The auto industry crisis is an example of decision making with little understanding, goals or analysis. On one hand, advocates argue that the government needs to bail out the industry in order to save jobs and related companies, and prevent more economic crises. Critics claim the companies have no plan; they will only need more money in a year or so and are not dealing with long term solutions. However, few participants are looking at the impact of various proposed solutions.
For example, American companies’ costs and dealer networks are both expensive and non-competitive. The companies have failed to develop plans to make small cars competitive while relying on gas guzzlers like big vans for their profits. They have models and dealer structures that are unwieldy and out of touch with today’s realities.
We probably need some kind of Federal bailout to keep the companies solvent and avoid bankruptcy, which seems to have more negative consequences than the country wants to risk. However, why not consider some of the following suggestions to provide long term solutions and ensure that the companies and its employees make a commitment to fix the problems:
- Ask all employees (union and management) to take a 10 % pay cut to make the companies more competitive and save lots of cash. Set up a pool to give that savings in options at 50% above the current stock price. It thus provides incentive systems for employees to earn back the lost pay.
- Eliminate unprofitable cars and marketing with little hope. In particular eliminate gas guzzlers to provide investment for more efficient cars.
- Reduce dealer incentives costs and force dealers to be competitive. This will result in an inevitable loss of 20-40% of the dealers.
- These changes should also reduce costs, enable car companies to lower prices and increase sales.
- Have the companies focus on energy efficient cars to provide long term social gains. This can be simply accomplished by expanding the taxes on cars with low gas mileage.
Discussing these or other programs forces the companies to develop long term solutions. It also forces them to take responsibility for their futures rather than just ask the Federal Government for handouts. Finally it changes the argument from political philosophy to developing integrated solutions.
