The Detroit Death March Continues

From the WSJ's Washington Wire:

Dear Secretary Paulson:

We are writing to request that you review the feasibility of invoking the authority Congress provided you under the Emergency Economic Stabilization Act of 2008 (EESA) for the purpose of providing temporary assistance to the automobile industry during the current financial crisis. Under EESA, Congress granted you broad discretion to purchase, or make commitments to purchase, financial instruments you determine necessary to restore financial market stability. A healthy automobile manufacturing sector is essential to the restoration of financial market stability, the overall health of our economy, and the livelihood of the automobile sector’s workforce.

The economic downturn and the crisis in our financial markets further imperiled our domestic automobile industry and its workforce. On Thursday, we separately met with the leaders of the automobile industry, and its top union representative, to discuss the financial challenges confronting the industry and its workforce, and possible actions to address these challenges. We left the meetings convinced that our nation’s automobile industry - the heart of our manufacturing sector - and the jobs of tens of thousands of American workers are at risk. Friday’s news of the automobile industry’s record low sales figures only reaffirm the need for urgent action.

Were you to determine that the automobile industry is eligible for assistance under EESA, we would urge you to impose strong conditions on such assistance in order to protect taxpayers and maximize the potential for the industry’s recovery. An automobile industry that is forward-looking and focused on ingenuity, competitiveness, and the creation of green jobs for the future is essential to its long-term viability. Other taxpayer protections should mirror those required of financial institutions currently participating in the Troubled Assets Relief Program (TARP), such as limits on executive compensation and equity stakes to provide taxpayers a return on their investment upon the industry’s recovery. Any assistance to the automobile industry should reflect the principles contained in EESA that guard against the need to recoup costs to the taxpayers.

We must safeguard the interests of American taxpayers, protect the hundreds of thousands of automobile workers and retirees, stop the erosion of our manufacturing base, and bolster our economy. It is our hope that the actions that Congress has taken, and that the Administration may take, will restore the preeminence of our domestic manufacturing industry so that it can emerge as a global, competitive leader in fuel efficiency and in new and path-breaking energy-efficient technologies that protect our environment. We appreciate your serious consideration of this request, and look forward to your response.

Best regards,
Nancy Pelosi
Speaker of the House

Harry Reid
Senate Majority Leader

Let's look at some of these statements:

The economic downturn and the crisis in our financial markets further imperiled our domestic automobile industry and its workforce.

Actually, downright stupidity was the primary reason for their current problems. While every other car company on earth recognized that smaller, more fuel efficient cars were the future Detroit stayed with their "everyone loves a truck" theme. As a result, when gas skyrocketed to nearly $4 gallon (and higher in some places) Detroit was hosed.

Then there is the issue of 0% financing, which conditioned the US public to expect 0% financing at all times. That has led to a tremendous erosion of profit potential.

Simply put -- a bunch of morons led Detroit. So -- let's invest in these guys, shall we?

Were you to determine that the automobile industry is eligible for assistance under EESA, we would urge you to impose strong conditions on such assistance in order to protect taxpayers and maximize the potential for the industry’s recovery. An automobile industry that is forward-looking and focused on ingenuity, competitiveness, and the creation of green jobs for the future is essential to its long-term viability.

Detroit has successfully lobbied against higher fuel efficiency standards forever. They have done so for a variety of reasons. Their primary argument is it would make them less competitive. Never mind the success Toyota and Honda are currently enjoying.

Other taxpayer protections should mirror those required of financial institutions currently participating in the Troubled Assets Relief Program (TARP), such as limits on executive compensation and equity stakes to provide taxpayers a return on their investment upon the industry’s recovery.

Here's the essential deal with executive compensation. We've all seen the horror stories about a CEO who runs a company into the ground who still gets enough money to start his own charity trust. The way corporate law is supposed to work is shareholders are supposed to prevent this type of thing from happening. But holdings are so diffuse that shareholders are essentially powerless to stop it. In addition, Board's of Director's are filled with people who want to make a ton of money as well so any executive compensation package will be approved. In other words, there is no effective check on compensation. Now -- I have no problem with a CEO who does a really good job for the company making a ton of cash. Jack Welch comes to mind here. He vaulted GE into elite company status. But Stanley O'Neil ran Merrill into the ground and he made out like a bandit.

Here's the central deal. Detroit needs to essentially change every major aspect of its operations. That's like asking a battleship to behave like a PT boat. It will require help. But what irritates me is that no one -- and I mean no one -- is calling the auto industry leadership out on the carpet and saying, "why in the hell should be listen to you or help you consider the terrible way you've run your business?"