Balancing the Pain on Loans to the Auto Industry

The debate surrounding the auto loan is running hot and heavy and it may be hard to know who or what is right. I am not going to use the term “bail out” because I believe it is an emotional term that inflames the debate and tends to come from those totally opposed to providing funds to the auto industry.

Generally, I believe the best solution is the one that people on either end of the ideological spectrum find distasteful. With the current plan for loans to the auto industry, we may be at the right spot. Why, because no one seems to like it! The UAW is opposed, http://money.cnn.com/news/newsfeeds/articles/djf500/200812191552DOWJONESDJONLINE000977_FORTUNE5.htm
http://www.latimes.com/news/opinion/commentary/la-oe-raynor18-2008dec18,0,4066838.story

the stockholders are opposed, the free market people think it goes too far http://www.politico.com/news/stories/1208/16753.html

and the socialists don’t think it goes far enough

http://the-reaction.blogspot.com/2008/12/bailouts-and-corporate-form.html

I tend to be a free market type of person but we must realize we are not currently in a free market system. The government is very involved in regulating and controlling our economy. When I was in the Army, there were arguments about the relative rank of First and Second Lieutenants. It was disruptive and served no useful purpose. Our commanding officer said “Arguing about rank between Lieutenants is like arguing about virtue among whores.” That is probably about where we are when we argue about free market economics and a government controlled economy. We should keep fighting against the erosion of a free market economic system while realizing it has been eroded and more erosion is likely to occur.

Given that caveat, I would say there is one gaping hole in the current plan for loans to the auto industry and that is how the non-union employees will participate in the pain. The government has decided the union will be forced to renegotiate its terms and conditions to come in line with non-union companies; they will take stock instead of cash payments to their retirement funds and they will give up their severance pay (job bank program). Management will give up their “golden parachutes” and there is some rumor their pay and bonuses will be controlled. Creditors and investors will see their bills paid with 2/3 company stock and 1/3 cash. I still haven’t heard about the pain to be shared with the non-union supervisors, engineers, accountants, clerks, etc.

If the government is going to essentially force work practices on the union why not force some things on the non-union workforce. For example:

The ratio of administrative / management staff to production workers in the Big 3 should be the same as that found in the comparable non-union, foreign owned car industries.


The pay for the administrative / management employees in the Big 3 should be comparable to that of those in the comparable non-union, foreign owned car industries.


Generally there should be 5 to 6 levels of supervision / management between the floor worker and the CEO. Each level’s pay should be 20% greater than the pay of the people they supervise / manage. For example, if we strip off the benefits costs, the retiree costs, etc. from the basic auto worker wage we get to a base wage of about $29 / hour or $60,320 a year. http://www.reuters.com/article/idUSTRE4BB6VB20081212?virtualBrandChannel=10276
Following the above levels of management thesis, first level supervisors would be paid $72,500 a year, second level supervisors $87,000 a year, department heads $105,000 a year, division heads $126,000 a year, vice presidents $151,000 a year, executive vice presidents $181,200 a year and the CEO $217,500 a year. Pay for specialists should fit into this pay schedule based on their experience and contribution but would generally be somewhere between the pay of a first level supervisor and a department head.

It is obvious most people will disagree with this kind of pay structure because it seems ridiculously low when compared to the compensation packages generally paid to executives. However, that is one of our problems. We have let management / executive pay escalate far beyond that of the first level employees thus creating the huge gaps in income and the acknowledged vanishing middle class. It has resulted in the growing class warfare and irrational decision making and a probable outcome is the failure of our economic system and government.

The benefits package for the administrative / management employees in the Big 3 should be comparable to that of those in the comparable non-union, foreign owned car industries.

If the government is going to intervene and specify the comparative level of compensation and work practices for the union employees, then they should do the same for non-union employees. A better solution is to do neither, provide no taxpayer money and let the companies manage themselves to either get competitive or go out of business.