Grassley says taxpayer concerns should be front and center in rush by Pelosi, Reid to bail out automakers

WASHINGTON --- Senator Chuck Grassley said congressional leaders should put front and center the issues of executive pay, excessive corporate spending, alternatives to additional taxpayer-sponsored bailouts, fuel efficiency and new fuels goals, and shared sacrifice when they consider fast-tracking legislation through Congress next week that would inject tens of billions of dollars more into trying to save automakers in Detroit.

The text of Grassley’s letter to Senate Majority Leader Harry Reid and House Speaker Nancy Pelosi is below.

Yesterday, Grassley called on the CEOs of Ford Motor Company, General Motors and Chrysler to do what former Chrysler head Lee Iacocca did in cutting his own pay in 1979, when saving his company with the help of federal taxpayers. The text of that letter is also below.

The Honorable Harry Reid
Majority Leader
United States Senate
Washington, D.C. 20510

The Honorable Nancy Pelosi
Speaker
U.S. House of Representatives
Washington, D.C. 20515

Dear Majority Leader Reid and Speaker Pelosi:

I understand that the major auto manufacturers have been lobbying you for to fast track
legislation through Congress providing them additional financial assistance via loans or
through inclusion in the Troubled Asset Relief Program. While I understand the
economic turmoil that many U.S. businesses face today, I think it’s appropriate to ask
those who seek federal government assistance to do everything they can to first cut
company expenditures, make internal reforms, and exhaust all alternative avenues to a
bailout from the American taxpayers.

Most hardworking, taxpaying citizens would like to see all companies, including the auto
manufacturers, pursue alternatives to a federal bailout. For example, some experts
believe that Chapter 11 bankruptcy would help companies succeed in the long run by
allowing them to reorganize while continuing production. They argue that such an
alternative will preserve jobs while a handout would only serve as a band-aid to the
problems they have created.

However, should the federal government assist the major auto manufacturers who have
failed to make sound business decisions, it’s important that any legislation include
restrictions on executive salaries, compensation packages, and excessive internal
spending.

Most American taxpayers are rightly concerned about the federal government coming to
the aid of companies who are in financial trouble, possibly as a result of their own
mismanagement and poor business decisions. I agree that it’s time to stifle corporate
excess and stop rewarding bad business practices so that we are not providing an
incentive for irresponsible behavior in the future. Many men and women are pinching
pennies just to get by, making sacrifices and changing their lifestyles to stay in their
homes, send their children to school, and grow their retirement savings. I think it’s
highly appropriate, if not absolutely necessary, that the auto manufacturers be required to
do the same.

Yesterday, I wrote to the chief executive officers of Ford, General Motors, and Chrysler
and asked them to follow in the footsteps of Lee Iacocca. When his company was saved
from bankruptcy by the Loan Guarantee Act of 1979, he slashed his yearly salary to just
$1.00 and those of his executives by as much as 10 percent. Lee Iacocca essentially
worked for pennies to demonstrate leadership and forcefully prove to his colleagues that
he was ready to make the same sacrifices they would have to make in order to
reinvigorate Chrysler.

Not only should the chief executives of the major auto manufacturers be required to make
sacrifices, but so should union leaders. Lee Iacocca didn’t turn Chrysler around on his
own. He required union officials to make sacrifices and managed to succeed in
renegotiating contracts with the workers. A commitment from the labor unions must
come hand in hand with any assistance from the taxpayers.

The legislation should also provide protections so that taxpayer dollars are not being used
to fund elaborate retreats and receptions. The auto manufacturers must understand that
taxpayers will not tolerate spending their hard-earned money for champagne brunches,
pool-side retreats, and extravagant holiday parties. Provisions to curb excessive spending
should be included if legislation is being considered.

Additionally, auto manufacturers participating in any financial assistance program should
be asked to make a renewed commitment to developing and producing automobiles with
advanced technologies that significantly improve fuel efficiency as well as to embrace
alternative fuels more fully than they have done to date. The domestic auto
manufacturers have shown leadership in producing flex-fuel vehicles (FFV) and have
informally committed to increase FFV production to 50 percent of all vehicles by 2012.
However, taxpayer money must be accompanied by enforceable commitments to FFV
production and alternative fuel use. Any auto company which accepts federal financial
assistance should agree to an enforceable commitment to produce 100 percent FFV’s in
the shortest possible time frame.

Auto manufacturers have so far been reluctant to embrace the use of mid-level or
intermediate blends of alternative fuels. To reduce our dependence on foreign oil and
ensure the greatest possible use of alternative fuels as quickly as possible, auto
manufacturers must also commit to support and advocate intermediate blends of
alternative fuel.

As you consider proposals to bail out the auto manufacturers, I hope you will keep these
thoughts in mind. A blank check for the auto manufacturers is unacceptable. Legislation
that puts more burden on the taxpayers should be accompanied by accountability, reform,
and commitments to improve the industry’s sustainability. Without such protections and
personal sacrifices, a bailout will only create a moral hazard that our nation cannot afford.
Sincerely,

Charles E. Grassley
United States Senator

Mr. Alan R. Mulally
President and Chief Executive Officer
Ford Motor Company
1 American Road
Dearborn, Michigan 48126-2798

Mr. G. Richard Wagoner, Jr.
Chairman and Chief Executive Officer
General Motors
300 Renaissance Center
Detroit, Michigan 48265

Mr. Robert Nardelli
Chairman and Chief Executive Officer
Chrysler
1000 Chrysler Drive
Auburn Hills, Michigan 48326-2766

Dear Mr. Mulally, Mr. Wagoner and Mr. Nardelli:

I understand that your company has been lobbying the Department of Treasury and
congressional leaders for additional financial assistance via loans or through inclusion in
the Troubled Asset Relief Program. While I understand the economic turmoil that many
American businesses face today, I think it’s appropriate to ask those who seek a bailout
from the federal government to do everything they can to first cut internal expenditures,
including and especially executive salaries and compensation packages.

Most hardworking, taxpaying citizens would like to see all companies, including yours,
pursue alternatives to a federal bailout. For example, some experts believe that Chapter
11 bankruptcy would help companies succeed in the long run by allowing them to
reorganize while continuing production. They argue that such an alternative will
preserve jobs while a handout would only serve as a band-aid to the problems caused by a
lack of innovation in your industry.

However, should the federal government assist your company and other auto
manufacturers who have failed to make sound business decisions, it’s important to
remember that any funding you receive is money from the pockets of American
taxpayers. Many men and women are pinching pennies just to get by, making sacrifices
and changing their lifestyles to stay in their homes, send their children to school, and
grow their retirement savings. I think it’s highly appropriate, if not absolutely necessary,
that you do the same.

Most American taxpayers are rightly concerned about the federal government coming to
the aid of companies who are in financial trouble, possibly as a result of their own
mismanagement and poor business decisions. I agree that it’s time to stifle corporate
excess and stop rewarding bad business practices so that we are not providing an
incentive for irresponsible behavior in the future. That is why I have asked the Treasury
Department and the Federal Reserve to rein in the executive compensation, travel, and
other expenses of the companies and banks that are getting federal financial aid.

As you and your colleagues continue to seek federal financial assistance, I urge you to
keep in mind the actions taken by former Chrysler Chief Executive Officer Lee Iacocca.
When his company was saved from bankruptcy by the Loan Guarantee Act of 1979, he
slashed his yearly salary to just $1.00 and those of his executives by as much as 10
percent. Lee Iacocca essentially worked for pennies to demonstrate leadership and
forcefully prove to his colleagues that he was ready to make the same sacrifices they
would have to make in order to reinvigorate Chrysler. Allow me to quote straight from
Mr. Iacocca:

“I began by reducing my own salary to $1.00 a year. Leadership means
setting an example. When you find yourself in a position of leadership,
people follow your every move. I don’t mean they invade your privacy,
although there’s some of that, too. But when the leader talks, people listen.
And when the leader acts, people watch. So you have to be careful about
everything you say and everything you do. I didn’t take $1.00 a year to be a
martyr. I took it because I had to go into the pits. I took it so that when I
went to Doug Fraser, the union president, I could look him in the eye and say,
‘Here’s what I want from you guys as your share,’ and he couldn’t come back
to me and ask: ‘You SOB, what sacrifice have you made?’ That’s why I did it,
for good, cold, pragmatic reasons. I wanted our employees and our suppliers
to be thinking: ‘I can follow a guy who sets that kind of example.’”

Mr. Iacocca stated that a government-backed loan was not the only thing that saved
Chrysler when it was on its deathbed. Rather, it was the “equality of sacrifice” that
allowed Chrysler to survive and return to profits. He stated, “It wasn’t the loans that
saved us, although we needed them badly. It was the hundreds of millions of dollars that
were given up by everybody involved.”

As you attempt to lead your company out of the red, and especially if you intend to do so
with the assistance of federal funds, I urge you to emulate Mr. Iacocca and be the first
employees of your companies to make a personal sacrifice. Hardworking American
taxpayers, including me, expect it.

Sincerely,

Charles E. Grassley
United States Senator

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