Mar 31 2009

Obama Demands More of Auto Industry Than Banks

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auto industry

In speaking to reporters yesterday at the White House, President Barack Obama announced the need for immediate restructuring to save the American auto industry. The President’s statements came a day after he asked General Motors Chief Executive Officer Rick Wagoner to resign. After the auto corporation led by Wagoner failed to submit adequate restructuring plans in order to receive more federal money, Obama responded, “The United States Government has no interest or intention of running GM.” With Chief Operating Officer Fritz Henderson as the new CEO, the White House is demanding the corporation financially restructure within 60 days. Obama stated, “It will require unions and workers who have already made painful concessions to make even more. It will require creditors to recognize that they cannot hold out for the prospect of endless government bailouts.” Chrysler, another troubled automaker, is set to receive six billion dollars from the government to finalize a negotiated deal with Fiat, an Italian automaker, within thirty days. If the two companies fail to come to terms, Chrysler is not expected to receive further help from the government, leaving for the probability of a complete sell-off.

GUEST: Robert Weissman, Editor of the Multinational Monitor. For more information, visit

Rough Transcript:

Sonali Kolhatkar: First, explain why there’s a difference in how President Obama is handling banks and the insurance company A.I.G. versus the auto companies. Both of these are industries that are failing and are getting federal help. So why this strong demand to have a proper plan and to financially restructure with the auto industry?

Robert Weissman: There’s a story that you can tell which is the one the administration apparently likes which is that the financial system is so central to the working of the over all economy. So systemically important. Not just that the financial institutions are systemically important to the rest of the financial system, but the financial system over all is systemically important to the working of the economy. That you have to figure out a way to keep it viable, plowing ahead and supported however. And the auto industry, while it’s very important, isn’t so central to the economy. So that’s a story. I think that that story is totally one hundred percent implausible and wrong and not an explanation for why there’s the differential treatment. A different story is that, Detroit, while once dominant in Washington, has seen its political power end as its economic power has fallen. So as its market share has declined, so has its market share of political power. It spent less money in Washington, less influential, less involved with the think tanks, less involved in shaping ideas. By contrast, Wall Street has invested five billion dollars in Washington’s political process over the last ten years, it’s massively involved in the business of ideas in Washington, sends its people to staff the treasury department, people at the treasury understand the way Wall Street works, think like Wall Street thinks, put themselves in the shoes of Wall Street and they’re getting much more sympathetic treatment as a result. I think that’s the only realistic explanation for what’s going on.

SK: And there’s another difference: the auto industry employees millions of unionized workers.

RW: Yeah, I think that’s right. So the guys in the treasury department can imagine themselves in the shoes of the Walstreet Executives, they can’t imagine themselves in the shoes of the auto industry executives. But it’s beyond the INAUDIBLE of auto workers.

SK: So what do you think of this action by the President? That he’s demanding this restructuring. He’s taking a very active role. But he is also suggesting short term bankruptcy as a way for these companies to get out of the situation they’re in. First, just on its own, is that a good idea?

RW: Well on the bankruptcy issue, I’m pretty skeptical. They think that they can manage a bankruptcy with guarantees to consumers that they’re won’t be too much harm done to the underlying brand. I think that’s a pretty big risk. And undesirable. Now we also don’t know if they’re actually serious about pushing bankruptcy or if they just need to seem serious about pushing bankruptcy to force changes at GM and Chrysler.

SK: So what sorts of changes could these two companies do? GM’s been given two months, Chrysler only one month to make a deal with Fiat, as I mentioned. What would be adequate first from the President’s perspective and second from the prospective from really having a long term stability? Those two may coincide, but they may not.

RW: Yeah, that’s right. There are two primary goals and I think that the material that is out from the Obama Administration suggests their emphasis is on market viability while they’re also paying attention to economic sustainability. I think the public interest is in the reverse. You can’t have companies continue if they’re not ultimately going to be viable, but the most important thing is trying to do a climate change and its relation to the auto industry. What they are saying is that the plan from General Motors does not see the company hitting a break even point within a five year window. And even with all the various cost cuts that they propose. And so from the point of view of the Administration, they’re not cutting enough, and something else has to be done. So they’re pushing them to make additional cuts. They want more concessions from the workers, I think it’s deeply problematic. They want clear concessions from GM’s creditors, which makes sense. They want a better indication of how GM is going to shed different product lines and deal with its dealers which probably makes sense. In the case of Chrysler, they’ve made the determination the company is not going to be viable on its own and they basically have to hook up with Fiat in the next thirty days or call it quits.

SK: Now you said more concessions from workers, let’s talk a little bit about that. The recent controversy that blew up last week over the bonuses paid to AIG executives, brought attention in terms of hearings in Congress and some people were comparing that to how UAW workers, United Auto Workers, who represent many auto workers in Detroit, how these workers were treated in contrast. It’s interesting reading that ABC news is reporting that Rick Wagner, the CEO who was essentially forced out by the Obama administration, is walking out with a twenty million dollar retirement package, which of course, even though he is being told he was responsible and is being pushed out. He faces a very comfortable future whereas auto workers are being asked to make even more concessions.

RW: Well, for Wagner, I think that’s breaking news. It’s a little bit unclear. Because there are also reports that they want to keep him on his current salary, which is a dollar a year. To avoid paying him the severance pay. We’ll see how that plays out. That was quite an attractive approach, I thought. I thought it was very good that they removed the management at GM. They told the CEO Rick Wagner he’s got to go. It’s again, as you’re pointing out, a contrast very starkly to the INAUDIBLE treatment for the financial sector. But there is a more serious issue that you’re raising with the treatment of the AIG bonuses versus the line workers represented by the United Auto Workers at General Motors and Chrysler. The out of the box line from the administration and why they couldn’t deal with the bonus problem was that contracts have to be respected. Now here we’re talking about the Administration forcing the renegotiation of already renegotiated, concessional contracts with the auto workers. Really, if they are at all serious about trying to cut costs from the workers’ side, they’re talking about going against a deeply set of expectations from workers that have existed for decades about the kind of healthcare coverage they’re going to get from their employers and into retirement. So to a much more severe INAUDIBLE of people who are much less well positioned than was ever contemplated at AIG.

SK: What specifically could these companies do to restructure themselves financially not just in terms of creating products that are more sensitive to climate change, better hybrid cars, more fuel efficient cars, but also financially restructuring in terms of the CEO’s versus the workers. There was a conversation around health care because the number of workers that these companies employee and the fact that there is a legitimate drain on the resources of these companies because of the fact that the government does not pay for healthcare. Can you comment on that and what the Obama Administration could do to alleviate that?

RW: Well, it is true that GM and Chrysler as well as Ford have significant, what are called, legacy costs, as different from the legacy assets of the financial industry, which are the health care monies owed to retired workers. So they’re paying for health care for workers who’ve retired after thirty years of service to the company. Health care is obviously extremely expensive. Those are employees who are expensive to insure because they’re older. If there was a government insurance program, single payer, medicare for all, they would come off of the books of GM and Chrysler and Ford and be part of the over all national system and there would be no disadvantage that these companies have as against the Japanese manufacturers and others who do not have those kinds of costs. The Japanese manufacturers of course, although they do have substantial manufacturing capacity now in the United States, are relatively new with their factories that don’t have these older retired workers that they’re paying for. Of course they don’t have unionized workers that they’re responsible for. But it should be said that there’s a massive exaggeration at the costs of employees on the over all cross structure of the auto industry. The wages and benefits for existing employees is less than ten percent of the cost of a car. So no matter what kind of concessions they make, that’s not going to get costs down and more over, cross is not the ultimate problem. It’s not the primary problem facing the auto industry right now. The primary problem is that demand is falling off a cliff. That has nothing to do with the auto industry, however incompetent GM may have been and even has been. That’s completely beyond their control.

SK: Just that the economies failing, people have less cash to spare and are fearful of spending any that they do have.

RW: Yeah, the over all demand for cars has dropped by a third or forty percent in the last year. So no industry can deal with that, in the short term. And there is probably some extent to which the financial industry is directly responsible for that because it is harder for people to get car loans right now, although I think much more serious is the over all collapse of the economy.

SK: Robert, let’s talk a little bit about how this news of the Obama Administration’s role in the auto industry is being met or how it’s being critiqued by mainstream media and conservative media in particular. There’s always the spectre of socialism, we’ve discussed it on this program quite a bit. Now there’s a fear because of the active role the Obama Administration has been taking that the government wants to nationalize the industry. How legitimate are those fears?

RW: It’s hard to know how to answer such a silly premise now. The government is dominant in the national economy. The giant financial companies exist only outside of bankruptcy only because of this massive infusion from the federal government. All kinds of hitting guarantees, including more than 250 billion dollars guaranteed directly at Citigroup. The federal reserve pumping in several trillion dollars into financial institutions in different markets. So the government is keeping the economy afloat right now. And that’s just how it is. And the criticism or these kinds of silly remarks are coming about in the case of General Motors only because the government is doing what it should be doing in the financial sector. Which is to say, if the taxpayers are going to be putting all this money on the line, they ought to be demanding some quick proquos and they ought to be demanding some kind of accountability. And they ought to be demanding changes to alter the way firms operate so that they’re viable going into the future.

SK: I want to play an excerpt of a discussion on Fox News Americas Newsroom just yesterday about the GM CEO being forced to resign:

Fox news: The government is going to tell you who you can fire, how much you can pay them, the perks that they can receive, their business practices, and basically what product you can put out. History. Sounds like oversight. A hundred percent of the way. When you think about the white house sending its own team to Detroit—these companies are not going to make a move, unless the government gives them a thumbs up. The government now controls the car industry in the United States.

SK: Robert Weissman, your comments.

RW: Well, the alternative to the government exercising some control and offering some money so the government goes into bankruptcy. So not only is that a worse option for the companies, what happens in bankruptcy? A bankruptcy judge controls the company that makes the decisions of what they can do. So there’s no escape. I mean if you’re a big company and you mess up so badly that you are no longer solvent unless you are Wall Street and have ability to extract massive amounts of cash from the federal government with no quid pro quo, you’re going to lose control of the government. Either in the form of the type of government we’re seeing now in the executive branch or government oversight that you’re going to get in the face of bankruptcy.

SK: So Robert, finally, on the one hand it seems as though, these auto industries, very crucial to the American economy, if you’re looking specifically at jobs and decent jobs, but on the other hand, the demand has fallen from using the premise of how a company would operate in this capitalist system, this would mean ordinarily a downsizing. What do you recommend needs to happen both from a perspective of what governments should do and from the perspective of how the economy needs to survive and how this industry itself needs to survive. What do you think needs to be the best case scenario from the perspective of jobs, the products being produced and taxpayers’ money that is going to bail these companies out?

RW: I think that’s exactly the right question. To its credit, it’s a question the Obama Administration is asking with this industry that it’s not asking with Wall Street. It is not necessarily obvious for people who are living on the East or West coast, how central the auto industry is to the over all national economy and just crucial to communities throughout the U.S. So the industry, I do believe, really needs to be saved. Everything has to be done to legitimate the lay offs, some of which are going to be inevitable. But to keep the industry as viable as possible. Now, going forward, we know what we need from our transportation sector. We’re going to need transformative technologies. Transitioning with hybrid cars. And much more fuel efficient cars. But going to carbon free cars in the near term future. We need much more investment in public transit. And I believe that the government ought to be saying, those are the plans we want to see coming from you. We want to see how you’re going to respond to those over arching social needs. And that is our priority demand from you. You have to do that. You have to do it in an efficient way. But we’re not going to ask you to show returns or return to viability measured as profitability in the course of one, two, or three years. We want to see a plan for massive new investment in capitol, infrastructure, and in design so that we got a sustainable transportation sector going forward and we got an industry that’s able to supply the transportation needs of the country in the decades ahead.

Special Thanks to Celina for transcribing this interview

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One Response to “Obama Demands More of Auto Industry Than Banks”

  1. […] in how President Obama is handling banks and the insurance company A.I.G. See more here: » Obama Demands More of Auto Industry Than … Posted in general | Tags: and-are, and-the, are-failing, beauty, each-branch, explain-why, […]