Monday, November 17, 2008

The Big 3 Bailout-Auto executives in spotlight as U.S. weighs bailout

By John Crawley and Paul Eckert

WASHINGTON (Reuters) - U.S. automakers should consider executive shake-ups if it would ensure congressional backing for a bailout supporters say is needed to prevent industry collapse, an architect of the effort said on Sunday.

The statement by Carl Levin of Michigan underscored the difficulty Democrats are having in finalizing a rescue plan of up to $25 billion and securing majority support in the Senate, which plans to begin debate on the matter on Monday.

"If it was the difference between getting this kind of support or not, obviously the management should consider resigning," Levin, a staunch industry ally, said on NBC's "Meet the Press."

Levin said he has not been approached on that ultimatum. But some lawmakers have raised the issue and it has factored in a broader national discussion of whether taxpayers should save General Motors Corp, Chrysler LLC and Ford Motor Co.

One influential Republican cited corporate decision-making over the years as the primary reason for Detroit's distress.

"I don't believe they've got good management. They don't innovate. They're a dinosaur, in a sense, and I hate to see this," Richard Shelby, the top Republican on the Senate Banking Committee, said on NBC's "Meet the Press."

Levin, lobbyists and other rescue supporters contend a bailout is justified because millions of factory, supplier, dealer and other jobs are tied to the health of industry.

The companies face bleak liquidity prospects with sales plunging and credit markets choked for corporate and consumer borrowing. Most consumers finance their auto purchases.

GM has said it could run short of cash in early 2009. All three manufacturers reject bankruptcy as an option.

The White House and Republicans who have spoken out on the issue do not unanimously oppose help for Detroit, but there is strong aversion to a bailout.


Jon Kyl of Arizona, the Republican Senate whip, does not see the chamber approving a straight, $25 billion bailout next week.

"I don't speak for every Republican, but I suppose most of us will oppose it as a very bad idea. This didn't happen to the auto companies overnight," Kyl said on "Fox News Sunday."

Another author of bailout legislation has no plans to make assistance conditional on management changes even though he is not convinced a bailout will pass.

"I'm not sure who I want the new management to be," House of Representatives Financial Services Chairman Barney Frank said on the CBS program "Face the Nation." Continued...
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1 comment:

  1. It looks like the folks in DC are hell-bent to give the stimulus package another try seeing as the first one didn't have any real effect.

    This time it's the car industry.

    While the sanity of blowing cash around and running the national debt up even further is questionable; it seems inevitable - so this time let's target unemployment, create AMERICAN jobs and pump up the economy all at one time.

    Consider the following:

    Manufacturing costs of motor vehicles are 65% labor (i.e.: W-2 income), that's not all direct but due to suppliers. GM alone has over 1300 suppliers. (That's a lot of jobs!)

    1 in 10 Americans makes all or part of their income due to the automobile industry.

    Money turns over 5 times in a year.
    Thus a vehicle with a manufacturing cost of 20K produces 13,500 in W-2 income which in turn becomes a total of 65K in 12 months due to the 5 turnovers.
    (This isn't magic, it's simply how the economy works.)

    Our domestic car makers are saddled with legacy costs, most of which will reduce dramatically in 2010 due to contract changes. They need to survive to get there.

    Our own over-zealous government with a virtual alphabet soup of regulatory agencies has been no help either.
    Foreign competitors have worked off-shore collectively to meet various US gov't. imposed emission and safety standards, thus dramatically reducing those R&D costs. American car companies are prohibited from that by our FTC.

    Make no mistake; it’s no surprise that once again government has been a major part of the problem.

    Here's the solution.

    Instead of either shipping cases of cash off to car makers; or sending us all another check:

    Send out a voucher for say $1,000 good on a motor vehicle for the percentage of the vehicle that's domestic. (Civic = 70% Ford Explorer=80%)

    Let those not interested in a new car sell or give away their vouchers (Ebay would be loaded with them in no time flat) and those that are so inclined can use as many as they can get their hands on up to the full MSRP of the vehicle.

    This would bail out the car industry without giving them a dime directly
    Further it would reduce the overall age of the nation’s cars which would in turn;
    increase overall fuel economy
    & decrease pollution.

    Strengthen the dollar!

    Since vehicles with a higher domestic content would be moving better this would reduce our imports, strengthening our dollar which would in turn further reduce what we pay for anything imported gas!


    Instead of simply bailing out a few big companies, this would cause such a run that it would create employment throughout the industry affecting over 1300 suppliers and their workers.
    That would give the economy good swift kick right where it needs one!

    Pays for itself!

    Since money turns over 5 times, and the vouchers are only good for the domestic content of the vehicle, every dime would be spent in the United States creating taxable income.
    What is the income tax on 65,000 anyway?
    (Remember? 20K manufacturing cost = $13,500 W-2 income x 5 = $65,000)

    Another Stimulus Package?

    I'm sure you'll agree that this makes more sense than simply sending out checks; many of which will be used to buy new flat screen TV's usually made in Malaysia or some such place.