Auto Big Three Demands Their Own Bailout

The Washington Lobby firms for the automobile industry have been feverishly working around the clock recently, as they pressure every legislator and administration power-player that they can reach demanding that the Big Three be part of the massive $700 billion ($1 trillion if you include commitments already made) bailout for Wall Street. Their argument is simple, due to a tightening credit crunch many prospective buyers can not meet credit criteria to qualify for an auto loan. The argument proceeds to assert that if $50 billion of the bailout funds were provided to the automobile industry, they could provide low cost loans to those that are not creditworthy enough for traditional financial service companies. If the absence of logic disturbs you, it should! It is the relaxation of the creditworthiness standards used by all lending institutions that created our current financial crisis!

Confronted by the most severe confidence crisis we have faced since the Great Depression to suggest that the American taxpayer should underwrite automobile loans so that the automobile industry can produce more cars is utterly absurd! The argument also threatens. The threat that the Big Three is trying to hold over the head of the legislators is that unless guaranteed funds are provided to them they will have to lay off workers. These are the same companies that have had their hand in the American taxpayer pockets one way or the other for decades using one emergency or threat after another. All of the time laying-off workers, closing plants and fighting every change to emission standards or mileage increase that would benefit the country by reducing dependency upon foreign oil and concurrently help our environment. Hubris! There is no other word to aptly describe the newest demand!

It is interesting to briefly review the automobile industry before proceeding further about the bailout demand. The Big Three has continued to decline in strength for decades, as foreign automobile manufacturers have grown dramatically during the same timeframe. The lobby firms produce spin to make it appear that this is unfair and that they are taking jobs away from America. These same firms obfuscate the truths. The tremendous growth of foreign automobile growth in the domestic market has happened in the U.S. That is correct – these companies have set up manufacturing facilities throughout the country and have hired thousands and thousands of Americans workers to manufacture cars.

Without the massive foreign automobile manufacturer investments made throughout the U.S. the auto workforce would have been decimated. Honda has operated for 27 years in Marysville, OH without a single worker lay-off. Toyota, Mercedes-Benz, Mazda, Nissan, Mitsubishi, BMW and Hyundai have all built facilities and hired Americans by the thousands. In addition almost 20 parts manufacturing facilities have been built, hiring thousands more. All of these foreign companies who operate in the U.S, (with many of them here over 20 years) have done so without worker lay-offs! They have been able to develop these operations in spite of the statutory obstacles the Big Three managed to erect against them. Concurrently, the Big Three has experienced lay-off after lay-off and have closed down a large quantity of operations. Yet, while the Big Three wants part of the Bush Wall Street bailout not one foreign automaker is demanding an American taxpayer subsidy

Many industry experts belief that the Big Three manufacturers desperately need plant restructure in order to modernize them with the technological advancements of recent years. Many of the same experts also believe that the real reason the Big Three seeks the $50 billion is to pay for these vitally needed changes. I would argue that they really want the funds as a subsidy because they have grossly mismanaged their U.S. operations. The arrogance of power has long dominated Detroit, where many executives still live in a corporate culture reminiscent of a bygone era. Instead of re-investing funds to keep plants modern, these executives took home whopping bonuses. Instead of providing more dividend payout to shareholders, they opted to keep more in-house to use for corporate management. The workers were left out of their planning at every step along the way. Labor negotiations were invariably about reducing employee benefits and the size of the workforce.

What makes the situation worse is the fact that the Big Three can produce quality cars and ones that are good for the environment as evidenced by many of their autos sold in Europe. Each of them has multiple models that achieve 60 plus MPG, have attractive styling and are rich with features; and, still sell at competitive prices. They designed and own the blueprints for these cars and not one of them has been sold in the U.S. While foreign automakers have kept plants modern and invest in re-tooling as needed, the Big Three opted to line the pockets of the executives instead. The American taxpayer should ask themselves, “Why should we subsidize American automakers executive bonuses?”