My Plan for the Automaker’s Buyout

by Kevin on December 9, 2008


(Photo by Ford Motor Company)

It seems more and more likely that the big three automakers in Detroit will receive a bailout. The last I heard on the news the government was talking somewhere in the $15 billion range.

I personally think these bailouts are a significant waste of taxpayer money, but there isn’t much I can do as a single person. The last time I checked we lived in a capitalist society. The big three have been making undesirable, non-innovative crap for the last 30 years. They made the decision to switch to a heavy SUV and truck lineup. Those businesses are now failing. Welcome to capitalism — your business is going to go under. I think we should use the above diagram by Ford to help us scrap the industry and start over.

But the rules have apparently changed in capitalism, and now if my business is failing the government swoops in and props me right back up. How convenient!

If I were put in charge of the car manufacturing bailout, these would be my requirements:

  • Total executive compensation would be slashed from millions to the low six figures. I’m thinking $200,000 maximum. (I think they have all agreed to take salaries of $1, but their stock options are still worth millions.) Additional bonus compensation would be tied to extraordinary performance. (Real performance, not something any corporate board would approve.)
  • Wages would be cut to normal, capitalism based levels. I’m sorry for the pro-union folks, but paying someone $50 or $75 per hour to work in a car factory is insanity. That’s $100,000 to $150,000 per year. “Regular” factory workers not in the auto industry make anywhere from $12-25/hour.
  • Figure out a way to meet retirees’ retirement and healthcare needs as promised by the companies. I think this is also ridiculous (“Work for us and we’ll pay for 100% of everything when you’re old!”), but the obligation is there. I understand this is a complex issue and would love to offer a solution, but I’m not qualified to fix this specific issue. I would not keep this offer on the table for the younger generation. Sorry, welcome to the real world. You’ve been drastically overpaid ever since you joined the union model — hope you’ve been saving your money.
  • All product lines would be revamped to some sort of energy efficient model. When the SUV commercial boasts “Best in Class Miles per Gallon” and in the tiny print at the bottom of the commercial it lists “15mpg city/22mpg highway”… that’s pathetic. Let’s invest the billions of dollars they are receiving in vehicles that get 40+ average miles per gallon. It can’t be done you say? How about electric cars like the Chevy Volt? What about the Prius? Let’s get those smart engineer types together and fix the issue.

Some of these ideas may seem heartless. I can see that argument, but it’s capitalism. Personally I think bankruptcy would be a great option for the firms, allow them to restructure (perhaps with government assistance at that point), and move to a more energy and fuel efficient models. And note, too, that I recently read Honda and Toyota have never had massive layoffs in the way the domestic producers have. Capitalism at its finest.

The “same old, same old” mentality has to go. Innovation must strike deep into the automaker’s decisions. Only then can we move forward in a positive manner.

What do you think? If you were in charge, what would you dictate?

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Ashley @ Wide Open Wallet December 9, 2008 at 10:06 am

I heard on the news that if they close a plant they still have to pay their workers for 4 years! Holy crap!

[email protected] December 9, 2008 at 10:23 am

What do I think? I pretty much agree with everything you say here. For all the good it’ll do.

Wise Money Matters December 9, 2008 at 11:13 am

I’m all for letting them file for bankruptcy. Let them restructure that way, not with my tax money.

MoneyGrubbingLawyer December 9, 2008 at 5:05 pm

If I was in charge, I’d follow Wise Money Matter’s approach and let them go bankrupt. Let the chips fall where they will and see what rises from the ashes. The Big 3 have done a terrible job of remaining competitive, and a huge injection of capital isn’t going to change that.

If the government decides that it’s a wise policy to keep Big Auto from collapsing, any money needs to be in the form of fully repayable and secured loans. Taxpayers didn’t create this mess, and taxpayers shouldn’t be on the hook for fixing it up.

Anne Williamson December 9, 2008 at 8:51 pm

The 70$ an hour figure has been pretty well disproved by NPR and other media outlets. That average figure includes healthcare and retirement of older workers and their families, costs that the foreign car companies don’t incur because they haven’t been hiring Americans for very long. The actual wage for current employees at the big 3 ranges from 25-28 dollars an hour.

Matt SF December 9, 2008 at 11:55 pm

Lots of good solutions here, but how about this one…

Ask representatives from Honda and Toyota to supervise the GM / Ford / Chrysler day to day operations for a period of one year. Cut out the dead weight (e.g. the UAW), hire a team of effective managers, and most importantly… make cars that the American public actually want to buy.

These guys have had constant problems once they were forced to make cars that didn’t fall apart after 5 years, and will only survive if extraordinary steps are taken to avoid natural selection. If only the dinosaurs had politicians to help them millions of years ago.

LAL December 11, 2008 at 2:45 pm

Let Toyota and Honda restructure them to run the same as them. Let them go bankrupt and renegotiate with UAW.

Margie December 14, 2008 at 12:10 pm

Hi! I came over from Northern Cheapskate and I am glad I did. You voiced my own feelings on the auto industry perfectly!

Kevin December 15, 2008 at 9:12 am

Sounds like mostly everyone agrees. Again I’m not for crushing this part of the economy (suppliers, dealers, etc.) by just letting them fall apart. But they’ve made crappy products for a long time. It’s time for a change. The money is also just a stop gap (bandaid) to get them to March. What exactly does that do? Will car sales go up by March? I doubt it. More money down the drain. Let them file for bankruptcy and reorg that way.

@Anne: Thanks for pointing that out. You note that its because other manufacturers haven’t been hiring Americans for very long. How about it’s because other manufacturers aren’t dumb enough to over retirement and health benefits for all workers and their families? That’s simply not sustainable.

@Matt: Excellent idea. I would fully support Honda and Toyota coming in and kicking butt.

LAL December 15, 2008 at 9:19 am

Let me comment this, that perhaps one thing to do is to stabilize the bankruptcy. Let them fall gracefully into decline and not one fell swoop!

Anne Williamson December 15, 2008 at 2:42 pm

So manufacturers (and other employers) shouldn’t insure their retirees? or their families? I agree it’s not a solution but it seems strange to criticize employers for providing health insurance to retirees.

Anne Williamson December 15, 2008 at 2:53 pm

I had another thought – why aren’t we hearing more about salaries and retirement plans for financial industry workers? Do you think it’s class bias? I don’t know, just speculating. Or perhaps it’s because we understand less about what it is they do everyday, as opposed to manufacturing, which seems easier to understand.

Matt SF December 15, 2008 at 3:30 pm

@ Anne

I really think the lack of info for financial industry workers depends upon where you get your news. Mainstream media rarely covers the job losses on Wall Street b/c it’s less sexy, from a media standpoint, to say that white collar workers lost their jobs than the hardworking, sweat-of-their-brow blue collar workers.

However, if you watch CNBC (like I do 24/7), you will hear a daily reference to financial industry job losses. It’s been nothing but excessive compensation chatter for CEOs and such lately, but now that major layoffs are happening all over the financial industry (latest numbers I saw were ~150k), it’s getting more attention.

No one really asks what happens to the 50 year old secretary who has worked the phones for Merrill Lynch for the last 25 years, or an IT guy who kept the stock price data flowing into the building. Good points to consider.

But for some unknown reason, I think we’re expected to feel more badly for a guy who works a manufacturing line than a guy who works in a cubicle.

Kevin December 15, 2008 at 3:59 pm

@Anne: It would be great if all companies could pay for the insurance for their retirees. Unfortunately this does not seem to be sustainable. If it drives your costs per hour to the aforementioned $70/hr, that’s not sustainable. Employers have to make smarter decisions, you know, decisions that won’t bankrupt the firm and force them to rely on the government. My company doesn’t pay for my insurance if I retire. I don’t know many that do.

@Matt: I think you’re right about the “sexyness” of the reporting. No one feels bad for the analyst that made $80k in NYC (just a decent living for what I know), but you hear all about the blue collar folks.

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