Paul Ingrassia, former Detroit Bureau Chief for The Wall Street Journal (and current biz guy for same) is not happy with “the Detroit situation.” Ingrassia warns that backing Freddie Mac and Fannie Mae deal with public funds encouraged management to make “reckless investments that have backfired badly.” He then scolds Detroit in a decidedly TTACian way. “The Detroit Three got into their current quandary by making decades of bad decisions, with some help from the United Auto Workers union,” with a special shout-out to lavish management bonuses and the UAW’s jobs bank. Ingrassia believes a company should only be bailed out if “its demise would wreak havoc on the entire economy.” Detroit doesn’t pass the smells bad test. “Even if Ford, GM and Chrysler were to go out of business — and it’s highly unlikely that all three will simply cease to exist — there will be plenty of good cars for Americans to buy. And many will be made in America, even if they carry foreign nameplates. Toyota, Nissan, Honda, Hyundai and other foreign car companies have expanded greatly their U.S. manufacturing operations in recent years. They’re doing so because Americans are buying their cars.” OK, so it’s no means no, yes? No. “All this said, if Detroit’s short-sightedness and political expediency make a bailout inevitable, let’s make sure taxpayers stand to get rewarded for their risk.” Illogically enough, offerring the re-tooling loans to ALL automakers is Ingrassia’s biggest string. “But if developing fuel-efficient and alternative-energy cars is deemed worthy of taxpayer subsidies for public-policy purposes, it’s just common sense not to put all our eggs in Detroit’s basket.” Bailouts for all? Go figure.
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with a special shout-out to lavish management bonuses
What happened to the old idea of “The greater the risk, the greater the reward?”
The WSJ and the rest of the financial press should insist on it.
Top management risk absolutely nothing but get paid a king’s ransom. Wagoner with his inflation-proof pension and his $14M bonus is a symbol of a sickness in the US economy. There is a level above which you are economically untouchable. America has created a financial aristocracy, and other countries such as South Africa are imitating this, which is causing social unrest.
The Bill Gateses of this world who start and run their own businesses are welcome to their bucks, but those who live in the corporate cocoon need to be more exposed to financial realities. Life is not a Harvard case study for most people, it is real and it hurts.
If you want a big bonus, you must take the risk that you will be asked to pay it back if times get tough, whether it’s your fault or not.
I personally feel that bonuses earned for any one year should be paid out 1/3 now, 1/3 next year, and 1/3 the year after. That way, management will consider the long-term impact of their decisions.
Hell, if someone make $14M in a year, he never needs to work again. His financial worries are over. Why should he care if his company goes bang?
The real question is not if bailouts are granted, but what strings come attached. Frankly, any government money or loan guarantees should have to come ahead of all existing debt to these companies – which means existing creditors (banks and bondholders) may have to agree. Or is this going to be a complete debt recapitalization of the Detroit 2.8? Let’s remember that Ford has pledged most of its assets, and GM has pledged some of its North American assets IIRC. Chrysler has no borrowing capability left whatsoever.
It’s too bad that this is coming down to a political decision given that the state of Michigan is up for grabs in the presidential election. Both candidates must support a bail out – but the devil will be in the details and American taxpayers should not be left holding the bag.
Does anybody have any idea of where to find what’s being considered in this bailout loan guarantee package? Not that it’s any of the damn business of the ordinary tax payer, but I’d like to know. I’ve looked at the Congressional sites I can find but; nothing. I guess I need to hire a hacker to get into the files of the lobbyists.
I think there’s a general misconception here. All this arm waving has nothing to do with saving the car companies, so it doesn’t matter that it’s a hopeless mess. It’s about saving face, and maybe the asses, of politicians. It’ll very likely do that.
Not that it’s any of the damn business of the ordinary tax payer, but I’d like to know. I’ve looked at the Congressional sites I can find but; nothing.
It’s just a proposal. I’d say that it’s doubtful that Detroit would get what it’s asking for.
What the Bear Stearns, Freddie Mac and Fannie Mae bailouts all have in common is that they all involved replacing the senior management. If this moves forward and the feds follow their usual MO, Rick Wagoner will be out of a job. That ought to please a lot of the readership, I would think.
Ya know, I DO kina like this reasoning, because it catches Detroit in its own BS net! If the money is not a bailout but an “investment in advanced technologies” that is, in fact, a “national security imperitive” to end our dependence on foreign fossil fuels, let’s give the money to EVERYONE!. Hell, Tesla should get $10B at least, since they already HAVE an electric vehicle, and Toyota and Honda should be in line at the trough, too. Or, if you are measuring by who is farthest behind, Ferrari gets all the money! (this would thrill Max Mosley no end, but I digress) In fact, with their Volt “ready for production any day now” GM might get the smallest “investment” package.
Careful what you wish for, boys!
Martin B:
Hell, if someone make $14M in a year, he never needs to work again. His financial worries are over. Why should he care if his company goes bang?
I hate to defend Wagoner or GM, but MOST upper managers have enough to “never work again” BEFORE they take the CEO spot.
I don’t think, as you suggest, that Mr. Ingrassia was seriously advocating for a bailout. I think he was being sarcastic.
Anyway, you guys called it first. The regular press is just a bit behind the curve.
Cammy, I think you have just coined a new phrase!
The “TTACian way” should be defined (for novices and newbies), and should be present at the top of the Wiki page.