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How the U.S. Auto Industry Wrecked Itself

The Big Three are in big trouble, and they have themselves to thank for it.

Ford and General Motors have reported substantial losses in the second quarter amounting to $15.5 billion, and $8.7 billion, respectively, while Chrysler, which was bought off last year by a private equity firm, Cerberus, refuses to reveal its financial standing.

It is no wonder why their lobbyists were spotted schmoozing with members of Congress at the Democratic and Republican National Conventions, liquoring up in their plush suites and private parties while they made their case for direct government loans which, if approved, would likely add to our federal deficit.

Last December, Congress approved a $25 billion loan to automakers and their suppliers under the Energy Independence and Security Act, though it has yet to be funded. That bill includes a modest requirement for automakers to increase their average vehicle fuel efficiency to 35 mpg — a benchmark we should have set decades ago, and would allow the companies to have their way with virtually no oversight or accountability.

This corporate Congress cannot be expected to issue serious demands, set tough conditions, or impose strict rules on the auto companies to ensure their workers receive fair pay and benefits, and prevent their fat-cat executives from making off big while leaving their companies in shambles.

Such blatant giveaways have become the norm in Washington since the corporate stranglehold of Congress and the White House have smothered the forces seeking worker, consumer and environmental justice.

But this recent example should not discount our long history of dealing with corporate failures in more public and effective ways than just ponying up billions on demand at any big corporation’s whim.

In 1979 when Chrysler was on the verge of bankruptcy, the automaker came crying to Congress for a bailout, which they eventually got, but Congress wasn’t as much of a pushover.

Back then, at least the corporate chieftains were grilled by Congress and had to agree to give something back for Uncle Sam bailing them out — good jobs and pensions for their workers, and more efficient cars to reduce reliance on foreign oil and reduce prices at the pump.

Now the CEOs don’t even have to leave Detroit and they get much more money for almost no return commitment to America, while they outsource jobs and pollute our environment.

During discussion on a proposed loan bill to bailout Chrysler in October 1979, Senator William Proxmire (D-WI) who chaired the Senate Banking Committee issued his opposition to Chrysler’s request and noted: “We let 7,000 companies fail last year — we didn’t bail them out. Now we are being told that if a company is big enough… we can’t let it go under.” He went on to call the proposed deal “a terrible precedent.”

Raising the government’s demand for performance standards, President Carter’s Treasury Secretary William Miller told Chrysler officials, “it’s going to be so awful, you’ll wish you never brought the whole thing up.”

Today, we rarely hear such candid opposition to corporate orders shouted at their congressional servants who lack the fortitude to put serious restraints and conditions on mismanaged, reckless big business and their overpaid CEOs seeking tax-payer salvation.

As a part of the Chrysler deal in the late Seventies, the government took out preferred stock warrants and after the company turned itself around and repaid its loan seven years early, the government ended up cashing out, receiving $400 million in the appreciated stock.

And Congress made clear to Chrysler that it had specific conditions the company had to meet before receiving the loan guarantee. It forced the company to contribute $162,500,000 into an employee stock ownership trust fund geared to benefit at least 90 percent of its employees, design more fuel efficient autos to help reduce consumption of foreign oil, and prohibit wages and benefits from falling below a level set three months before the legislation was passed.

Today, congressional actions to grant multi-billion dollar loans to the corporations lack the reciprocity some in Congress demanded 30 years ago. Before Congress irresponsibly dips into the public piggy bank, this time it would be wise to look back at how the government once dealt with Chrysler’s dilemma, require clear benchmarks to deliver on the next generation of green collar jobs, improved fuel efficiency and gain a substantial return on its investment, not just in monetary value, but in the longterm viability of the domestic motor vehicle fleet.

Congress needs to call on the auto industry to innovate their way out of this morass into which they’ve engineered themselves into. A sensible strategy would be to issue stock warrants to the government, like in the 70s, which would create an incentive for Congress to keep pressure on the auto industry to improve. Public Congressional hearings are a must.

Will Congress echo its actions of 30 years ago when it scrutinized corporate demands, grilled company executives, and imposed conditions to ensure fair compensation and safety for workers? Or will Congress continue down the road of corporate servitude, refusing to stand up for workers, consumers, taxpayers and the environment in its session-ending stampede and flight away from auto industry accountabilities?

RALPH NADER is running for president as an independent.

 

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Ralph Nader is a consumer advocate, lawyer and author of Only the Super-Rich Can Save Us! 

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