Somebody finally answered my question about bailing out the Big Three auto companies

The Big Three automobile companies (Ford, GM, and Chrysler) look more like the Three Blind Mice. Now that the big bank executives revealed the secret to begging for government money to sustain the Bling Lifestyle, the Big Three want their piece. Not long after the banks got pizzaid, automaker executives boarded their expensive private jets to kiss a** and beg for free bailout loot.

If you watch the news at all, you know that the Big Three bailout is supposed to save a kazillion jobs and keep plants open. Supposedly, unlike the bailout lottery ticket for bank executives, the Big Three bailout will come with strings attached like decreased executive compensation, restructuring, and cost cutting. I'll believe the "strings" when I see them, but I'm more concerned about one question:

If payroll is the biggest corporate expense, won't the string called "cutting expenses" mean cutting those jobs and closing plants anyway?

That question summons the big pink elephant in the room - the employees who lose anyway. You surely can't cut out windshield purchases or rear-view mirrors. In fact, if the big cuts came in materials, consumers would be left asking, "Dude... Where's My Car?" 

Media blurbs entice the taxpayer's giving spirit with claims that a bailout equals safe jobs. But I have yet to hear (1) that a single job will be saved or (2) how the bailout option (public risk) compares to outcomes if the Big Three file bankruptcy (risk remains within private walls). Bankruptcy leaves the risk where it belongs - on the decision makers in the private industry. Why risk taxpayer money if the outcome will essentially be the same?

Before I digress too far, I want to share a bit of straight talk from Robert Reich as he addressed this in a blog post titled The Bailout Paradox:

"As a condition of getting a federal bailout, the Big Three are promising, among other things, to cut costs. Among the costs to be cut will be jobs. This is paradoxical, since the reason Congress is considering bailing them out in the first place is to preserve jobs and avoid the social costs of large-scale job loss..."

Just in case you're not quite ready to thank Reich for his straight talk, how about this historical reference he threw in for good measure:

"We should take a lesson from the Chrysler bailout of the early 1980s. The ostensible reason Congress voted for it was to preserve Chrysler jobs. Yet once the bailout was underway, in order to generate the money it needed to restructure itself, Chrysler laid off more than a third of its workforce. Most of these jobs never came back."

Not only job loss, but jobs that never came back.

We're clearly in a heaping pile of steaming hot sh*t.

Comments

[Debo Blue]

I had two uncles who worked years for GM and Ford and growing up we all touted the American made slogan for all cars but after buying a cheap Japanese Metro and driving it for eleven years, almost 200k miles, I decided that the Big Three could keep their gas guzzlers. I don't think I should have to pay for workers to keep their jobs. Who's gonna bail my company out?

[Hawa]

@Debo Blue: You are certainly not alone on that one. I only purchased 3 cars in my lifetime: a BMW (bought at end of ex-husband's lease), a Nissan Altima, and the Honda Odyssey minivan I currently drive.

I never liked American cars (except for the Ford F-series trucks). GOOD SALES represent the reward for a business that remains competitive and offers a great product. If American car makers refused to go with that formula, why should public money rescue them?

The real "rescue" will be the executive pocketbook and the share value of their stocks. I bet the average Big Three employee won't gain a single ounce of job security.

[GC]

why don't we just let the companies fail then? Since they won't be saving jobs anyway.
Why do we have to bail out industries that waste money and get too big to be efficient?

[Hawa]

@GC: There's a lot of "you scratch my back and I'll scratch yours" going on. Oil companies. Banks. Any big corporation. The folks in Washington are highly invested. And giving bailouts just to protect the share value/investment of the shareholders smells fishy to me.

That is a conflict of interest that I believe shouldn't be allowed. If you're in Congress and you're invested in a company (in any way) and a vote is up regarding a financial matter - you should not be allowed to participate or even lobby for votes.

[Kit (Keep It Trill)]

Hey Hawa,

The author was great in pointing out how a bailout will still result in cutting jobs.

However, all jobs won't be cut. The factor that gives me pause against not supporting the bailout is that all jobs will be lost, and the cost of paying all the employees employment compensation for six months (or however long) will be astronomical - and more costly to the tax payer than the actual bailout. The comp isn't equal to the salaries so a bunch of these folks won't be able to make their mortgage - thus compounding that problem - or have health insurance.

And what happens to their retirement pensions? For example if you're 50 and have 20 years with that company, you may have $50K of your money in your pension fund that you could pull out now, or wait until you're 60 and retire with a monthly check for life. If the companies go bankrupt, you lose it all. That is a devastating loss, and again the taxpayer will pick up the tab for the tens of thousands of people left out in the cold.

It's not only the direct employees of the Big Three who would lose jobs either; included are the supporting industries, from Good Year Tire to the auto section at Best Buy and Target. It's a ripple effect nightmare!

I don't know if it's truth or hype, but I've read that up to 10% of the working population would be affected.

On the other hand, if $25B of the $700B (only around 7%) of the bailout money is given to the Big Three, what is their plan to not need another handout next year? I haven't a clue, and wonder if the Big Three does either. One last concern is the credit market is so tight, that even if they are bailed out, hardly anyone can get a loan to buy a car anymore. Thus, the Big Three can have the greatest plan in the world, but without the banks giving loans, they're screwed.

Yeah, this problem is the epitome of being between a rock and hard place. That might sum up what 2009 will be like for this country. Sucks.

[Hawa]

Kit, I enjoyed reading the perspective that you added here, but I am a little confused (i.e. don't understand/lack enough knowledge) about one of your points.

Direct employees: Large corporations claim bankruptcy and continue to operate all the time. I live near Atlantic City where contractors get stiffed every time Donald Trump files his annual bankruptcy (hehe).

The point is, I expect a decline during a bankruptcy, but you're the first I've heard say that all jobs will be eliminated. (Oh good Lord, I gotta go read a bit more to really understand if the outcomes are comparable or not).

Retirement funds: Point taken there. I wouldn't wish lost retirement money on my worst enemy.

Supporting industries: I hate to say it this way, but they're screwed anyway. They rely on production and consumer demand. The flip side is... foreign car companies use American plants and American labor for manufacturing. Increased demand for more fuel efficient well-engineered cars will save those folks' jobs and possibly create more for other displaced employees.

Dipping into the bank bailout fund: That would be the most satisfactory way out, because the banks don't deserve the rest of their free money... I mean lottery winnings... I mean BAILOUT.