Automaker bailout
September 11, 2008 (Lansing State Journal)

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Derek Melot: This time, Detroit 3 do get it – really
Stabenow bets your dollars on auto firms' sage leaders
September 9, 2008 • From Lansing State Journal

U.S. Sen. Debbie Stabenow seems to think the leadership of the U.S. auto industry is on the ball. In fact, she's so confident of it, she's willing to bet your money on it.

Stabenow, D-Lansing, is one of the Capitol Hill leaders of efforts to loan the Detroit 3 billions. Officially, this money is to retool their plants. In reality, the loans are to prop up management teams that have run their companies into the ditch.

If you or your neighbor is forced onto the unemployment line, Congress can sleep at night. If GM CEO Rick Wagoner should find himself without a job, well, action must be taken.

OK, maybe that's not completely fair. Stabenow, in an interview last Friday at the LSJ, said repeatedly that her strategy for auto aid is about jobs. She wants GM and Ford workers to stay GM and Ford workers.

And that's hard, the senator says, because "our companies are competing with countries."

Stabenow's reference is to investments by Germany and China into next generation auto technologies. Her fear is that the U.S. will go from a dependence on foreign oil to a dependence on foreign technology.

As likely a threat to Michigan's and America's economy is the dependence on taxpayers to correct the errors of big business.

Mortgage giants Fannie Mae and Freddie Mac got federal bailouts and now a federal takeover because, we are told, they are too big to fail. Whereas an incompetent restaurateur or hardware store owner can lose his life's work for being incompetent, those at the pinnacle of our economy can't fall under such pressure.

The same must be true for the Detroit 3. Stabenow helped shepherd through this $25 billion in loans for the retooling program - and even before a dime is issued, the automakers want the figure doubled to $50 billion.

I asked Stabenow directly if she was confident the current management teams were the best people to lead the transition.

She replied, "I believe they are racing like crazy to get to the new technology."

That's a rather backhanded endorsement. But the execs won't be upset. Stabenow's on board on the real issue: getting them your money.

But if they had been on the ball, would they need to be "racing" right now?

In the 1990s, when gas was cheap and U.S. firms were betting on and then doubling down on big SUVs and trucks, the battle for Michigan lawmakers was to protect U.S. firms from higher fuel economy standards. The U.S. firms "won" for years and now all in Michigan can see the results.

Did no one ever wonder when the cheap gas would stop flowing? Heck, GM has long bet on China as a new growth market. Clearly, someone in the company knew that China's rapid industrialization would produce workers with the money and desire to buy cars. The plants they work in burn oil; the cars they were going to buy burn gas. Yet no one at GM saw what these mega-trends would do to fuel supplies and prices?

Those who fail to plan, plan to fail, right? Well, if the Detroit 3 are "racing" now, it's fair to say they failed to plan. But they aren't going to fail - as long as politicians can take your dollars and make them theirs.

Steve Harry’s response, published September 11

I, too, am against a $50 billion bailout for US automakers, but I don’t agree with Derek Melot (Sept. 9) when he says that auto executives are at fault for the mess the industry is in. It is pretty hard to drastically change a corporation’s direction when you have no control over your workforce. For the last several decades, the UAW has dictated how much its members are paid, what they will do on the job and how many will be kept on payroll, whether they are needed or not.

The automakers go along or risk a strike that could destroy them.

U.S. automakers have built small, fuel-efficient cars all along, and although they lose money on every one sold, they have to do so to meet fleet-average CAFE standards. They can’t make money on them because the cost of labor for building a small car is not much less than for a SUV, and although car buyers were willing to pay a premium for a SUV that exceeded the cost of the extra steel, they weren’t willing to pay enough for small cars to make them profitable.

By the UAW’s own estimate, the average unskilled production worker will make over $72,000 in each of the four years of the 2007 contract. This does not include benefits, but does include COLA, four hours a week overtime, and bonuses. $72,000 a year translates to over $31 an hour at a time in Michigan when we have 419,000 unemployed who would be willing to work for half that.