The Big Three auto company executives, accompanied by a representative of Connecticut Auto Dealers, the CEO of Johnson Controls and the head of the UAW appeared before the United States Senate to beg for money. I actually took the time to listen to their opening statements over lunch, and I still have mixed feeling about the whole thing. Maybe it makes sense to parse this whole thing out a little bit.
First, the issues are real. Chrysler and GM are both effectively worth nothing, and both will burn through the remaining cash they have by the end of the year (in less than a month). There are hundreds of thousands of jobs at stake, jobs held not just by too-well paid auto executives and well paid union members, but jobs held by small businesses like lunch counters located near auto plants. If these plants go dark, so too will all the side businesses that support them. Some of these auto plants are the major employers in their communities, and the impact of the closings will be very tough to handle.
Second, the CEOs gave it a good shot, but I'm not sure it will be enough. There is a lot of skepticism in Congress when it comes to simply handing out money to companies that, by and large, have failed to even realize how badly they have been managed up until now. This is nothing more than these CEOs saying "I've screwed the company up so please give me money".
Third, the UAW doesn't really get it either. The UAW President stated that the union agreed to suspend temporarily the infamous Job Bank program. This is a program that pays workers to not work. Newsflash: it has to end, as it's indicative of the larger problem of bad decisions that have plagued the industry for decades.
In the final analysis though, who will suffer if there isn't some kind of governmental help? Nardelli, the CEO of Chrysler, already has a golden parachute from his former employer, Home Depot. I suspect that the CEOs of Ford and GM could walk away from their firms without much real financial damage either. No, the real damage will be to the people who don't make millions, who don't have golden parachutes, who don't have corporate jets. It will be the people that run lunch counters near auto plants, who run the sporting goods stores, smaller businesses that supply the auto-makers, etc. In short, a failure by these companies will hurt the wrong people. As is the case in life, it's not fair, but it's reality.
So what do I think should be done? Well at first I was absolutely opposed to any governmental help, but I've come around, so to speak, to some limited help. Here are my thoughts (I know...there's a reason why people like me aren't in charge):
1. Government backed loans are ok, as secured by equity interests in the firms.
2. Set real performance targets for the firms receiving the money, including caps on executive compensation, cost reductions and quality improvements.
3. Have the GAO or the Fed...some organization with a history of strong oversight/auditing skills....be responsible for monitoring the performance of the firms.
4. Require that the UAW contracts be opened up and all items open for discussion in review. Permanently eliminate the Job Banks program. Require that any reductions in union wages and benefits be accompanied by a proportionately larger reduction for management.
5. Place a representative from the government, someone like Paul Volker, sit as a full voting member of the Board of Directors for all firms receiving federal money.
6. Require that Chrysler provide financial reporting equivalent to what a public company would have to provide. I don't trust Cerberus Capital Management...and either should you. Just ask the former employees of the Mervyns Department Store chain.
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