When the Big Three CEOs recently descended on Washington in
their fancy corporate jets with inflated egos and high hopes for a juicy piece
of the government�s $8.6 trillion corporate welfare pie, they were sent home
hungry to do their homework and to write a plans about how they plan to spend
Undoubtedly, the executives, who are driving hybrids to
Washington this week, will each have a business plan in hand, and Congress will
give them $25 billion of taxpayer funds to gamble with. Equally without doubt,
the money will be wasted, they will not learn from their mistakes, and they
will be back again, and again, and again.
The Big Three have a track record of making really stupid
decisions. Manufacturers have recklessly spent thousands of dollars per vehicle
on advertising to convince drivers that they really want big gas-guzzling cars
and trucks instead of the smaller fuel-efficient vehicles they really need. The
car companies have foolishly peddled financing and leasing deals far beyond the
financial means of their buyers, and they have vigorously opposed realistic
fuel economy standards.
Overall, new car sales are down 32 percent this year and
October was the worst sales month since World War II. Ford lost $3.3 billion
and General Motors lost $4.2 billion in the third quarter, and they are quickly
burning through their cash reserves. Chrysler has not reported its most recent
losses, but its sales are down 31 percent and its estimated losses were $1.28
billion in the first half of 2008.
With sales grinding to a halt and their credit ratings
plummeting, the Big Three cannot borrow sufficient funds in the credit markets
to survive. Like drunks on a freeway, they are racing down the fast lane
without a seat belt, holding a bottle in one hand and flipping off the public
with the other, daring everyone else to stop them before they crash.
The auto companies have corporate partners, manufacturing
facilities and distributors in all other developed nations. Their business
dealings are so entangled with foreign economies that their failure would have
Bankruptcy would likely force a liquidation of assets rather
than a judicially-supervised reorganization and would, at best, result in the
destruction of the automobile unions and employees� retirement and healthcare
benefit plans. However, every American worker and taxpayer would pay the price.
Elimination of the American automobile industry would send
shock waves through the economy, causing the failure of thousands of automobile
parts suppliers and car dealerships. Auto parts supply companies are among the
top industrial employers in 19 states, and one out of every 10 jobs in America
is supported, in one way or another, by the automobile industry. It is
estimated that the failure of General Motors alone could result in the loss of
more than 15 million jobs.
Failure of the Big Three would only benefit foreign
corporations who would swoop in to buy up the surplus manufacturing capacity,
such as computerized robots, at bargain basement prices, and the balance of
payments deficit would soar beyond calculation in the absence of domestic
President-elect Obama opposes a �blank check� for the
industry and says that �we should help the auto industry, but what we should
expect is that . . . any help that we provide is designed to assure a
long-term, sustainable auto industry and not just kicking the can down the
The Democratic majority in Congress appears ready to provide
a $25 billion Emergency Bridge Loan to the automakers by either tapping into
the Wall Street bailout funds or by redirecting money already approved for
retooling old factories to produce more fuel-efficient vehicles. Companies
receiving loans would have to give an equity stake to the government and would be
charged 5 percent interest for the first five years and 9 percent thereafter.
Companies could not pay dividends to common stockholders and would have to
agree to a $250,000 annual pay cap for executives.
If the Emergency Bridge Loan is the best Congress can come
up, the can will just be �kicked down the road� -- but not very far.
General Motors burned $6.9 billion, Ford burned $7.7 billion, and Chrysler
burned $3 billion in just the third quarter of 2008. Simple arithmetic tells us
that $25 billion will not even get them as far as July 2009 before the Big
Three CEOs will return with their extortionary threats against the economy and
still without a clue.
The American automobile industry can be saved; however,
salvation requires America�s elected representatives, including its new
president, to get off their knees and to begin to think outside of the box. The
industry has to be forced to make smarter cars instead of stupid decisions for
its own good and for the benefit of everyone.
Phase One - nationalization
As of the closing bell at the NYSE on Friday, November 28,
the market capitalization (share price times number of outstanding shares)
value of Ford was $6.43 billion; General Motors was only worth $3.2 billion and
Chrysler was essentially worthless. In other words, the Big Three can be
purchased entirely for less than half of what they are trying to borrow.
If the American people are going to invest $25 billion in
the Big Three, shouldn�t they get something more than an �equity stake?� Why
not take the whole shebang and save some money at the same time?
Instead of making one of the most wrongheaded and stupid
decisions in the history of financing, shouldn�t Congress simply nationalize
the automobile industry for the benefit of the American public? Anything less
is a fraud on the taxpayers executed by those in a position of trust.
There is precedent for the nationalization of an entire
industry. As America�s railroads began to fail, Congress created Amtrak in 1971
as a quasi-governmental corporation to nationalize rail passenger service.
Although it has never been profitable, Amtrak continues to provide rail
passenger service under conditions where it would not be available otherwise.
When the bankrupt Penn Central Railroad threatened in 1973
to end all operations unless it was provided with government aid, Congress
ultimately nationalized Penn Central and a number of other freight lines into
the Consolidated Rail Corporation. The story of �Conrail� has an even happier
ending than Amtrak, in that it ultimately became profitable and was
re-privatized in 1987.
Nationalization could force the Big Three to produce safer,
more practical and more fuel efficient vehicles that could compete with foreign
imports. Bankruptcy could be avoided, the union rights of workers could be
protected, and employees� health and retirement plans could be salvaged.
Each of the nationalized corporations could have its own
board of directors and officers; however, policy for the entire industry should
be developed by a National Board of Trustees. The right to appoint trustees,
directors and officers could be shared by Congress and the president.
Phase Two - standardization
Conversion to the production of energy efficient vehicles cannot
be accomplished immediately; however, there are some steps that could be
quickly taken by a National Board of Trustees to restore consumer faith in
American products and to provide financing liquidity for dealers and consumers.
The General Motors Acceptance Corporation, Ford Motor Credit
Company and Chrysler Financial should be consolidated into a single entity
initially capitalized by the government to make low interest purchase money
loans to consumers and dealers. The creation and securitization of auto loans
should be strictly regulated and audited to ensure solvency as well as profits.
The consolidated automobile credit company should also
underwrite a 10-year comprehensive bumper-to-bumper warranty on every vehicle
sold by American manufacturers.
The Board of Trustees should impose manufacturing
standardization of vehicles and accessories wherever possible to improve safety
and to reduce costs. Patents on new technology should be held by the board and
licensed to American automobile corporations without cost.
All vehicles should be manufactured around several standard �safety-cage�
designs to ensure survivability in most accidents. There is no reason why race
car drivers are able to walk away from 200 mph collisions and the members of
the motoring public are disabled and die in low-speed accidents.
There could be common designs for two-, four-, and six-seat
passenger and commercial vehicles and trucks, and individual companies should
be encouraged to innovate in exterior design, interiors and accessories.
Currently, each manufacturer of all-electric and hybrid
vehicles has to independently design and manufacture the large batteries that
provide electric power to drive trains. These batteries are expensive to design
and produce and can pose environmental disposal hazards at the end of their
Although Toyota has sold a million Prius hybrids, it is
reportedly still losing money on each one because of the initial (almost
$5,000) cost of the battery pack. Toyota provides an eight-year, 100,000 mile
warranty on the batteries, and each of the 38 modules can be replaced
individually at a cost of $138. Toyota offers a $200 bounty to ensure that all
batteries are returned to the company, and it recycles every part of the
battery, including the precious metals, plastic, plates, steel case and wiring.
State-of-the-art electric power batteries are currently
using nickel metal hydride technology and are designed to last for the lifetime
of the cars. Research is now focused on the next generation of lithium ion
batteries to reduce costs and to increase battery power. Rechargeable lithium
ion batteries may pose even less of an environmental hazard than current
The production of a set of standardized, interchangeable
batteries for the different basic automobile designs would allow manufacturing
savings for all vehicles. For example, two-passenger cars would not require the
same battery power as four- and six-passenger vehicles. Moreover, the batteries
should be designed for easy replacement by service stations allowing the
swapping of recharged batteries in all-electric vehicles to extend their range
Moreover, the outdated automobile lead-acid battery should
be replaced entirely with a standard, less environmentally threatening modern
battery for all vehicles. America is currently dumping 40,000 metric tons of
lead in its landfills every year.
Finally, the Board of Trustees should endorse national
tailpipe emission standards supportive of the needs of the most polluted states.
In December 2007, the Bush administration�s Environmental Protection Agency
denied California�s request to set higher emission standards than required by
the federal government. Every state should be fully supported in its effort to
improve its own air quality.
Phase Three - future transportation
President-elect Obama has called on the country to build �wind
farms and solar panels, fuel-efficient cars and the alternative energy
technologies that can free us from our dependence on foreign oil and keep our
economy competitive in the years ahead.� He has said, �We�ll put people back to
work rebuilding our crumbling roads and bridges, modernizing schools that are
failing our children and building wind farms and solar panels, fuel-efficient
cars and the alternative energy technologies that can free us from our
dependence on foreign oil and keep our economy competitive in the years ahead.�
This all sounds good, but how does Obama plan to make all of
this happen? By 2025, the U.S. will have to import three-quarters of its
expected 30 million barrels per day of consumption. Two of every three barrels
of oil used in the U.S. is burned by cars and trucks and that basic fact must
be the central focus of any American transportation policy.
The final phase of forcing the American automobile industry
to meet future transportation needs should oversee the improvement of the
Interstate Highway System and most major streets and highways in America to
provide a constant source of electromagnetic energy sufficient to power a
standard automobile anywhere in America at no cost to the operator.
The technology exists to design triple-hybrid cars to
operate primarily on electromagnetic energy supplied by a mutual inductance
interface embedded under the surface of all highways and freeways. In addition,
they can be equipped with small fuel-efficient internal combustion engines to
supplement rechargeable batteries for trips on local streets and byways.
Americans should be able to travel for free throughout the
United States as a matter of national privilege. Workers could get to their
jobs without having to slave an hour each day just to pay for getting there.
Everyone would have more money to spend on vacations, and would be able to tour
the country, see the grand sights, and visit with friends and relatives along
William John Cox is a retired
supervising prosecutor for the State Bar of California. As a police officer he
wrote the Policy Manual of the Los Angeles Police Department and the Role of
the Police in America for a national advisory commission. Acting as a public
interest, pro bono lawyer, he filed a class action lawsuit in 1979 on behalf of
every citizen of the United States petitioning the Supreme Court to order the
other two branches of the federal government to conduct a National Policy
Referendum; he investigated and successfully sued a group of radical right-wing
organizations in 1981 that denied the Holocaust; and he arranged in 1991 for
publication of the suppressed Dead Sea Scrolls. His 2004 book, You�re Not
Stupid! Get the Truth: A Brief on the Bush Presidency is reviewed at yourenotstupid.com,
and he is currently working on a fact-based fictional political philosophy. His
writings are collected at www.thevoters.org, and he can
be contacted at email@example.com.