Credit Execs: NO to Federal Bailout of Automakers!
November 17, 2008
We received an overwhelming response to our quick survey last week on the issue of whether or not the Federal government should bail out GM or Ford.
Credit execs are overwhelming against such a bailout, 70 percent against and 30 percent for, with most favoring the free marketplace and the bankrtuptcy courts as the best way to solve our problems. Those who were in favor of a bailout generally expressed free market views, but felt that there ought to be some short term help because of the size of the downside should they fail. Read on for some intelligent and passionate comments on both sides of this issue: Let Competition & Better Management Decide Who Survives: That's the American Way
I don't expect that we "the people" can afford to keep letting our government bailout private companies that have poor management abilities or greed at the helm. Let competition & BETTER management styles decide who stays, who gets bought out or who expires - that's the American way. I'm going to pay a price for their failures either way... who wants to pick up after me if I should fail??
Virginia Lesage, Credit Manager, Edlund Company, Inc. Delaying the Inevitable
The government is very inefficient and unfair in distributing resources. The only instance in which a bailout makes sense would be to bridge a short-term liquidity issue, but not to temporarily subsidize a structurally inefficient company or industry. Doing so only delays the inevitable. If GM or Ford fails, there surely will be pain and anguish for those losing their jobs, but in the long run, those resources will become available to work in other industries and enterprises. We can get through this - we just have to bite the bullet and move forward.
David J. Carere, CCE, CPA, CIA, Director, Credit & Risk Management, Rich Products Corp. 2 Million Plus Unemployed?
I've worked in Detroit and my employer at that time supplied GM, Ford and Chrysler as well as many small suppliers who had the big 3 as a customer with only a few other companies. Allowing companies this large to file bankruptcy would force all of these smaller companies into bankruptcy, not to mention the dealers, the transport companies, the laundry companies and all of the hundreds of companies who are tied to GM, Ford and Chrysler. I estimate that the resulting unemployment from a bankruptcy of the Big 3 would exceed 2 million men and women. Think about it. I don't think we can afford to not bail them out. But what has to be done is some structure so they can't continually come back with, "please, can we have more?" We must not begin a nationalization of our industries.
Dale Gerschutz, Manager, Haldex Credit Services Corporation Inefficient Business Model and Bloated Benefits Unsustainable
The auto industry can no longer sustain itself with an inefficient business model that burdens itself with bloated benefits in the form of generous pensions and health care for life. If the industry cannot conduct their business to be competitive and profitable, then they should be allowed to fail...and then even forced by the Bankruptcy Court to develop a viable business model more in tune with today's fragile economy. If a more conservative approach to their solvency becomes necessary, and benefits and wages need to be scaled accordingly, so be it. As for current autoworkers who would whine and cry, if they can't stand the heat, they need to get out of the kitchen! There are one million people out there who need jobs, and those folks would be happy to take their positions.
Susan Victoria Nash, CBF, Corporate Credit Manager, TIW Corporation The companies have been mis-managed. I would issue loans to develop fuel-efficient cars providing all employees make concessions on salary/wage and benefits. They would need to show profitability through cash flow analysis with a payback of original loan of not more than 10 years. Period.
Sonia Kuhlmann, Assistant Vice President, Atlas Lift Bailing them out will still result in layoffs as people are just not buying large dollar items.
Cindy Boily, Credit Manager, Chariot Carriers Inc.
We're Supposed to Save Them? Phooey!
The money earmarked to bail out banks, insurance companies, car manufacturers, and credit card companies would be better spent helping home owners faced with foreclosure, the assistance to buy (and stay) in their homes and pay off their credit card balances with low interest rates and supporting the workers that are laid off to retrain to find new jobs. These greedy entities preyed on the temptations of their customers to want to own homes, spend money they didn't have, ignore green car technology and instead only offer SUV gas guzzlers at car prices equivalent to the price of a small house 20 years ago, etc. To now cry "Foul!" when, after years of high earnings and which of course they also didn't save for a rainy day, the market turns downward, we are supposed to save them? Phooey!
Victoria Zeitler, Manager, No American Corporate Credit & Collections, Technicolor Home Entertainment Services The Big Three automakers have been aware of their problems for many years and have not actively sought a solution to have automobiles that do not depend on gasoline. There are many companies out there that also would like some bail out monies and we the American middle class workers cannot continue to come to the rescue. We all need to take a lesson from this crisis and learn to live within our means.
Mona Rice, Credit Manager, Preferred Materials So, where did all of the cash go when times were good--as we learned in business school--all industries are cyclical. The Big Three take the saying 'desperation is the mother of invention' to a new level.
Kirk Goodwin, Credit Manager, Tube Forgings of America, Inc. Give the bailout money as a rebate to consumers that buy an American car; 30-50% of the purchase price back to the consumer over the life of the loan.
Wayne Steele, Corporate Credit Manager, STMicroelectronics Government should not bail out any US Company.
Laura Larson, Controller, King Technology, Inc. Chapter 11 Would Yield Many Benefits
Ford and GM's precarious financial conditions are the result of poor management for decades. Our economy would be best served by them reorganizing under the Chapter 11. This would enable greater flexibility in shedding union contracts, wages, and benefits that have contributed to their lack of price competitiveness.
Stan Winarski, CCE, Corporate Credit Manager, Broan Manufacturing, Inc.
Average Taxpayer Needs a Break!
The problem: The American auto manufactures have been complacent for years, failing to develop better products beyond the truck lines. Of course, we understand the trucks were their bread and butter delivering extra profit offsetting those car lines that were not as profitable. However the American auto manufacturers failed themselves by failing to work harder and develop more mainstream autos with better quality, all the while they should have searched for better ways to develop their product. At the same time, they did not work harder to sway the unions creating a partnership vesting their future side by side with each other. So how is it possible anyone is surprised with the situation today? Dig deeper and we'll find companies mired in heaps of lethargic thinking. Nothing has changed for years. Why is anyone surprised? If they are not bailed out, they advise thousands will loose their jobs? Understood and extremely catastrophic in these hard times, however, isn't this what should have happened years ago when they should have made changes and begin thinking anew? Of course if we bail them out, what lessons have they learned and how much more can the average taxpayer absorb for the mistakes of those who've received big pay-checks for years, failing to do their job? Between the bailout of Wall Street and the cost of the Iraq war to date, the average taxpayer needs a break. I believe it is time to say no and let whatever follows take its course. It's time to get back to basics and re-develop that ole' entrepreneurial spirit. How about a fair days wage for a fair days work?
Paul Setteducati, Corporate Credit Manager, Dual Corp. Yes, with restrictions and controls: Slash perks and options to execs, earmark funds for R&D, don't burn the employees, refocus the company concept for long-term growth, not short-term profit.
Theodore N. Lonis, ITW-Buildex Situation Unbelievable; Disgusting
They are a public corporation that has created their own problems. Do you think Toyota, Nissan, and Honda will come to our government and ask for bailout money? Wait, I forgot, they aren't in the same financial shape as the American companies because they run their business more financially responsibly. I work in the building material market and our company is closing branches, laying off people, reducing salaries, and do you think the Federal government should also bail us out? The whole financial debacle is almost beyond belief to me. Now we are talking about the government buying stock in banks, yet not requiring restrictions on the use of the capital. What makes us think they will do a better job with the new money? I would suspect they'll pay dividends, etc. instead of infusing the money back to the people through intelligent loans. Our situation is pretty disgusting in my opinion.
James Clem, CCE, Credit Manager, Merchants Metals This is a private enterprise. They should have been forward-looking and made better decisions long before now.
Pam Craik, CCE, Credit Manager, McKesson Drug No Choice But to Help: 1 in 6 US Workers Tied to Auto Industry
Like it or not we must assist the auto industry. One out of every six workers in the US is tied to the auto industry in one way or another. A bankruptcy by GM would certainly lead to another one by Ford and then Chrysler would fall. The real question in my opinion is what kind of assistance should be offered. A bailout in terms of just giving them money would not be acceptable. I think that a workable solution would be similar to that which pulled Chrysler away from the brink in the early 1980's. They had to bring new product to market that would save them. They got major concessions from the unions. Suppliers give up something. All of this worked and Chrysler was able to repay the loans early. Product is a problem right now. Large trucks and SUV's are not selling. The Detroit 3 - you can't call them the Big 3 anymore - has product in the pipeline but does not have the funds required to bring the products to market. Chrysler and GM have electric cars. Ford has hybrids and a great car they can import from Europe. There is a light at the end of the tunnel if they can get there.
Douglas R. Swafford, Manager, Credit & Collections, U.S. Xpress The bailouts must happen in order to show people inside and outside of America that we are a stable country that can deal with our own mistakes in a rational & reasonable way, no matter how financially irresponsible it may appear to be. Responsibility for one's own actions must be dealt with head on no matter who or why they happened!
Ken Zanolini, Director of Credit, F Rodgers Insulation "The Free Market Economy is Dead"
I personally think it is outrageous that the government is bailing out any companies; the free market economy is dead. As demonstrated by Amex, the government's boondoggles are enticing more companies to request bailout packages that will likely become a litigation nightmare, thus wasting more money and slowing down the recovery.
Ken Smith, Credit Manager, Schwartz & Benjamin, Inc./BDS Inc. I believe that these large industries should not be bailed out at all. They should stand on their own merits or lack thereof, just like the individuals & small businesses must in this country. Let them fail if they are mis-managed. It's not up to the taxpayers to help them. The government is not in the business of running these types of things and should leave it well enough alone.
Kim Newbury, Credit Manager, Antigua Sportswear I said yes, but I do not believe in complete bailouts. I believe that it should be loans or bonds with some kind of performance to be expected. Bailouts do not teach anything and allow companies to not be forward thinking. I have watched Ford and GM ignore the industry indicators that the market had changed.
Laura Ann Watson, Yokogawa Corp of America The Federal government should bail out GM, Ford, etc., in order to stop the economic slide. Additional layoffs and unemployment numbers will rise to further damage our economy. In turn with this bailout, there should be incentives, similar to the Chrysler bailout several decades ago, to ensure that taxpayers will be not only reimbursed for these loans, but with added interest.
Robert Meza, Global Sr. Credit & Collections Manager, Control Components Inc Government Too Much a Part of our Every Day Lives; Let Them Fall
Although none of us wants to see the good guys hurt, at this rate, our country's debt will never ever get paid down. It is now becoming a joke. It is time to step back, take a deep breath and allow the companies to fall or put their heads together and start creating solutions on their own. Government has become too much a part of our day-to-day lives. Let the ones go that are not capable to survive, and the ones that do survive will be stronger and better and so will the whole United States Of America.
Judy Bennett, Vice President of Credit, CCC Steel Inc. A Bad Idea From the Beginning
Funny how everyone is jumping in there to get a piece of the bailout action when the government makes the mistake of playing Daddy Warbucks. If you can't run your company in a profitable state year-after-year then you shouldn't be in business. Yes, people will lose jobs but the need for the product is still there, so whatever company ends up providing product for those needs, in a profitable manner, will have jobs available. This was a bad idea from the beginning, which has produced the anticipated results of big industry looking for a handout whenever times get tough. What lessons are learned when no one has to suffer the consequences for their actions?
Diana Tapelt, Credit Manager, Minvalco Inc. Bailout unions at $72 and Hour? I don't think so!
The unions have driven the average wage at the big three up to $72.00 an hour, while the average wage for the rest of the work force is at 27.00 an hour. And we are supposed to bail them out? I don't think so!
Jim Gehling, Builders First Source Bailout American Express? An Insult to American Taxpapers!
Any bailout money for the auto industry is simply sending money down the rat hole at the expense of taxpayers. Let them do a Pre-Package 11 and renegotiate their labor and dealer contracts. Otherwise, nothing will change. As to American Express: an insult to the American taxpayer and Congress. If I cannot collect my receivables will Congress allow me to open up a new bank for deposits?
Lawrence Parent, Credit Manager, National Beverage Corp. Read Up on Edible Berries & Plants
While it is hard to say that we should bail out mis-management, the repercussions that would be felt through the entire economy far outweigh my personal distaste for bailing them out. Unfortunately, precedence was set with Chrysler, and it would be hard to justify not doing the same for the others. Yes, executive compensation needs to be adjusted to reflect the mis-management, concessions must be made by the unions, and it needs to structured as loans or equity (Preferred Stock, preferably). If they are allowed to fail, we might as well all read up on edible wild berries and plants, as that may be what it takes to survive.
Gordon Miller, CCM, General Credit Manager, International Specialty Product Socialist union contracts that have automakers clinging desperately to life support
Much has been made of the proposed financial bailout of the Big-Three automakers. Yet in all the discussion, a very real — unbelievably positive — aspect to allowing them to fail and reorganize under Chapter 11 bankruptcy seems to get overlooked; or at a minimum, is getting treated like some kind of "third-rail." The moment an automaker's bankruptcy paperwork is filed, every contract they have with the U.A.W. will by law be nullified! So why would this be a positive? Because beyond the over-the-top executive salaries and golden parachutes plaguing all the bailout proposals these days, the number one reason for the financial failure of these particular giants of American industry is the unrealistic, socialist-style, union contracts that have automakers clinging desperately to life support. When you pay someone $35 an hour, plus full benefits, to do nothing more than put hubcaps on a vehicle as it rolls by on the assembly line; when you are force-fed a "jobs-for-life" caveat in all your labor agreements; when the concept of "it's never enough" prevails within your workforce, no business interest, in any industry, can possibly survive. As the Detroit Free Press and Wall Street Journal have documented, the General Motors Jobs Bank is costing the automaker over $800-Million dollars each year; needlessly adding $200-$300 to the cost of each vehicle made. And that is just GM; Ford and Chrysler have similar albatross' hanging around their necks. What do the Big-Three get for over a billion dollars in combined "non-labor" labor expense? Not one thing. What was intended to be a short-term opportunity for displaced workers—to get paid while re-training for other positions or find work elsewhere—has turned into an unintended private-sector entitlement program. Thousands of "former" employees whose jobs were eliminated due to automation or plant closures gather in gymnasiums each day to read the newspaper, drink coffee and play cards, many collecting over $100,000 in salary and benefits each year—in a program established in 1984 (Orwell, anyone?)—having to do nothing more for this largess than making sure the U.A.W. gets their cut each month. Ever wonder why certain members of Congress begin pounding their chests for higher minimum wages even before the dust settles over the last round of victories? Because of union lobbyists. U.A.W. (and many other union) contracts don't dictate a specific dollar amount its members are to be paid per hour for the job function they perform. The contractual wage for their union members is actually a multiplier of the federal minimum wage; five times here, ten times there, with additional multipliers for things like holidays, shift work, and seniority. So with the swipe of the president's pen, and as regular as the next increase, an employee who is barely shows up for work on time and who does the absolute minimum amount of work required, gets the same contractually triggered pay raise as someone who is motivated, hustles and strives to move up within the ranks—that is when he's not being told to knock it off by the shop steward, because he's making the slackers look bad. That, my friends, is the quintessential definition of socialism; already alive and well in America. Behind closed doors, automaker executives have got to be quietly praying that Congress will back away from bailing them out. With their current union contracts lining the bottom of bird cages, and thousands of non-working individuals off their payrolls forever, the automakers can negotiate fiscally responsible contracts that allow them to build better cars and trucks for less money, and regain their competitive advantage in the U.S. marketplace. Let's face it; the U.A.W. has to know that all three automakers can set up shop in Mexico tomorrow, and effectively hang an "Out of Business" sign at the Michigan border, if they don't play ball. It's time to let the same market conditions that effect every other industry wrap its loving arms around the Big-Three, and allow the U.A.W. to rejoin the real world—or close its own doors.
Kevin D. Bakko, Credit Manager, Intertek USA If the Federal government bails them out, where does it end?
Linda Flannery, Credit Manager, Dialight Corporation I say start at the top with those folks who are making million dollar a year (or more) salaries and cut their pay back to 'real life' salaries. I realize that GM & Ford are probably supporting more retired people than working people, but I also think that the big wigs who are being paid huge inflated salaries should have their salaries cut before cuts are made ANYWHERE else in the budget. And no bonuses for those same folks either.
Tracie Gadd, Credit Manager, Carpetland Inc. While I am a proponent of the free market system, we need to step back and seriously think about the impact to our already fragile economy if a company the size of GM fails. The ripple effect would be catastrophic. If our economy was healthier, I would not support a bailout, but I guess if things were better, GM or Ford may not need the requested help either.
Ken Sayers, Director of Credit, South Wire Okay with having the Fed's help with strict conditions.
Kevin Sarkisian, Corporate Credit Manager, Lexmark International, Inc. While I personally do not think the government should be using taxpayer money to bail out the private sector, I fear that the ramifications on the growth and employment prospects of the U.S. will be severe if they (we) do not. The unemployment rate is soaring and by doing nothing, we could easily see double digit rates soon.
Dan O'Neill, Corporate Director of Credit, Stock Building Supply
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