Obama to Detroit: No cash for business as usual

Posted by: David Welch on November 16, 2008

The drumbeat is getting louder for bigger change in the U.S. auto industry if the government steps in with a bailout plan this week. Former Labor Secretary Robert Reich told the Wall Street Journal that labor may have to make concessions. And on 60 Minutes last night, President-Elect Barack Obama had this to say when Steve Kroft asked him about a bailout of Detroit: “My hope is that over the course of the next week, between the White House and Congress, the discussions are shaped around providing assistance but making sure that that assistance is conditioned on labor, management, suppliers, lenders, all the stakeholders coming together with a plan — what does a sustainable U.S. auto industry look like?”

Okay, so he wasn’t as specific as my headline indicates. But it sounds to me like Obama and the Democrat-controlled Congress wants to see some changes before handing out taxpayer money. In other words, for Detroit (and for the moment, we mostly mean GM) to get on the nation’s dole means they’re getting the equivalent of government surplus cheese, not the fine Stilton they have been dining on. The way I read Obama’s answer, he wants concessions and/or participation from everyone involved. For most of them, that means concessions.

Detroit executives have enjoyed fat pay, bonuses and perks for years while company performance has been mediocre to horrid. The UAW has also gotten the best pay and benefits of any auto worker in the U.S., while the cars they make command lower prices and profits that those made in Toyota and Honda plants. Their cars usually command better pricing.

From labor, it could mean wage cuts or watered-down medical benefits. United Auto Workers members at Detroit’s plants pay just a fraction out of pocket for healthcare coverage that most others pay. Maybe they will have more pay tied to productivity or profit. In any case, they’ll have to give more. Management will have to take a pay cut, too. Executives could take a big hit in salary and accept stock warrants instead, finally motivating them to produce real profits to earn the seven-figure paycheck. Lenders will be encouraged to loosen up, but government guarantees may be the only way to get those big checkbooks out from the mothballs.

In a way, there is already a blueprint for this kind of deal. When Uncle Sam guarantees $1.5 billion in loans for Chrysler in 1979, Chairman Lee Iococca worked for $1 and other top managers took a pay cut. The UAW took a $1 an hour pay cut, which was equivalent to 15%. Suppliers and dealers all cut their margins. All of that applies, except the suppliers and dealers. Most of them are losing money these days. But you get the idea. Actually, former Chrysler CFO and GM board member Jerry York suggested this to GM a couple of years ago. It’s a fine blueprint for whatever compromise comes from Washington to help Detroit this week. Sorry Motown boys, but you’ll have to give to get something.

Reader Comments

Nome

November 17, 2008 2:09 AM

Thanx for the news !

i was searching the auto industry news on net and i found it and its really usefull for me !


Regards
http://www.autocareerz.com/

Ballbuster

November 17, 2008 3:38 PM

There's been increase in bloggers exploiting BW comment section as a way to post their commerical URL address. As a result seeing more bloggers advertizing their URL under the guise of BW comments, I urge all BW readers not to patronize these firms who have demonstrated deceptive intent. Unless BW readers unite in this effort, people like "Nome" will become the new virulent vermin or pestilent plague that ravages all that is good in BW.

Westernfan

November 18, 2008 4:00 PM

After the restructuring, with or without bankruptcy, how about an incentive/bonus plan for the factory workers? That way they would benefit when the companies they work for do well.

Mike

November 18, 2008 4:43 PM

It is imperative that any support that is given to the auto industry be under the guise of requiring real change - with real consequences. Just today, again, the continued denial PR coming out of the press regarding the economy is frightening from the auto executives. Sure this pushed them over the edge but they were still a mess when things were good. I understand politics and the fears of showing any signs of weakness but to scare the the public and govt into financial support without showing any level of humility around the legacy issues is scary.

Ask a supplier to the big 3 what type of response that these companies would give them in response to a "bailout". Trust me, they see things from a very different perspective regarding "poorly run" suppliers. There is no worse supply chain to be in than the big 3.

I agree that we cannot let the big 3 go under but its time Detroit acted big like other well run companies such as P&G, Nokia, IBM and Toyota stop with the denial poison and implement sustained change.

Steven Montes

November 19, 2008 1:00 AM

The three Auto Makers looking to be bailed out is absurd, and criminal. Their problems are self inflated, and well designed to cry wolf at a time the economy is at its worst. For God sakes car makers are glorified car salesmen , they deal in trickery, lies and desperate measures to con people out of their money. I can’t believe America can be so stupid, I thought it was time for change. I that we as a people said good by to stupid when we elected Obama. Give the American people, a $ 100,000.00 for every American Citizen, in every house hold, and let them choose whether or not what cars, homes, banks, will be saved. Let the market crash, as the people will be able to bail out what ever industry they truly need. Let the fools that tried to receive a bail-out suffer, because they brought this upon themselves with their greed. Financial Wizard, and long time Business owner of Montes Orthopedic.

Steven Montes

November 19, 2008 1:02 AM

The three Auto Makers looking to be bailed out is absurd, and criminal. Their problems are self inflated, and well designed to cry wolf at a time the economy is at its worst. For God sakes car makers are glorified car salesmen , they deal in trickery, lies and desperate measures to con people out of their money. I can’t believe America can be so stupid, I thought it was time for change. I that we as a people said good by to stupid when we elected Obama. Give the American people, a $ 100,000.00 for every American Citizen, in every house hold, and let them choose whether or not what cars, homes, banks, will be saved. Let the market crash, as the people will be able to bail out what ever industry they truly need. Let the fools that tried to receive a bail-out suffer, because they brought this upon themselves with their greed. Financial Wizard, and long time Business owner of Montes Orthopedic.

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Want the straight scoop on the auto industry? Our man in Detroit David Welch, brings keen observations and provocative perspective on the auto business.

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