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Bail out Big Three? Sure, with conditions

November 16, 2008|DAVID LAZARUS

As Glendale attorney Bruce Ehrlich filled up his gas tank in Los Angeles last week, he told me he wasn't happy about the prospect of a multibillion-dollar bailout of the U.S. auto industry. But he understood the need for some taxpayer aid.

"It would be hugely catastrophic if Detroit went under," said Ehrlich, 60. "Some level of assistance would be helpful."

Then he climbed into his German-made Porsche and roared off.

It's a tricky business, this latest bailout. Many of us are deeply concerned that millions of workers would lose their jobs if General Motors, Ford and/or Chrysler collapsed.

Yet many of us contributed indirectly to the automakers' financial woes by choosing "foreign" vehicles -- a choice influenced by a perception, warranted or not, that Japanese and European cars are better than their American counterparts.

"U.S. automakers have put out subpar products and didn't do anything to improve," said Los Angeles resident Jimmy Mastandrea, 39, a Volkswagen owner who was one of dozens of drivers I met at gas stations throughout the city. "They made the problem themselves."

This week, Congress is expected to take up whether to fund $25 billion in emergency loans for the Big Three. The United Auto Workers says it supports an additional $25 billion to cover employee health benefits.

President-elect Barack Obama has voiced support for up to $50 billion in bailout funds for the industry.

The credit crunch and slumping economy have depressed U.S. auto sales to levels not seen in about two decades. Once-mighty GM says it could run out of cash by next summer. Ford has a slightly better prognosis, but only because it arranged a hefty line of credit in 2006.

Privately held Chrysler is playing its financial status close to the vest. But the company's chief exec, Bob Nardelli, said last week that it would be "very difficult" to survive without Uncle Sam's assistance.

Though a number of people I spoke with said they'd reluctantly support a bailout of Detroit rather than see the companies disappear, most said this would be rewarding failure after decades of mismanagement and poor decision making.

Orange resident James Rowe, 23, said he graduated from UC Irvine with an engineering degree a couple of years ago but was unable to find a job in his field. He now works as a truck driver.

"Where was my bailout?" Rowe asked. "I took care of myself on my own. The carmakers should have to do that too."

I mentioned a recent study from the Center for Automotive Research predicting that nearly 3 million jobs could be lost if GM, Ford and Chrysler took a dive. This includes workers at parts suppliers and other businesses that rely on the automakers.

Rowe, who drives an Audi when not behind the wheel of his truck, was unfazed.

"My mom works for Ford, for their Ford Credit division," he said. "If they go under, she loses her job. But that doesn't mean we should all pay to keep her there."

L.A. resident Jeff Freedman, 56, said a rescue plan for automakers isn't a bad idea, but taxpayers shouldn't have to foot the bill. "Let the oil companies pay for it," he said. "They've got the cash."

Ehrlich, the Porsche driver, proposed a $2,000 tax credit for buying an American car -- an incentive that he said wouldn't get him to trade in his beloved sports car but might prompt him to replace the Audi that now serves as his family car.

At first glance, this is an appealing idea, getting at the problem from the demand side rather than the supply side. But what is an American car? I drive a Chrysler PT Cruiser. It was manufactured in Mexico by Mexican autoworkers.

Is my Chrysler more American than a Toyota manufactured at a U.S. plant by American workers?

It goes without saying that any bailout should include limits on how much Detroit's top brass pull down in salary and bonuses.

Some people are also suggesting that any automaker receiving taxpayer funds be required to focus more on green vehicles such as hybrids and electric cars.

My proposal is this: Any U.S. automaker receiving bailout funds must produce a workable blueprint for an affordable 100-mile-per-gallon car within two years, with full-scale production to follow within five years.

That's a challenge, I know. But I'm a big believer in American industry's ability to innovate under fire.

In the meantime, efforts would be made to improve the fuel efficiency of each company's vehicles by accelerating the time frame for the government's Corporate Average Fuel Economy standards.

As it stands, the average for all automakers must be 35 miles per gallon by 2020, although goals for individual carmakers may be slightly different. Let's make that target date 2015 instead.

Bailout recipients would be limited to no more than three brands, eliminating redundancies and bloated dealer networks. Does GM really need seven brands (Chevy, GMC, Pontiac, Buick, Cadillac, Saturn and Saab)? I don't think so.

GM would have to decide which brands represent its future and which ones are roadkill.

Finally, any management team receiving bailout cash would be out of a job -- without severance pay or other golden parachutes -- for failing to meet any of these requirements. A government-appointed trustee would take over the company until things are turned around.

Chris Sanchez, 38, sells used cars. He said he's against a bailout of U.S. automakers because their cars don't sell.

"Everyone who comes to my lot wants a Honda or a Toyota," Sanchez said. "It's all about the mileage. No one wants an American car."

It won't be easy, but that's a problem we can fix.

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David Lazarus' column runs Wednesdays and Sundays. Send your tips or feedback to david.lazarus@latimes.com.

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