The Auto Bailout and Small Businesses

By Bizbox

"Small businesses owners are adamant," declared a release issued Monday by the National Federation of Independent Business and authored by the group's head, Todd Stottlemyer: "Don't ask us to send our tax dollars to Detroit to pay for their mistakes without significant restructuring and effective independent oversight." The corollary of this statement is that said tax dollars--looks like upwards of $30 billion at this point, mostly in favorable loans--can and probably should be sent (or at the least loaned) to the struggling Big Three automakers--General Motors, Ford, and Chrysler--should that restructuring be promised and that independent oversight established. We are wholeheartedly behind this sentiment and argument.

We hope the NFIB, which titled this release "The Voice of Small Business," means it. Because a large chunk of what follows is devoted not to thinking over what would be best for the legions of small businesses indirectly dependent on the continued health of the auto industry, or to what needs to be done to keep the current year-long (and counting) recession from becoming a full-on depression, but rather to blaming the companies' problems on their employees' being paid too much and having too cushy health insurance--which, in addition to lacking a certain amount of political persuasion, seems to us to be missing the point.

As most coverage of the bailout negotiations makes clear, including Washington Post business columnist Steven Pearlstein's latest article, some sort of bailout is, simply put, going to happen. You thought Bear Stearns and AIG were too big to fail? The American auto industry might be one of the few things that's even bigger. So, no matter how noncommital Speaker of the House Nancy Pelosi may sound (and the Times has her saying, "I think it’s pretty clear that bankruptcy is not an option"), this battle has already been fought. Now we're just haggling over price.

And part of the price is definitely going to be significant restructuring and an independent advisory board--in fact, General Motors, which is both the biggest and perhaps the most troubled of the Three (Chrysler, which is owned by the private equity group Cerberus, is in very poor shape too), has proposed such a thing. Plants will close. Dealers will be cut loose. And, yes, employees will be laid off: 25,000, to start with, at GM alone. "There is real pain in the GM plan," Pearlstein writes, "and the prospect of real gain."

To hear the NFIB tell it, though, the real problem is auto employees' "gold-plated healthcare plans," "platinum-level retirement benefits," and "generous pensions" (these last apparently not deserving of their own precious metal).

Yes, these employees' outsized compensations are a great burden on the companies, and a competitive disadvantage against foreign automakers whose nonunionized employees make fractions of what these employees make; and, yes, these obligations risk becoming a burden of the federal government, which is to say, of the taxpayers. (Incidentally, part of the problem is that the explosion in health care costs generally over the past twenty years was validly unanticipated by the management of decades ago.)

It's certainly worth pointing out that under the GM plan, according to Pearlstein, the current union contracts would be renegotiated to lower pay and benefits dramatically (to say nothing of those 25,000 fired workers); and that, according to the AP, United Auto Workers is holding an emergency meeting to discuss not whether to agree to concessions, but simply where precisely to draw the line.

But obligations to employees aren't the whole story. There's the credit crunch and the lousy economy. There's also Detroit's being caught pants-down with a bunch of gas-guzzlers in its inventory at a time when an unprecedented rise in gas prices made such vehicles uniquely undesirable. There's generally poor and arrogant management. And that's just off the top of our heads.

And anyway, the NFIB is framing the employee-obligation problem in a decidedly unproductive manner. Wouldn't it be great if, instead of disparagingly referring to those health plans as "gold-plated"--as though not only could the companies not afford them, but the employees don't deserve them--the NFIB had instead expressed jealousy at them, and then demanded that the federal government work to ensure that more workers' health plans were just as auric? Imagine a world where, at this incredibly troubled time for our economy, when calls for increased government spending resound across the political spectrum, the NFIB had called upon the government do what it needs to do in order to make sure that smart and prudent entrepreneurs are able to offer equitable plans to their own employees so that they can attract the best possible talent?

When we called on the NFIB to continue to pursue a pro-small business agenda but perhaps think outside the box when crafting it, we had such innovative thinking in mind, not the same old tired--to say nothing of borderline partisan--talking points.

"A strong domestic auto industry is important to the U.S. economy and many small businesses," the NFIB says. Absolutely (if the brake plant closes, remember, so does the bar in town). "The Big Three and the auto workers unions must make serious changes if they want to survive," it adds. Amen.

Soon, though, bromides won't cut it: a definite, specific plan, x dollars for y concessions, will soon come (oh, and by the way: even if all Three default on all of their loans, which is unlikely enough, the chance that the total cost to taxpayers will be "as much as $50 billion," as the NFIB suggests, is quite slim). Once that plan is on the table, we hope the NFIB comes out for or against. The plan could end up being unacceptable, in which case an "against" would certainly be appropriate. But either way, we'll be watching. And the NFIB's stance could tell us a lot about the group's future relevance, and how much it merits being listened to when it calls itself "The Voice of Small Business".

Comments (0)

December 3, 2008 10:00 AM