Here's my basic opinion. I have spent a fair amount of time
What the auto execs are basically doing right now is using their employees as hostages. At any other time in economic history a bankruptcy the size of GM or Ford would lead to a quarter of negative US growth followed by a resumption of 3%+ growth (maybe two quarters, but you get the idea). Unfortunately, right now the economy cannot afford a bankruptcy of that size without running the risk of that particular event leading to a major and prolonged downswing. It would be like throwing a boulder into a puddle -- the puddle will probably disappear.
That being said, I am an incredibly reluctant supporter of the bail-out, not because I think it's a good idea but because letting a US car company go bankrupt would be an incredibly bad idea. As a result, I would attach a ton of conditions to the money. For example, mileage standards would have to improve big-time. The big three's reliance on the SUV business model would go bye-bye. Executive compensation would have to be cut until the companies showed a profit (personally, I would propose a package and then subtract the total compensation for the last 5 years for the Board of Directors and Executives from the package total because these guys clearly didn't earn that money). Major financial cuts at all levels would happen. That means executive fly coach and rent compact cars on business trips. Downsizing from a physical plant and personnel perspective is a must. Simply put, the car companies would still have to face major restructuring. It's simply unavoidable at this point; the US auto industry would look very different when this is all said and done.
Angry Bear adds some really interesting ideas and observations
5 comments:
I personally want to see the exec's and BoD's either be fired or pony up some money (towards the bailout) as a condition of getting the money.
Hell, make them personally liable for repaying the bailout loan.
The fact that one of the CEO's offers to work for $1/yr compensation shows just how full of it they are. Very few if any of the rank and file could afford to take such a cut. why? because they make a reasonable salary which they need to support themselves and their families.
The idea that taking a $1 salary somehow shows that they are team players and are making sacrifices disgusts me.
If this bailout fails, i want to see them as bankrupt as the rest of their poor employees. I want them to lay awake at night wondering how they're going to make ends meet.
They want to look like Lee Iacocca.
A better idea would be to take UAW minimum salary and actually live on it.
All the conditions are wonderful....if you want to own the big 3 for the next 5 years and pay for redeveloping the product line. I love how everyone thinks that they can give big 3 just enough to keep the lights on and then hand out a mile long list of things to do. If the Big 3 could walk away from "the SUV business model" (like Toyota?) and radically improve mileage standards out of free cash flow they wouldn't be in DC prostrating themselves before Congress.
Here's my take. I agree that the bankruptcy of the auto industry would tear a giant hole in the economy and eventually take everyone else down with it. There are estimates of 3 million direct jobs lost, followed by another 7 million directly related jobs. But really, that would be just the beginning. Many businesses and jobs related only by geography to these jobs would simply vanish.
Massive restructuring would accomplish the same thing, only to a lesser degree, and over a larger period of time.
Neither scenario would address the the underlying problems: access to credit to buy cars and trucks, or the fact that consumers are overburdened by previous debts, or that wage stagnation and unemployment make the purchase of any expensive durable good unwise and/or impossible.
In fact, both scenarios simply make the situation worse. If the nation had more jobs that produced better wages, we wouldn't have needed as much credit, wouldn't have gotten into so much debt, and would have more savings to rely on in an economic downturn. Everything the press, congress, and business leaders seem to be pressing for is fewer jobs that pay less, and down that road lies destitution, debt peonage, and economic depression. We are already well down that road.
As the situation gets worse, Shelby et al will demand bailouts for foreign car manufacturers in their own Southern states--it's just that their lack of foresight and beggar-thy-neighbor opportunism blinds them to what "nobody could have foreseen."
I forgot to mention: when those ten million plus jobs vanish, it will create complete and utter havoc on the real estate market as foreclosures bloom, bank balance sheets go stern-up and sink below the waves, and states and municipalities become ghost towns that default on their muni bonds.
Furthermore, there will be widespread social unrest and a huge rise in crime.
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