The redeeming side of the auto industry collapse


Like many serious – even disastrous – events, there is often a “bright” side to the issue. 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.

American Business Strategic Planning

I happen to own both Honda stock and Ford. I have owned Honda shares for years; and 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 which runs well into the future. Thus, they have pre-planned products and technology which 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). Hopefully, now exposed, this will benefit all American businesses with stronger strategic planning in the future. Secondly, there is a marked difference in executive pay between foreign businesses, and those in the United States.

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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 difference between the CEO of a Fortune 500 company and the lowest paid worker is over 300 times! While this may seem acceptable to some, such a disparity does not exist in foreign companies, where top executives earn much more reasonable salaries (European top execs get about 1/3 that of their American counterparts; Japanese typically about 10 times the lowest paid worker). A current example is now exposed in this auto malaise, where Rick Wagoner of GM was given a 33% INCREASE in his salary earlier this year (pre-bailout), 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. In short, American corporations seem to operate in the bizarro world on this subject.

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 (not necessarily “socialized” medicine), allow companies to shed this huge and growing expense – and have healthier workers to boot. As President-elect 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 shed a light on this subject.

Going Green

This critical, but constantly dismissed subject, has been part of an American dialogue for over 30 years now…ever since the first gas crisis of the 70’s. 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 CAFÉ standards, and the Bush administration has been equally compliant. Whether a Big 3 remains, or goes out of business, those days are past. With the arrival of 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 decline of our economic system and consequent failure of the auto industry is in part the result of poor public/private partnerships of American-style capitalism – with lack of oversight and transparency. The aforementioned issues of executive pay; caving in on CAFÉ standards through excessive lobbying; out of control health care costs from a failed system; and lack of pressure to create new technology to reduce our consumption of foreign oil 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 businesses”. Politicians who rail against any government support of private enterprise, while slyly moving taxpayer funding under the table. Problem is, it is their states who are ones who 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 Senator Richard Shelby, of Alabama – leader of the opposition group which scuttled the bailout plan in the recent vote. 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 them.
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 plants 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 – how disingenuous. Yet, Alabama is still a state which 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, in ways not previously seen (this, despite Republican efforts to attack labor in the recent bailout vote). “The enemy of my enemy is my friend”…and here the “enemy” is the demise of the American auto industry. Hopefully, it has made top management more sensitive to pay differences which are not only unfair, but destructive to business and morale; and consequently, probably added stronger oversight in boardrooms. 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 which will make America proud, as it did in the past. So… here’s a toast, with a nice cold glass of lemonade, for a successful outcome.