bail out automakers?

Does the proposed bailout, loan, rescue package or whatever it is make you wonder "what's goin' on". Is this investing of your tax dollars tragically flawed? I suggest some ground rules to Congress in a letter that follows. If you agree you can feel free to endorse and /or add to this letter and send it to Congress at: AmericanVoices@mail.house.gov (Nancy Pelosi) D.leadership@mail.house.gov Pt.contact@gsa.gov (pres. transition)

November 22, 2008

Dear Congress:

The Congressional hearings with the “big three automakers” were full of valid criticisms but glaringly short of any real requirements for any loans to be doled out. The big three went home in their private jets to reorganize and come back with a plan. What about some preconditions? Maybe some Congressional loan guidelines would show the public that, as bankers working with our tax dollars, you are doing more “due diligence” than the mortgage brokers that gave away so many unsecured loans to launch the housing part of this crisis.

First of all, these are three separate companies with their own sets of needs, requests, goals and baggage that they bring to the table. Why are they being considered as a group? Each has separate collateral to put up and unequal liabilities to overcome. Each should be responsible to present a plan that suggests how this money will enable them to implement that plan to avoid insolvency and repay us, the U.S. taxpayers, with interest, for our assistance.

Congress, as the bank in this transaction, should treat these applicants more like startups or bankruptcy candidates than as revered institutional icons when they apply for a loan. While they have demonstrated an ability to develop and manufacture their product they have totally failed to apply sound business principles to the ongoing profitability concept that indicates success in the business world. They have been falling behind as successful capitalists for a long time and yet they come to the table with what sounds like more of a lightly veiled extortionist threat than a plea for a loan. That’s what it sounds like to me when the justifications are phrased in terms of the catastrophic repercussions to all of us if we ignore the need to quickly and blindly plow public money into their companies. It’s as if they believe they are not only “too big to fail” but also too important to question, challenge, or answer to preconditions.

Well, I think that “too big to fail” phrase must be modified. Take note that preventing the collapse of the auto industry does not inherently require us to pump unrestricted good money into these corroded entities, absent of restructured compensation outflows and a revised business plan. The existing framework of bloated salaries, bonuses, and high flying percs, as well as unaffordable labor contracts and questionable product priorities should all be challenged. Major modification should required as a condition of any loan.

The President of this country makes $200,000.00 a year. Cabinet officials serve for far less than the leadership of these failing companies. It’s certainly reasonable to tie loans to responsible salary sacrifices until the ship is righted. If the leadership of any of these institutions cannot or will not sacrifice in order to save their company , then it can withdraw it’s loan application, showing where their true priorities are placed. That would be their own personal interest first. If there is truth in their claim of national doom without our loan money, this leadership must meet standards or step aside. They must make way for other qualified leaders who would gladly step up to serve this nation and these companies that are so vital to our economic future. That would be both a fiduciary and patriotic duty.

When questioned about executive pay cuts in general, the knee jerk response of GM CEO Rick Waggoner was to criticize any imposed cuts that would leave these companies uncompetitive in the quest for talent. This comes from an executive of a failing company who makes 15 times the compensation of his counterpart at Toyota, arguably the world’s preeminent auto manufacturer.
I’m sorry, but I think some publicly exposed preconditions on executive pay caps would meet with resounding public approval. Preconditions would place the burden of stepping up to save the American auto makers and our economy squarely on the shoulders of the individual decision makers of “the big three”. This alternative allows for continued competition between these tarnished titans to best serve the interests of their shareholders and the nation as a whole when packaged as part of a comprehensive plan for recovery. It provides a greater incentive for sacrifice on the part of labor in
the wake of radical management givebacks. Pre set compensation conditions on management, tied to national urgency, enables a structured reorganization that is transparent, yet falls short of a Chapter 11 bankruptcy that many feel would destroy product marketability.

The forced restructuring of executive compensation is not a complete solution. It is a lynchpin incentive to shedding excess weight at every level and every aspect of their corporate framework before corporate obesity drowns the patient. It opens the door to a broader examination and acceptance of options in the quest for self preservation. It establishes a lead by example mandate that permits stepping in front of the curve to reach a cure, rather than operating from a “too little too late “ mantra with everyone (beginning with management) holding on to their own self interest agendas for as long as possible. With transparency and open leadership from Congress, management and labor there can be support from all corners of the nation. Government will have done it’s job as banker by setting realistic lending criteria: limiting executive and management compensation and requiring the presentation of realistic plans for corporate recovery. With corporate recovery universally viewed as essential to national recovery, the need for broad-based contributory support takes on an aura of patriotic duty. In this environment it will be impossible for labor not to contribute in some exemplary way. Labor will be in the spotlight. No one could suggest wholesale gutting of pensions, salaries or benefits promised to the line workers, but widespread public scrutiny in this atmosphere of compromise will demand some reasonable contribution.

The corporate entity continues operations without bankruptcy or government takeover. It must identify liabilities that will be unloaded or changed. The public citizenry feels included in the process and protected by a proactive Congressional leadership and transparent understandable solutions, unfolding in an environment of national urgency. Positivity evolves. There will be pain at every level. Downstream dealerships will be forced to close or form partnerships with competitors to survive. Parts manufacturers and distributors likewise will downsize and close. Jobs will be lost. That is inevitable. But the prevailing attitude is everything. Belief in a process that is bigger than the immediate or the individual is the change maker. It gives rise to a groundswell of support. We can stop blindly pointing the finger of blame and stop labeling constructive criticism as anti-Americanism. When we focus on collective solution finding over ideological name calling good things can happen.

Greatness comes from confronting adversity and overcoming it with unity, sacrifice and resolve of purpose. Lincoln said “a house divided cannot stand”. It’s time for Congress to set our house, our nation, in order. Confront these executives with some basic rules of the game. This is a loan application to revitalize an essential industry, not more corporate welfare. Base any loan on corporate worthiness. You will have the support of those that count most, the people. We vote.

Sincerely yours,

Steve Kaplan