By Congressman Joe Pitts

The executives of the big three U.S. auto makers flew into town this week (on their luxury corporate jets) and asked for a U.S. taxpayer bailout for their ailing corporations.  After committee hearings in which the executives blamed all their problems on the financial meltdown, the executives, and Congress, left town without so much as a vote on a proposed bailout.
 
Speaker Pelosi, who had been one of the loudest cheerleaders for such a bailout, said it was because the auto executives did not have a viable plan to explain how they would turn around their industry using the $25 billion in taxpayer funds.  That is the understatement of the year.

The American auto manufacturers have a fundamentally flawed business plan, conceived during a different time, when both their customers and competitors behaved differently than they do today.  They have too many product lines which dilutes research and development, they have contracts with too many dealerships, and they have staggering labor and legacy costs.  They need total reorganization.
 
It is estimated that U.S. auto manufacturers have $2,000 more in labor costs per car than competitors like Toyota and Honda.  This means each car they build is at an immediate $2,000 disadvantage, before manufacturing even begins.

I know that the auto industry is an important part of manufacturing here in America, and there are many jobs that are dependent on the industry, but that is all the more reason why it is important for the auto companies to find a business model that is sustainable in the long term, and current with today’s consumer trends.  Experts simply do not believe that the companies as currently organized are in a position to be competitive in today’s market.
 
It would be a misuse of taxpayer money to bailout the auto industry in the near-term, allowing them to continue on their current path without fundamentally altering the way they operate.

I understand they need help.  The numbers speak for themselves.  But the kind of help the government offers is key. 

I drive an American car—I always have.  I want to see these businesses succeed, but in this case, a government loan to continue without making any changes will only prolong the inevitable.

Auto makers need to be able to restructure their business models, including their labor contracts, which are so cushy that they gave rise to a phenomenon where employees are literally paid to do nothing, and paid very well.  In a March 2006 article, the Wall Street Journal described a place at a GM factory where employees went to report to work when the company had no work for them to do.  Contractually unable to lay off the workers, GM paid them to simply sit in the “rubber room” from 6:00 am to 2:30 pm—and many of these employees were making six figure salaries.  The article quoted a GM employee explaining it is called the rubber room because "a few days in there makes you go crazy."  Crazy is right.  This is no way to run a successful business.
    
I would be more open to using government assistance to help in the restructuring process, by helping to retrain any workers that are put out of work, or by helping to guarantee warrantees so that consumers continue to buy cars during the restructuring process, rather than simply handing over money that will stave off failure for mere months.  Federal assistance should be designed to save American jobs, not just delay inevitable bankruptcy.

Speaker Pelosi said she has asked the automakers to come back to Congress in December with a plan to show how they will transform their businesses.  Such a plan would ostensibly give cover to her Democratic colleagues, many of which seemed as opposed to a bailout as many of my Republican colleagues.  But unless the executives come back with a plan to fundamentally restructure their business model, simply delaying the vote by several weeks will do nothing to change the situation.  If the auto executives truly believe the only reason they are in trouble is because of difficulty in the financial markets, then no amount of taxpayer money can possibly fix their problem.

Congressman Joe Pitts represents the 16^th Congressional District of Pennsylvania.

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