Auto Bailouts

This week in my accounting class we've just been researching and discussing the auto bailouts. We broke into groups and looked at the financial statements for Ford and GM (Chrysler is a privately owned company, so their statements are not public), and we did a bunch of calculations for their numbers from the past five years, and looked at trends. We also researched what Ford and GM have told the government they're going to do. Today we just had a big discussion about it.

Here are some of the more interesting things:

1. The only reason Ford even exists anymore is because of debt. They have negative owners equity. Which pretty much means, they don't have any of their own money that they've put into the company.

2. Ford has like $165 BILLION in debt. They're asking for like $9 billion total from us taxpayers. Which is nothing compared to what they owe. Sooooo, what are they going to do with the money that is going to make the difference? They're not saying.

3. This is my favorite fact, which I didn't know, and I think most people don't know. The CEOs of all three companies have said that they would take $1 salary. Now, when people hear that, they think that these guys are going to take only $1 for the whole year. I thought that too. That's not what it is at all though. These guys take a salary and compensation. So for example, for Ford, the CEO is Alan Mulally. His salary is normally $2 million dollars, and then he gets $18.5 million in other compensation. So him taking $1 salary means that next year he would be willing, out of the goodness of his heart, when his company is failing, to only make $18.5 million instead of $20.5 million. They're not offering to work basically for free. At all. It's a drop in the bucket, and it should be insulting to us that they would offer that. I totally thought it meant he would take $1 for the year. Not so.

4. The companies offer a lot of fluff, and some things that are real. Saying they'll make smaller cars, which are supposed to be more profitable (how profitable? says who? why are we only realizing this now?) is fluff. Saying they're selling their private jets (for how much? compared to how much debt?) is fluff. Selling Volvo (for how much? this year it wasn't profitable...) is fluff. GM selling Saturn and cutting Pontiac is fluff. Merging with Chrysler is fluff. None of those things have any numbers along with them, none of them indicate any real change to the business model, and none of the plan indicates how using our tax money will make any difference.

The things that are real are the innocent people. Ford and GM will be shutting down dealerships and plants. Most of the plants are in the Midwest. The plants are in cities where everyone works at the plant. And people don't really have bachelors degrees, because they work at the plant and their parents, and maybe their grandparents did. So when these places close, it's going to completely change life for the people in those cities. And that sucks for them. Because it isn't their fault the CEOs have been managing the companies very irresponsibly for the past 10 or 20 years. [But it doesn't cost money to shut down dealerships and plants and to lay people off, so where is our tax money going?]

Anyhow. They'll get their money, but I guarantee they'll be back in 3 months asking for more.

Really, though, I just wanted to share the part about the $1 salaries. Because I thought that was super shady.