Automakers Must Address Five Crucial Issues for Bailout

DETROIT - When the Detroit automakers lay out their plans for Congress this week to argue for taxpayer money, they'll likely spell out what they've already told shareholders: They plan to cut production (maybe even brands), make high-mileage cars and slash costs.

But that won't be enough. Two weeks ago, when the Detroit 3 CEOs pleaded before Senate and House committees for federal loans, their arguments fell flat amid a public relations debacle. They were sent home empty-handed and told to submit by today "credible restructuring plans" showing loans would not be a waste.

The attitudes expressed in the first round of hearings by many of the politicians -- even some who support loans -- were skeptical, if not hostile. The CEOs were grilled on whether the companies can make a go of it even with loans, whether they deserve to fail. They were accused of building low-quality cars and gas guzzlers and resisting safety and emissions issues until browbeaten by the government or trial lawyers.

Capitol Hill

It was clear that when Detroit returns to Washington this week, their plans must do more than tally people they'll fire or pencils they won't buy-- they need to win hearts and minds. And quickly: Hearings are set to begin Thursday, and Congress is likely to reconvene Dec. 8 to vote on any proposal that results.

"They have to come back with a very persuasive case. The public is generally so against the idea of bailouts," says David Cole, chairman of the Center for Automotive Research (CAR).

Cole thinks their best argument is the number of lives their failure would touch: "Where you make the case is when you look at the economic impact and look at the consequences, which the average person doesn't think about."

CAR has tried to quantify that case. An automaker-commissioned study found 3 million U.S. jobs would be lost in the first year if the Detroit 3 go under. But that hasn't sold taxpayers on a bailout.

Jack Nerad, market analyst for Kelley Blue Book, says one solution needs to be for their plans to include pay and benefit sacrifices by labor and management.

"A lot of people out there think management and labor went skipping off by themselves and forgot about the American consumer for a long, long time," he says. "They feathered their own nests at the expense of the American consumer."

Auto Industry's Top Issues

Here are five crucial issues experts say automakers must meet head-on in their plans if they are to win the PR war and get politicians and taxpayers to back loans to save the industry:

1: Overpaid workers

The United Auto Workers union is taking much of the public blame for the automakers' woes. People see UAW members as overpaid and underworked compared with other U.S. workers.

The average hourly wage the Detroit 3 pay union workers is not a lot more than the $26 average for the non-union workers at Toyota's U.S. plants and $24 at Honda's, CAR says. But including benefits for the workers and retirees, the Detroit 3's total hourly labor costs still average more than $70 vs. less than $45 at the foreign-owned plants. The new UAW contract signed in 2007 will bring those costs more in line -- but not fully until 2011 and after payments by the companies to a benefit fund for which the union has agreed to be responsible.

In a recent presentation on the new labor contracts, Sean McAlinden, vice president of research for CAR, wondered, "Will this improvement be too late?"

  • 1
  • |
  • 2
  • |
  • 3
  • |
  • 4
Join the Discussion
blog comments powered by Disqus
You Might Also Like...