The suggestion is half right, the taxpayer is already on-line to fund the transition to efficiency with $25 billion and we have been auto industry investors for years through tax payer dollars. Thus, an equity stake is appropriate and will also ensure that the auto industry gets even more on board with the new energy economy that needs to develop. And, if Americans have an equity stake in the industry, it will help U.S. automakers – will Americans be more likely to buy U.S. cars when they profit from doing so?
And, to spur the new auto market, the government could create a consumer auto loan guarantee through 2010 for the purchase of cars that the EPA estimates to get over 30 miles per gallon. This could be coupled with a tax credit that is based on fuel efficiency – the more efficient, the bigger the credit. These should not be limited to purchases from GM, Ford and Chrysler but to any auto company that makes efficient cars as this will encourage an energy efficiency competition and move the U.S. toward the new energy economy that is essential.
Further, one requirement of receiving government funds should be correcting the imbalance in pay, including bonuses, between blue collar and white collar workers. GM's chairman and chief executive, Rick Wagoner, received a 33% raise for 2008 and equity compensation of at least $1.68 million for his performance in 2007 plus stock and options, in a year for which the auto maker reported a loss of $38.7 billion. The salary increase puts Wagoner's salary for this year at $2.2 million, compared with $1.65 million in 2007. Wagoner's overall compensation is down from 2003 when he made $8.3 million in compensation from salary and bonuses alone. Fords’ Alan Mulally received $2 million in base salary, a $4 million bonus and more than $11 million of stock and options in 2007. His base salary was unchanged over 2006. Crysler’s CEO pay is unknown since it is a privately held corporation. However, Chrysler plans to pay retention bonuses promised to executives which pay out in August 2009 at $30 million.
On the blue collar side, UAW members will forgo most pay raises for the next two years keeping their wages at $29.78 an hour plus health care and retirement, which bring the total to $69 per hour (dropping to $62 by 2010). New hires are getting only $14 per hour. Under a recent agreement retirees will pay some of their health care costs totaling $1 billion a year. So, the workers, already paid disproportionately less than executives, are taking cuts in pay.
The corporate-government folks in DC applaud the blue collar worker pay cuts. But, this has been a problem that underlies the failure of the U.S. economy. Even though consumer purchases are the main driver of the economy, the American worker is losing buying power. In fact, real wages in the U.S. declined by 12% between 1974 and 2004. Standard of living has been kept up by having both spouses working, increasing consumer debt (and no savings) and cheap foreign products. None of this is sustainable. In order to have a sustainable economy we need working Americans to see increases in real wages not decreases.
The failure to find a creative solution to the automobile crisis with a taxpayer equity investment risks an already deep recession becoming even deeper and potentially evolving into a depression, especially in the Midwest states that produce autos. And, it is short-sighted. The loss of the big three will be a loss of $156 billion over three years in tax revenue to the federal government. After the immediate crisis, serious consideration should be given to whether having three-too-large-to-fail companies is in the national interest, creates the kind of competition needed and the flexibility needed in a rapidly changing economy.
The auto crisis is the result of years of corporate-controlled government coming home to roost. Over and over, Congress put the interests of big business ahead of sound policy and common sense. Now it is time to turn the relationship between corporations and government on its head and ensure that both corporations and government work for the interest of the people rather than the short term profits of corporations and the re-election of politicians with big business campaign contributions.
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