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The revealing side of the auto-industry collapse

In serious events, there is often a “bright” side. Sometimes this is called “the lemon to lemonade” dynamic, and so it is true with the current collapse of the American auto manufacturers. So how can such a cataclysmic event bring our society and economy any benefits? Let us count the ways.

I happen to own stock in both Honda and Ford. I have owned Honda shares for years; while it too is depressed, the way that company is run compared to Ford is dramatically different. There are two major differences: the Japanese have a long-term strategy for their business model that runs well into the future. Thus, they have pre-planned products and technology that is “right for the times.” American businesses look to quarterly profits — primarily because that is how the few very top executives assure their compensation (especially as related to their generous stock options). 

The disparity in compensation between the “average” worker and top executives in American businesses has changed dramatically in recent decades. It is now estimated that the pay difference between the CEO of a Fortune 500 company and the lowest paid worker is over 300 times! Top execs in Europe get about one-third that of American counterparts. Rick Wagoner of GM was given a 33 percent increase in his salary just this year, plus he is eligible for up to $3.5 million in incentive payments and a grant of 165,563 shares of GM stock if he meets the targets. He will also receive 500,000 stock options that will vest over three years and 75,000 restricted stock options that will vest in three to five years. GM lost $38 billion last year, and Wagoner’s total compensation for that period was reported to be over $10 million.

Health-care costs
One of the key issues exposed in this auto crisis was the cost of health care to American manufacturers as opposed to their foreign counterparts. The fact is that those countries which offer some sort of national health plans allow companies to shed this huge and growing expense — and have healthier workers to boot. As President-elect Barack Obama has pointed out, resolving the issue of health care costs is not a separate issue from an economic recovery, it is an essential component in the solution. The auto crisis has shown a light on this subject.

Going green
This critical, but constantly dismissed, subject has been part of an American dialogue since the first gas crisis of the 1970s.  Now, it is finally getting not only attention, but hope for a resolution. And it is primarily due to the auto-industry problems. If there is a successful “bailout” of the industry, the development of “green” technology will finally be mandated, not just urged.  The industry itself has long fought better mileage standards, and the Bush administration has been equally compliant. Whether a Big 3 remains, or goes out of business, those days are past. With Obama, the thrust of enlightened foreign manufacturers and the congressional insistence on greener cars in the future, the world now has a better chance to reduce dependence on fossil fuels. The auto crisis accelerated this process.

Nothing has been more enlightening in this crisis than “pulling back the curtain” of unfettered free-market economics. The issues listed above are just part of the equation. Worse yet are the crocodile tears of those conservative senators who ostensibly do not want government to interfere with private business — politicians who rail against any government support of private enterprise, while slyly moving taxpayer funding under the table. Problem is, it is their states that have subsidized the foreign manufacturers the most. Moreover, the plants in these states are assembly plants using many components made primarily overseas. And their subsidies are essentially gifts — not loans, as has been proposed in this bailout.

Take Sen. Richard Shelby of Alabama, leader of the opposition group. In 1993, Alabama offered tax incentives, highway improvements, site acquisition and preparation, utilities and more in a package that amounted to $253 million — about $170,000 per job — for a $300 million Mercedes-Benz plant that now employs 1,700.

Mercedes played one site against the other, adding new incentives from one state to the ideal contract that it expected from the others. Other automakers learned from it.

Alabama officials felt that they had to offer more than other states to attract investment. Altogether, the state has spent nearly $700 million to lure auto-related industries. In 1999, Alabama offered $158 million in incentives to get Honda to build a $400 million, 1,500-employee plant to build its Odyssey minivans. That’s about $105,000 per job. The plant opened last year.  And, South Korean automaker Hyundai took Alabama up on an offer of $253 million, or $126,000 per job, for a $1 billion, 2,000-job plant making sedans and sport-utility vehicles. Alabama also landed Toyota’s $220 million V-8 engine manufacturing plant that will open next year.

No wonder Shelby opposes helping rust-belt industries. Yet, Alabama is still a state that announced a budget deficit this year.

Other benefits
Again, adversity often brings opportunity, and the auto crisis has done that in several other ways. Among them, it has aligned labor and management on the same path to help save the industry. It has made top management more sensitive to pay differences that are not only unfair, but destructive to business and morale. It could, if there is a positive outcome, actually bring profit to the American taxpayer, as it did with the Chrysler bailout in earlier years. And, if successful, it could create a new, better and stronger automobile industry that will make America proud, as it did in the past. So here’s a toast, with a nice glass of lemonade, for a successful outcome.

Myles Spicer of Minnetonka has spent his business career as a professional writer and owned several successful ad agencies over the past 45 years.

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Comments (4)

  1. Submitted by Tom Poe on 12/13/2008 - 03:35 pm.

    Myles: Very nice and informative post. It’s important, I think, to remind readers, it was Paulson, who, on September 19,2008, who demanded entitlement for Bush’s $1 trillion dollar going away present for his cronies. Shelby will not be able to separate himself or his party from the fact that on that same day, the Republican Party admitted they are the Party of Corporate Welfare. America does not tolerate corporate welfare. America, does, however, believe in saving jobs for workers. Shelby and other Republicans will learn soon, that their Party of Corporate Welfare is as toxic as Bush.

  2. Submitted by Ron Gotzman on 12/15/2008 - 02:56 pm.


    It seems to me that a majority Democrats voted for the financial bail-out and voted for the auto bail-out. After the first of the year, more bail-outs will be proposed by the democratic controlled congress. If you condem corp. welfare, you ought the “fair and balanced” in negativity for both Dems and Republicans.

    Also, since the Dems have controlled congress the past two years, a financial “windfall” from the “special interests” has swelled the coffers of the Dems. “Follow the money” is true of the Dems as well as the republicans.

  3. Submitted by myles spicer on 12/16/2008 - 11:05 am.

    Your efforts to blame Dems for this financial mess won’t stick. Congress, while it has its own failings, is stuck with the VERY messy issue of trying to clean up 6 years of Republican rule, in which they held ALL the levers of power. It is not easy…there are no really “good” solutions…and it will take time, money, patience and some trial and error.

    But trying to tag a Dem congress of less than two years with this mess is not going to play

  4. Submitted by Ron Gotzman on 12/16/2008 - 12:04 pm.


    So when will the Dems really take control of congress?

    So the Dems do not believe in corp welfare?

    Wake up and smell more bail-out money for the liberal special interests.


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