• Home
• Personal Finance
• Economy
• New School
• Asked & Answered

• ABOUT
• FAQ
• RESOURCES
• ADVERTISE
• CONTACT

GM and the Auto Industry: Failure is Not an Option

The “Big Three” U.S. automakers (Chrysler, Ford and General Motors) are begging for financial help from Washington and this in addition to $25 billion in federal loan guarantees they are expected to receive starting in early 2009.  I am sure their preference would be for a “blank check” and Congress should resist the urge to act quickly to help these ailing giants.  The auto industry needs more than a quick cash infusion.  It needs to be totally restructured.  But the next Congress and President-Elect Obama have very few good options – allowing the auto industry to fail or disappear is not one of them.

Why failure is not an option?  There are too many jobs at stake.  The Big Three employ about 240,000 people.  The failure of the Big Three would also devastate its suppliers, support contractors and dealers who employ about another 2.7 million people.  The lost of almost 3 million jobs would be devastating to our economy and absolutely destroy local communities and states impacted by those job losses.

We cannot ignore the impact a failure of the auto industry would have on retirees and the funding of our health care system.  The failure of just one of the Big Three would strain an already overburdened Pension Benefit Guaranty Corporation.  The Big Three are directly and indirectly responsible for funding the health care of 2 million employees, retirees, and dependents of their own companies and their suppliers.

National security is another reason why we cannot allow the auto industry to fail.  This is not fear mongering but reality.  Who knows what future military conflicts will be like but what would happen if we did enter into a large scale military conflict but a major portion of the U.S. manufacturing base is gone?  Could we rely on foreign companies to help us?

Some people are advocating bankruptcy, Chapter 11, which would allow the companies to restructure, reorganize and renegotiate or cancel contracts.  This would only benefit the senior executives who created this mess because either they will keep their jobs or worse - leave with hefty compensation packages.  There would be no guarantees that there would be significant changes in strategy and policy that would help make sustainable companies ready for the future.  Under Chapter 11, a company could sell-off valuable assets and technology to the highest bidder which in all likelihood would be a foreign country or manufacturer.

A company could choose Chapter 7 bankruptcy which would mean a total liquidation or sale of all assets.  No new company would emerge from bankruptcy.  This would have even more dramatic impact on our economy than a Chapter 11 filing.

Something needs to be done but what?  Is the situation drastic enough to require drastic measures?  How about something controversial as nationalizing the industry?  That is a cue to the right wingnuts for the socialism rhetoric.

Nationalize the entire industry or at the least General Motors and if Ford and Chrysler want government assistance than they too must be nationalized.  There is precedence for such actions.  In 1973, the Regional Reorganization Act nationalized portions of the railroad industry and created the Consolidated Rail Corporation – Conrail.  Conrail was eventually sold back to private investors in 1987.  Logistically, this may require GM to file for bankruptcy and then the legislation governing the nationalization would take effect.

Any legislation would create a government corporation that is governed by a board of nine (9) people.  The president nominates the chairperson of this board and senate consents to the nomination.  The board should include union leaders and management consultants but will have a chairperson with authority to develop a business model and implement it.  This is nothing novel and has been done in the past.

This is not a call for government ownership but a way to completely restructure an industry that is so vital to the interests of our country without completely dismantling it.  The restructuring can be done in a way the all stakeholders share in the burden of creating a new viable and sustainable industry.  It will mean job losses.  It will mean a leaner and smaller auto industry.  This would be an opportunity to correct the short-sightedness and strategic blunders of industry leaders.

Any legislation regarding a nationalization of the industry should require the development of a manufacturing strategy for our county.  This strategy should address the re-training of our workforce in addition to setting policy and budget priorities.  The Commerce Department can be tasked with starting the process.

This will not be an inexpensive undertaking.  It is difficult to propose such a drastic measure especially considering that amount of debt our government is carrying on “our behalf”.  But this is an investment.  An investment in the future of our manufacturing base that is vital to our economy and national security.  It is better than giving the Big Three a $25 billion blank check.