laws also gave international auto manufacturers tax breaks to locate plants in their state. How does government balance all of these needs? This isn’t easy.
I intentionally repeated the phrease “our government”. If one wishes to rail against government policy but not bother to write your Congress person or Senator a well reasoned letter or give them a call or to vote, one’s input is minimized.
I do want to go on record as supporting loan guarantees to the Big Three. Do I want effective government oversigh? Absolutely. This will be expensive and difficult. And for a country that seems to recovering “free” market” addict, this will be a difficult transition.
14. No mergers! If they want to do that, they can give back the money and THEN merge. We don’t need to waste our tax dollars on lawyers, consultants, and investment bankers. If they find synergies, fine, let them work together like they have in the past. Nobody’s stopping Chrysler from licensing the Malibu or GM from licensing the Ram. Nobody is stopping Chrysler from buying GM transmissions or GM from buying Hemi engines. After all, Chrysler is building Nissan trucks, Nissan is building Chrysler cars… without ownership.
I agree that there should be more technology and platform sharing, but not with GM. Chrysler should expand its relationship with Nissan/Renault. Let Nissan buy a stake in Chrysler, like the 20% that was rumored a few weeks ago. The two companies would remain mostly separate but would each benefit from such an arrangement.
Platform-sharing would reduce development costs for both companies.
Chrysler could get:
Cube-based Dodge Hornet (already planned)
Sentra-based Dodge Rebel
370Z-based 4-cylinder Dodge Demon coupe and roadster, and V6 Chrysler LeBaron roadster
Nissan could get:
Ram-based Titan (already planned) and Armada
GC/T&C-based Quest minivan
The two companies could co-develop:
The next-gen D-segment platform to spawn the Dodge Avenger, Dodge Journey, Nissan Altima, Nissan Maxima, and Nissan Murano.
A SWB version of the Ram platform to spawn the next-gen Dodge Durango, Dodge Dakota, Nissan Frontier, and Nissan Pathfinder.
A SWB version of the upcoming Grand Cherokee platform to spawn the next-gen Jeep Liberty and Nissan XTerra.
Once these core products are in place, the economy improves, and CLLC returns to profitability (fingers crossed), Chrysler could invest in expanding its LC/LX/LY line by building a Chrysler 200 sedan and convertible (to replace the Sebring in the line-up) and a Chrysler Pacifica crossover (based on the EcoVoyager design) off the SWB LC platform that underpins the Challenger; and by building a LWB (124-126 inches) LY platform to spawn a Chrysler New Yorker sedan and a Chrysler Aspen crossover. Make both of these LWB vehicles very exclusive and offer them only with the hybrid Hemi used in the Aspen/Durango to keep CAFE numbers reasonable.
Chrysler could also convert the Compass into the next-gen Chrysler PT Cruiser, build a Sentra/Rebel-based or Patriot/Caliber-based Jeep Jeepster or Renegade, and build a Jeep Gladiator unibody pick-up based off the GC and/or a Jeep Willys unibody pick-up based off the Patriot to cover the “lifestyle pick-up” market.
Chrysler and Nissan could share production capacity, allowing CLLC to build Nissans in their plants and vice versa to maximize efficiency and reduce costs. They could also share technology such as the EV drivetrains, hybrids, transmissions, etc.
Excess CDJ dealerships could be converted into Nissan and/or Renault dealerships to facilitate Renault’s re-entry into the NA market. This would be a good way for CLLC to unload some of its excess dealer network while keeping the dealerships open and saving American jobs.
The focus of such an arrangement should be to keep as many NA dealers and plants open while minimizing costs and maximizing efficiency and profits for both companies, all the while protecting American jobs and stimulating the economy.
Mike the Mopar Man Wrote:
“I intentionally repeated the phrase “our government”. If one wishes to rail against government policy but not bother to write your Congress person or Senator a well reasoned letter or give them a call or to vote, one’s input is minimized.”
This really can’t be emphasized enough: A letter beats e-mail every time. Want to change the world? A deluge of angry constituent letters gets the attention of congress critters like nothing else. E-mail is too easy. The fact that you sat down and wrote a letter tells them that you really, really mean it. It doesn’t matter if you are using crayons or Word as long as it can be read. Keep it clean and write clearly.
Now back to my own letters…