Auto Industry

The talk right now is that the White House will use TARP funds to bailout the auto industry. This was what Democrats originally wanted to do, but the White House opposed. Hopefully when/if the White House does it, they will show some balls and call out the Republicans for blocking the bailout last night. I doubt that will happen though, as the Republican motto is “party before country”.

That’s the message sent out by Senate Republicans last night as the auto bailout failed:

Their efforts in Congress squashed, U.S. automakers are depending upon a reluctant White House to quickly provide a multibillion lifeline to help them avoid imminent collapse.

General Motors Corp. and Chrysler LLC, which have said they could run out of cash within weeks, have few options left after the dramatic defeat in the Senate of a $14 billion bailout for the domestic auto industry.

Its demise late Thursday prompted immediate calls from lawmakers in both parties for the Bush administration to tap into the $700 billion Wall Street bailout to rescue the beleaguered auto industry. The bill failed after talks broke down over the refusal of the United Auto Workers union to meet Republican demands for aggressive wage reductions.

The markets are going to fall big today. They already have overseas. But we should all be happy since the big financial CEOs still get their huge bonuses and salaries.

Ford’s CEO agrees to a paycut:

Ford Motor became the first of the three U.S. automakers to unveil its turnaround plans to Congress Tuesday, but the plan contained little in the way of new cost cuts or other changes beyond what the company had previously announced.

The company announced that the salary of Ford CEO Alan Mulally would be cut to $1 a year if Ford (F, Fortune 500) actually borrowed money from the government. When Mulally appeared before the House Financial Services Committee last month, he said he would not agree to a paycut.

Ford also announced that it would sell its five corporate jets. Mulally and the CEOs of General Motors (GM</a>, Fortune 500) and Chrysler LLC received great criticism for each flying their own corporate jets to Washington to ask for help last month.

Of course there is no mention of bonuses. That’s always the catch-22 in these deals. “Sure I’ll work for $1 a year, but I want a $50 million bonus”. Hopefully Congress holds their feet to the fire.

We are hearing that a lot lately. It is a very tough situation to wrap your head around, but while people are saying we should let the auto industry go, no one is saying what to do with the millions of jobs it will cost.

It’s not that we need to bailout the auto industry, it’s that we need to secure the biggest sector of the manufacturing division. How does the opposition plan on employing all the people who lose their job when the American auto industry goes the way of the pet rock? What about all the diners, uniform suppliers, parts suppliers, and other businesses that are needed and supported by the auto industry? How do you save the towns that will be totally destroyed by the closing of their local auto plant?

Everyone can say no so easily, but no one can give plans on how to deal with the results of that no.

That’s why I have been behind Pelosi’s plan. Do I really want to see us throw $25 billion at the auto industry, when we don’t even have things like universal healthcare? Of course not, but I also realize we need the auto industry. If they are to get the money then they get it with strong conditions tied to it. Restructure the auto industry. Make them more efficient. Force them to produce cars that compete with the foreign market and help our environment.

Here are some interesting things I have heard on various shows over the past few days.

• Toyota was looking to open a plant up in Alabama. Toyota does have an aptitude/intelligence test required to work for them. They could not find enough employees that could pass the test. In the end they ended up moving to Canada, which turned out to be much better. They found the workers and were even able to pay them more, because Toyota did not have to pay for health insurance.
• Japanese automakers have a policy for CEO pay. The CEO can not make more than 10x the lowest paid employee. If the lower person gets paid $20,000 a year, that means the CEO can only make $200,000 a year.
• Japanese automakers don’t have unions. Their employees also don’t want unions, because their employer treats them so well.

(As to the issue of an intelligence test and the employees being happy, I can attest to that. I know a few people who work for Toyota and they have all verified this to me.)

So we see models there that are working out very well for other countries. Why don’t we try and mimic them? The health care issue alone should be more than enough reason. Health insurance is the highest rising cost associated with employment. If employers didn’t have to worry about that, then the money would go back to the worker, which would then end up back in the economy. Sometimes the answer is so simple.

Think of how that would also save companies when it comes to employees being off sick. A healthy workforce equates to a stronger workforce. Productivity goes up and production costs go down.

And how much is enough? How much money does one man need to make? We need to seriously limit bonuses and salaries for big wigs. CEO pay has skyrocketed while employee compensation has remained stagnant over the past 30 years. It should come as no surprise that this has something to do with our failing economy and middle class. It’s time to tell these companies that their CEO pay will be limited, and to help make sure they stay here in the U.S., we also put legislation in making it hard for them to leave the country.

If we don’t take the right course of action here, then America as we know it is gone. I hate to sound all “gloom and doom”, but that is the simple fact. We need a well thought out plan for the auto makers tied with a radical restructuring, similar to that of what the Japanese are doing. If our leaders are at a loss, then I highly suggest they check out the movie Gung Ho.

That’s what it seems like the Republicans are heading for – a policy of saving white collar jobs, while letting blue collar workers hit the unemployment lines:

Top Republican senators said Sunday they will oppose a Democratic plan to bail out Detroit automakers, calling the U.S. industry a "dinosaur" whose "day of reckoning" is coming. Their opposition raises serious doubts about whether the plan will pass in this week's postelection session.

Democratic leaders want to use $25 billion of the $700 billion financial industry bailout to help General Motors Corp., Ford Motor Co. and Chrysler LLC.

Sens. Richard Shelby of Alabama and Jon Kyl of Arizona said it would be a mistake to use any of the Wall Street rescue money to prop up the automakers. They said an auto bailout would only postpone the industry's demise.

So we should just let a million plus jobs go away? And it’s not just the actual jobs in the auto industry, it’s also all the businesses that thrive upon them. I’m talking about the restaurants and hotels that rely heavily upon the patronage of auto workers. The Cincinnati area has seen the effects of this first hand countless times in the past, and it isn’t a pretty picture.

Pelosi is putting forward a plan that really sounds good:

Pelosi said the auto industry funds would come with many strings attached, including restructuring company finances, meeting new standards for gas mileage and requiring advanced technologies "to compete in the domestic and global market." The speaker's office offered no specifics about what the new fuel efficiency standards would be and what types of technologies would be required for the auto industry.

This has been a really telling year for the auto industry. They saw their sales plummet this summer when we had gas over $4.00 a gallon. It seems no one wanted a 13 mpg Hummer. Go figure…

After that we saw the new hammer come down on the auto industry – the credit crunch. Besides people not being able to afford gas (not because of the high price now, but because of a crapping out economy) they also can’t get the credit to finance a new car. It has been a double whammy for the auto industry.