Bailing Out the Auto Industry

Hit me, Congress, One More Time

Congress should bend over, dig into the public coffers once again, and give the auto industry everything it wants—even though 61 percent of Americans oppose a bailout, according to a CNN/Opinion Research poll.

A couple of weeks ago, CEOs from GM, Ford, and Chrysler, known collectively as the Big 3, revved up their corporate jets’ engines, dropped in on the Senate, and testified that without a $25 billion bailout western civilization would collapse.

With the nation in a Recession, auto sales have declined to the lowest point since January 1982. Sales are off 47 percent for Ford, 41 percent for GM, and 31 percent for Chrysler from last year. Even sales of major overseas auto manufacturers selling to the American market are down, but not as much as for the Big 3. But, Big 3 market share has plummeted from 70 percent in 1998 to only 53 percent this year, according to Autodata Corp. Equally as important, Consumer Reports has consistently given cars produced by foreign-owned manufacturers higher ratings than American-made cars, although the problem is more attributable to management decisions than problems on the manufacturing line. But, even if Big 3 Management was flawless in their business plans, sales would still be significantly down because of the Recession, partially caused by the sub-prime loan fiasco and the reality that credit is now tight for most Americans.

Congress, which freely handed out more than $700 billion in taxpayer money to financial institutions with fewer morals than the average street walker, now demanded the Big 3 to return with an actual plan. As an afterthought, Congress suggested that the next time executives from GM, Ford, and Chrysler come to the nation’s capital, conspicuous consumption would be frowned up.

As compliant as any corporate “yes man,” the three executives returned, each of them driving a gas-efficient American-built car. Executives from GM and Ford said they planned to sell their jets; Chrysler, owned by Cerberus, a private equity firm, was moot on the issue. Of course, the Big 3 executives should have driven to D.C. the first time, but that’s an issue that six-figure PR executives should have foreseen.

This time, having been properly chastised, the auto execs brought a new proposal to Congress. Instead of a $25 billion bailout, the cost would be $34 billion for loans and credit lines. Apparently, driving a hybrid and eating at roadside diners costs more. And, each of the executives would work for $1 a year. That’s right. The executives who stripped eight-figure income each year from the Big 3 would take a $1 a year token payment if the bailout was dropped into their piggybanks. Naturally, it would be unfair to force myriad 6- and 7-figure income executives below them to sacrifice the family mansion, vacation homes, spa and country club memberships, luxury cars, and private school tuition for their darling upcoming junior executives.

And then the CEOs actually talked. Would they take less money? Perhaps a $14–15 billion “bridge loan” proposed by Democratic leaders and President Bush would get them through the first quarter of 2009, they said, trying to salvage anything. Would they be willing to increase their contracts with American-owned suppliers while decreasing dependence upon foreign-owned suppliers? Their response was as clear as any Bush statement; translated, they said they might possibly consider that request, as long as the stars aligned correctly during the vernal equinox—or some such logic.

Congress has allowed itself to be blackmailed so many times already by banks, investment firms, and an insurance agency that it is hypocritical to bully the auto industry CEOs, and to deny funds to an industry that actually produces a tangible product that is important to all Americans. More important, their product still accounts for a significant part of the workforce.

The national unemployment rate is 6.7 percent, highest in 15 years; the rate is expected to hit about 8 percent in 2009, according to the Wall Street Journal. More significant, if the number of Americans who have been so discouraged by the employment possibilities and are no longer actively looking for full-time work is figured, the percentage rises to about 12.5, according to the Bureau of Labor Statistics. Of about 1.9 million layoffs this year alone, the Big 3 laid off about 140,000, with significantly more anticipated.

Higher unemployment leads to higher housing foreclosures and bankruptcies. It leads not only to depression but also to more health problems, including malnourishment, as Americans cut back on food and medical care. About 46 million Americans don’t have health insurance; millions more who do have insurance provided through their employment can’t afford to get adequate medical care because they can’t afford the deductibles and co-pays.

Corporate America, instead of looking at their own excesses and incompetence, blames workers for the problem. But, the line worker is the one who builds something to the specifications of others but has no input into the decisions that cost the Big 3 their share of the market. For its part, the unions, blamed by almost every executive in America, has gone beyond what should be expected of a union.

The United Auto Workers, which extended major concessions to Chrysler in 1979, agreed to significant concessions in the 2007 contract, including allowing the Big 3 to hire manufacturing line workers at $14–16 an hour, about half of the current employee wages. By any standard, the workers have made far more concessions to keep the auto industry putting along than have the companies themselves.

Nevertheless, a failure by any of the Big 3 would have a severe effect upon several thousand other businesses, including car haulers, suppliers, garages, and dealers. Even the media have been adversely affected. Auto manufacturers are among the leading advertisers in magazines; auto dealers are among the leading advertisers in local daily newspapers. Newspaper advertising is down about 19 percent from last year, according to the Newspaper Association of America; magazine advertising pages are down about 9.5 percent, according to the Publishers Information Bureau. Significant drops in advertising by the Big 3 have contributed to even more media layoffs, including reduced income for all major suppliers, including printers.

Last year, according to data collected by Advertising Age, General Motors, with an advertising budget of $3 billion, was the fourth largest advertiser; Ford, with $2.5 billion, was sixth; Chrysler, with $1.8 billion was thirteenth. However, all three have cut their budgets, with GM eliminating all TV advertising from the Emmys, Academy Awards, and the SuperBowl, and reducing ad spending for all NFL games. GM won’t disclose how much it spent on the Emmys and Academy Awards, but TNS Media Intelligence estimates GM spent $13.5 million just for Oscar night telecast advertising; SuperBowl ads went for about $2.7 million per 30 second spot in 2008; GM had one ad, promoting an SUV hybrid. Although overall TV ad revenue is up from last year, part of that is because of significant spending during the presidential campaign. Lower ad revenue from the automakers and numerous other industries in 2009 will affect programming and the workforce.

With increased unemployment, housing foreclosures, bankruptcies, and lack of adequate health care rising to record levels, a bailout for the Big 3, as distasteful as it seems, is probably the best way to help keep this year-long Recession from going into a Depression. After throwing money at Wall Street, it is far too late for Congress to claim it is looking out for the fiscal interests of the taxpayers, and time to acknowledge that it needs to look after the interests of the workers.

Walter Brasch, during a 40-year work career in mass communications, has been a member of several unions, in both the private and public sectors. He is a syndicated newspaper columnist and the author of 16 books, including With Just Cause: Unionization of the American Journalist, Before the First Snow: Stories from the Revolution, and his latest Fracking Pennsylvania. He can be contacted at: walterbrasch@gmail.com. Read other articles by Walter, or visit Walter's website.

5 comments on this article so far ...

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  1. Ramsefall said on December 9th, 2008 at 7:30pm #

    The Big 3 are sinking and expecting an enormous $34 billion life preserver in exchange for $1/year salaries…what ignoble men of cunning disposition, hats off to ’em for having the balls to claim that western civilization will collapse while it’s collapsing. After all, it’s not as if they actually anticipate managing unregulated and non-transparent jurisdiction over their deposit like bankers do with their own. What kind of world do we live in?

    I agree with you, Walter, that there are a lot of families at stake as these CEOs implore Congress for their bailout — certainly the most pertinent aspect of the drama. Accounting for the aftershocks felt throughout the system as you indicate brings up additional concerns as the social deterioration process would reliably proceed.

    However, you close by saying, “… it is far too late for Congress to claim it is looking out for the fiscal interests of the taxpayers, and time to acknowledge that it needs to look after the interests of the workers.” I don’t recall Congress ever looking after the interests of the workers until now, so why acknowledge that it finally needs to? It would be nice, but the Congress to which you refer refrains from humanitarian efforts last time I checked. Perhaps something will change, lmao!

    When you say that, “…a failure by any of the Big 3 would have a severe effect upon several thousand other businesses, including car haulers, suppliers, garages, and dealers”, I’d speculate that garages, parts stores, and the re-manufacturing industry might be some of the few businesses to actually feel some love through the fallout. It may be inconsequential, but it could be nonetheless.

    Thanks for the article.

    Best to you.

  2. bozh said on December 10th, 2008 at 6:01am #

    ruling class in US bails out corporations for the good of the country.
    but there is no country; there is, joe, a hobo, paul, peter….
    natch, to obama/bush or, rather, the uncle, there is no joe,paul, peter- only country or US
    in using the word “country” , one sounds much better than being for homeeless person who’s countryful.
    that’s more important than having a bed to lay one’s emaciated/sick body. thnx

  3. Ron said on December 10th, 2008 at 8:22am #

    What a mess that’s been created! Who’s to blame? The people? The COE’s? The Congress? The Whole “Country”?
    I say it is the responsibility of all of us to take action in these times. Sacrifice should not be language in the discussion. It is to bad that being conservation minded, growing some food in your yard, using a bicycle or walking instead of your car, turning lights off, reading a book instead of watching tv every night, etc. is considered “sacrificing”.
    What a sacrifice? Living within ones means is no sacrifice, it’s humane!
    As far bailing out the “Big 3” auto makers? Why are these 3 the only companies that make up the auto industry? There should never be a monopoly of this sort in this country, right? When a business fails, that opens up a market share for start-up companies. If my bike shop fails due to my short sightedness, i can’t go to congress and get “bailout” money. I provide jobs in my community.
    We do not have Free Markets in all industries. The strongest don’t only survive, they get subsidized.
    Downsize and localize! That’s the big part of the equation. How is that going to look exactly? Who knows, but we’re going to have to get there. Congress and the Bankers/Corporations are going to try and hang on as long as they can bringing us down with them but it does not have to be that way for us. We can break our dependency on the system and become more self-sufficient. We have to!!!

  4. Lynn said on December 10th, 2008 at 2:41pm #

    Letting the car companies go under will cost about as much as keeping them afloat. The republicans are playing politics with the no brainer rescue while our media plays up “$75” an hour jobs. Apparently they want to bust the unions regardless of the harm to lives it would cause. The ceos of the big three should call the republican’s bluff. Shut the factories down and start issuing lay-off notices. The workers can hang in there for quite a while but the republicans would get buried under the fallout.

  5. bozh said on December 10th, 2008 at 3:18pm #

    having unions is beneficial to uncle sam; he loves unions. union members r disunited on all of the major issues.
    so as long as they r strongly disunited, uncle sam can more easily deal w. them.
    union members only care ab selves: their benefits, wages, and safe work conditions.
    they r more united when it comes to wages, etc.
    wld unions (or schooling) be allowed if they posed any threat to the ruling class?
    remember, they were illegal at one time. later allowed, because the ruling class realized that it wasn’t all that bad having unions. thnx