Indra’s Drishtikona (Viewpoint)

Why Are Senators Against Automakers’ Bailout?

Posted : November 20, 2008 at 5:54 pm [IST]

For the whole day, I had been watching CNBC and surfing US media sites for getting some in-depth understanding of the issues related to the bailout plan that is under discussion by the lawmakers. The heads of General Motors, Ford and Chrysler returned to Capitol Hill to plead with the skeptical lawmakers for a $25 billion to avoid collapse or catastrophe. Lawmakers overreacted when they learned that the executives flew separately to Washington on three expensive corporate jets. “It’s almost like seeing a guy show up at the soup kitchen in high hat and tuxedo.” The possibility of a quick legislative sanction for the federal bailout appears to be evaporating as does the cash of the companies.

As it seems, the lawmakers as well as Americans at large have lost confidence in the management of the Big Three. On one hand, they question if the Japanese, European, and even South Korean can sustain and retain its market share why the American automakers can’t do the same in the domestic market. Are not the quality, performance, and after-sales service of American cars inferior? What is the guarantee that the present management of the automakers will restructure and improve to compete and attain a sustainable turnaround, if they have failed till date?

Another concern relates to the legacy cost off the Big Three that makes it difficult for American carmakers to compete. A law maker says, “I can not imagine a real justification for a worker in Alabama who does not have any health insurance at his company to be taxed to maintain a Cadillac health care plan for somebody in Detroit.” If Honda can change its assembly line from the fuel-hungry Odyssey minivan to the more efficient Accord sedan in response to the demand for more-efficient cars, if Toyota can do make a switch over to the production of Prius from the gasoline cars, why can’t American carmakers take such technology-related actions? Either they are not capable or they don’t wish to work hard.

Some senators question the rationale of intervening in the private-sector economy and are extremely critical of the management of the Big Three. A senator says, “I am very concerned that people as hard-headed as the three people who spoke to us yesterday would not have a plan in place and not have any concession to make, but they would just want the money so they can burn through it. That’s unacceptable.” Many law makers don’t believe there will be a turnaround in the troubled U.S. auto industry until its top management is ousted and its manufacturing operations are revamped. A senator says,”I don’t think they have immediate plans to change their model, which is a model of failure.”

According to many, bankruptcy reorganization is the better of the solutions as it will force the automakers bring the legacy cost and wages in line with the foreign transplants.

I wondered if India is a freer economy than US. All the three passenger car manufacturers (Hindustan Motors, Premier Automobiles, or Standard Motors) have embraced the natural death without any representation for any bailout. Even when Tata Motors couldn’t continue with the setting up a new plant after spending hundreds of crores, it didn’t ask for any government compensation for the loss and delay. Will Indian government provide any relief if Tata Motors gets into a financial crisis because of the acquisition of JLR or any such management decisions that pushes Tata Motors in red?

Interestingly, the story of bailout request of American Big Three will have some serious consequences in auto sector world over and impact globalization move too. As reported in New York Times, ‘China’s car industry is quietly pressing Beijing for government help as it copes with a jarring slowdown.’ Will the bailout be the excuse and reach other countries and manufacturing sectors too? Is it also a manifestation of globalization?

However, I fail to understand why the law makers are not decisive so that the automakers move to other means to save themselves. Why are the law makers asking for separate commitments from the individual carmaker instead of encouraging a cartel of the Big Three? Chrysler did get a bailout, but because of the management incompetency it didn’t sustain. Why should it get a second one?

I feel really bad for GM and Ford, the giant legendary corporations. If they are confident of the success of the restructuring plans, why can’t they sell it to the financial institutions in the countries of operation or institution such as World Bank? Should not the lawmakers too believe the best managers of USA who claim to be the victims of many myths for which they have answers and action plans? Is it not an aspersion on the American management itself?

While going through the intensity of senators’ criticism of US automakers, it appears some strong lobby is against the bailout that may save US auto industry and can put it again on track. Can the lobby be of those of importers or foreign manufacturers with transplants? Are the lawmakers concerned about a truth that if America goes on like this, raising money for the US federal government could be a lot more difficult in six months or so?

- Indra

Category: Industry/Management |