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No bailout for “Big Three” would drive the U.S. deeper into economic malaise, dean writes
Published Dec. 11, 2008
On the verge of bankruptcy, America’s “Big Three” are making headlines again this week after a return visit to Capitol Hill to advocate for patience and a pricey aid package. The networks and newspapers alike are abuzz with talk of the rescue. Everything from rumors about the president’s and president-elect’s involvement in the bailout to the auto execs’ transit choices have been getting breathless treatment. And while the White House and congressional Democrats are currently negotiating terms with General Motors, Ford and Chrysler, a Lynn University professor and dean, who has closely watched similar events unfold in the past for America’s airlines, is urging caution as well as compassion.
“It is hard to recommend a bailout because we shouldn’t reward bad business practices,” said Russell Boisjoly, Dean of Lynn’s College of Business and Management and a finance professor. “Unfortunately we have had two months of financial market meltdowns and the failure of the entire U.S auto industry would not provide any encouragement for economic growth and would, in fact, drive us deeper into economic malaise. And certainly, it would prolong our recession by a year or more.”
“Consequently, we need to provide the bailout as the least harmful of worst alternatives,” suggests Boisjoly. “We must demand accountability from the auto industry by extracting major changes including abrogation of the union contracts; an examination of the merits of a GM-Chrysler merger; a realistic accelerated plan for new vehicle introductions that reduce our dependence on foreign oil and include a mixture of alternative fuels: hydrogen fuel cells, electric, electric-gas hybrids, etc.; and the appointment of an auto industry czar who would oversee this industry transformation and demand accountability from the industry.”
Logistically Boisjoly believes, that all funding should be tied to the ability of the industry to meet performance targets set out by the czar and approved by Congress and the Secretary of Commerce. If targets are not met, he says, then the executives should be replaced and/or the companies should be forced into receivership. This can be accomplished by having the auto industry czar have the largest number of board seats on each company’s board (these seats could be filled by retired CEOs or government officials who have appropriate experience). In addition, the U.S government should receive some preferred and/or common stock to participate in the anticipated higher growth and profitable performance of the industry after the loans are granted.
Source: Boisjoly has done consulting for Fortune 500 companies and teaches courses for General Electric executives in Evendale, Ohio (involved in jet engine manufacturing) and Boeing executives in Seattle (on how to do business with the Chinese). He has written numerous articles on the topics of business ethics, optimal capital structure, mergers and acquisitions, and bankruptcy prediction. In this role, he regularly speaks to the media and is sought out as an expert on mergers in the airline passenger industry and airplane manufacturers Boeing and Airbus, business in China, corporate financial practices, cash flow management, business ethics, and shareholder value creation.