Friday, December 12, 2008

My spin on bailout

So I’ve been sitting on this idea for a few days. Part of it was spawned by my mother asking me how I would save the economy, but it was mostly due to the recent news of the big automobile bailout. That’s right, Ford, GM, and Chrysler all want money from the government to solve their problems. In return, the government takes part ownership and sets some rules. Well, here are a few rules I’d like to suggest.

Rule 1 – Fewer Models and Choices
I think the major automobile manufacturers have been systemically flawed in their business model for years. Let’s pick on Ford for the moment. They currently have seventeen models to choose from under their Ford brand alone. That’s right, take a look at the list:

  • Ford F-150
  • Ford Flex
  • Ford Focus
  • Ford Focus Coupe
  • Ford Fusion
  • Ford Mustang
  • Ford Taurus X
  • Ford Taurus
  • Ford Edge
  • Ford Escape Hybrid
  • Ford Escape
  • Ford Explorer
  • Ford Explorer Sport Trac
  • Rod Ranger
  • Ford Super Duty
  • Ford E-Series

So out of these seventeen models, there are four trucks to choose from. Four. Why? And that fundamental question is what brings me to where the auto makers are thinking poorly. There are simply too many models to choose from.

This rule would require car makers to reduce their model and feature selections in half. Ideally, they should offer a two door car, a sedan (four door), a truck, a mini-van, a sport utility vehicle (SUV), a van, and a sports car (that’s seven models, leaving them another one or two models to produce). Why should they reduce their offerings? Two reasons. First, consumer spending on automobiles is down drastically, something the manufacturers have admitted to themselves. Second, they need to spend the bailout money on mass transit (see Rule 2).

Rule 2 – More Mass Transit
This rule would require car manufacturers to produce mass transit solutions. The solutions need to be scalable for large and small communities, interchangeable with other producers of mass transit, and uniform in basic design. Let’s say Ford produces a small, medium, and large light-rail car. The mass transit car should be compatible with one produced by GM or Chrysler. There will allow for interchangeable parts, uniform design, and non-proprietary training of maintenance crews. What the car makers produce will also need to be compatible with existing modes of mass transit. The Metro in Washington D. C. and Metra in Chicago may not travel the same rails, but the car makers can produce cars for each as well as modes of mass transit in between (buses, rail cars, street cars, etc.).

These rail cars, trolleys, and buses would not only support our infrastructure, but help drive sales for the car makers in a new market. Some may say they would be drastically reducing the need for individual cars themselves and that may be true in the short term. However, the United States has long been a culture focused on cars. They have allowed us to travel, stay mobile, and commute as we desire.

Rule 3 – More Alternate Fuel Options
The big three automakers are touting their plans for more flex fuel and hybrid cars. But their production rates and prices are often too low and too high respectively to help the average citizen. Tax incentives are helpful, but again they tend to benefit those with the money to buy a new car to begin with. Until most or all of the cars available operate on some sort of alternative energy source, the general public won’t benefit. Perhaps for every five alternative fuel models produced an automaker can get a waiver to go above their allotted model limitations.

Rule 4 – Lower Executive Salaries
Plain and simple, executives make too much money and get too many benefits. While this is not limited to automakers, it’s a good place to start. If an executive can afford to fly a private jet to attend a meeting, maybe he shouldn’t be an executive. The ultimate goal of any business is to make money. Would it not make sense to reduce costs to drive profit? How much could have been saved by flying first class instead of on a private jet? And if you know the meeting is coming, why not take your time on the train?

And it isn’t just the salaries of the executives either that needs pruning. What purpose would a two million dollar, interest free home loan serve for an executive? Can’t they get financing like the rest of us? If their credit is so bad they need to rely on their employer to fund their house, they should choose a cheaper house or work on repairing their credit.

By no means should an executive work for free. They should make a proportional amount more than those reporting to them. If the guy working the production floor makes twenty dollars an hour, his boss makes forty, his boss makes eighty, then his boss should make one hundred. That’s only $208,000 a year. A reasonable sum of money for a high-level manager or executive.

Rule 5 – Last Chance
This is your last chance. As in, if you still go belly up after you get the money, you’re done. No more money, the government takes over your company and does as it pleases with it.

Ford website, Retrieved on December 9, 2008 from


Anonymous said...

And here is your Mom's spin on the bailout:

Give every person over 21 30K to buy a new American car. Good only for buying a new AMERICAN MADE car. Then the industry can sell lots of cars. And would be less expensive than the proposed bailouts. They are happy, jobs are kept, and we all get a new car.

Mom (who thinks it is funny and delightful that her son has become interested in politics)

TK42ONE said...

Yeah, I'm interested in politics, mostly because it affects my life now. Maybe not directly, but at least to some degree. What concerns me most is the local politics and how little I know, how little others know, and how much people are getting away with.

Now, if I can only find that joke about Wal-Mart doing the bailout....

1979 semi-finalist said...

Your ideas sound pretty good to me...if only because you're talking about some actual rules...that's what I want to hear from my governement (and the companies that want this money) rules and regulations - lots of regulations.

Although based on your calc - the high level exec above the $80 guy should be getting $160 an hour, not $100...which is like $332,800/year not $208k...still more reasonable than what they do get.

TK42ONE said...

While I love numbers, I never was much of a math-lete.