Bail-out Issue

When it comes to bail-outs, I think one standard the public should agree on is that tax money should not be wasted by “giving” money to banks, insurance companies, the auto industry or whoever lines up with their hand out. Management and share holders of these corporations have done little to convince the public of their ability to run these corporations. I think bail-outs should involve loans and/or ownership stakes where the government has input in decision making, even to the point of restructuring. And, to protect the tax payer, the government should have the first right to recover money if these companies go into receivership. There should be binding agreements established prior to money given where incremental goals and time limits are clearly stated. If the bail-outs work, loans will be paid back with interest and/or stock sold on the market place at market price. We do not want these to become long term relationships.

Management and stockholders of these private enterprises have “screwed up”, pure and simple! We should be encouraging and maybe even requiring selective leadership changes with no “golden parachutes” or “bonuses” paid to those ousted. Why should we give billions to management groups and stockholders who have already demonstrated they have been ineffective leaders while skimming millions off the top for personal gain.

The auto industry, made up of the “Big Three,” is the example for this week. They have squandered the favored position they once held on sales of vehicles, they haven’t adjusted to changes in the market place to keep their companies at the leading edge, and in fact, they haven’t even kept up. This slide has been going on for 35+ years. There have been some favorable strides made recently, but I think it is too little and too late. One has to wonder how far along they really are when they are wanting to use bail-out money for capital expenditures like re-tooling for more efficient engines. They should have made those investments when they were flush. I have to believe there are people in this industry who know the business, have vision, and can do better – a serious talent search needs to be conducted with the risk that some wrong choices will be made before success is achieved. How many generals did we go through before we found David Petraeus in the Iraqi War?

Unfortunately, the blame game includes the American public because of our buying habits. There is need for full sized PU’s and vans for work vehicles and always will be. But, we’ve had a hard time weaning ourselves from large, gas guzzling vehicles for general transportation which sends mixed signals to manufacturers.

In addition, part of the problem is the high cost of labor and fringe benefits, including generous pension plans, unions have negotiated over the years in the auto industry. Personally, I hold management, not labor, responsible for this problem. Management and share holders signed these contracts because they were making good money during some of these years and they could pass the costs on to the consumer. The cumulative affect of these contracts adds up and they should have seen that they were not sustainable over the long run. How many employees have you met who think they are “overpaid and under worked?” Unions are always going to seek higher wages, more fringe benefits, and better retirement programs – it’s what they do. Many employees live “pay check to pay check” and, when they see huge profits, unfathomable salaries, and life styles of these “rich” managers and shareholders rubbed in their noses, they are going to want a bigger piece of the pie – their attitude is “Who really builds these cars anyway?”

New contracts will have to be negotiated with labor for lower wages, fringe benefits, and pension programs. Expanded unemployment benefits, retraining programs, and relocation costs should be part of the bail-out program because thousands of skilled employees will probably lose their jobs permanently with the restructuring. Those left working should be paid lower, but “decent wages.” A really tough issue will be pension payments for those already retired. I have confidence that union leadership is pragmatic enough to know that these negotiations are coming. They may talk tough at the outset, but changes are going to have to come if the auto industry is to be revitalized.

Our other choice might be to let this “house of cards” fall around our ears. I’m afraid that might lead to a Deep Depression (big D’s). With resources, skills, potential wealth, can do entrepreneurial spirit, and work ethic we would come out of this eventually. But, I’m concerned that with this approach, the rich, having deep resources, will survive and very likely prosper; the poor will grow immeasurably; and the middle-class might be flat out destroyed. This would make us vulnerable in a multitude of ways internally and externally. I don’t think a truly free-market, democratic society can survive long without a strong middle class made up of small business owners and employees with good paying jobs. A substantial number of these should be in domestic manufacturing.

Therefore, I think the best choice is a carefully crafted bail-out with adequate oversight and a limited time frame. I hope that future generations of business leaders will dedicate themselves to never allowing this onus to fall on them again.