The United States taxpayers have no interest in providing a financial bailout to the auto industry.
The United States auto industry has become a poor investment, both socially and financially. Socially, the auto industry used to be boom and bust, now it is just a bust industry.
According to an Associated Press release in 1981 during the last major business downturn, a total of 188,150 workers from the leading U.S. automakers were on indefinite layoff, and 24,750 workers were on temporary furloughs.
To make it through the current business cycle, a lot more people are going to be out of work at the automakers and their global suppliers.
Financially, in the most recent quarter filed (through June 2008), the biggest automaker, GM, had sales of just under $38 Billion, and had a loss of income over $15 Billion, which means they lost nearly 41 cents for every dollar sold! Clearly this is not a sustainable business model.
The United Auto Workers, who make 100% of their living from the auto industry, act like they don’t care.
According to a recent Associated Press report, the union has agreed to restart contract talks, delay their payments into a union-run health care trust, as well as taking steps to eliminate the jobs bank in which laid-off workers are paid most of their salaries.
I ask you fellow taxpayers that will fund any bailout, do you have any of these benefits? That the UAW would come forward with agreeing to restart contract discussions after their employers have gone to Washington to ask for a hand out is beyond belief.
Their employers have stated publicly that some may fail before the end of this month.
If the UAW would agree to work for competitive pay and benefits and increasing productivity like every other manufacturing business in the U.S., then they might get to keep some of their jobs instead of losing them all.
Management is going to ask for a hand out from us and they don’t even have significant basic items nailed down. They have maintained that the ability to shed costs in a highly cyclical industry is important. Two of those are health care and labor costs from the UAW; another is white-collar compensation.
To come and ask for taxpayer money without having this in line is irresponsible. We all know that senior executive compensation in American business is ridiculous.
In the March 2008 8-K SEC filing by General Motors, their CEO was awarded a base pay of $2.2 Million with an annual incentive target of $3.5 Million with a stock grant of 165,563 shares of GM Common Stock.
In addition, he will receive 500,000 stock options and 75,000 restricted stock units and 500,000 contingent stock options.
On the day the 8-K was filed, the stock price was over $20 per share, which means he was granted $10.5 Million plus 1 Million share options for the year!
He recently has stated that he would volunteer to lower his base pay to $1 per year (the rest of the compensation is still his), I say too little and too late.
Either the UAW is full of something or Management is. It is my belief that they both are. They deserve each other, and they deserve to file for bankruptcy.
If they can put together a good plan to navigate bankruptcy, then they will be able to arrange debtor in possession financing in the commercial markets and conduct business while reorganizing under Chapter 11 protection.
I doubt that all of the Big Three are going to be able to do this, meaning some may be liquidated under Chapter 7. This sometimes happens to weaker businesses during business cycles, when the free market (us) decides where and where not to spend on products and services.
As a compromise, the government could provide a long term tax incentive for consumers to buy from the Big Three, where any purchaser would get an additional $2000 tax credit for buying any U.S. made vehicle that gets 30% higher fuel economy than current CAFÉ fuel standards or uses domestically produced abundant natural gas.
This would still allow for competition for our dollars, keep the automakers somewhat honest, and give them an incentive to foster improved fuel economy through all technologies.
An outright gift is going right into their pockets, and we’ll never see it again unlike the financial TARP package, where some return is likely.
I would prefer that we spend our tax dollars on industries that are have promise, are growing, and provide a benefit to society at large.
Our president elect has identified many of those, campaigned that he would invest in them, and we elected him. I have HOPE that he will follow through on his initiatives.
John Grosh lives in Westminster.
EDITOR’S NOTE: This is an online-only column and has not been edited.
