DISQUS

muirgeo · 1 year ago

GM is going under for not because it paid labor a living wage but because Wall Street paid white collar workers incredible amounts for pushing toxic paper. But yeah lets look for some one else to scape goat and blame.

And of course $25 billion to bail out laborers in the auto industry makes no sense but $750 billion to bail out the bad money that pushed out the good apparently does to those pulling levers.

stephen · 1 year ago

who is your control group? are they going under too?

ish · 1 year ago

The problem is that its not merely the $30/$40/$70 / hr union worker that is hurt by a GM failure. Its primarily the $8 / hr assembly / injection molding / fab worker whose plants will close or face massive layoffs.

As time goes in it continues to look increasingly that GM is a somewhat less efficiently run company than the top of the industry (Toyota) who found itself in a cash-light position during a very large downturn in demand that accompanied a credit-freeze. Getting a modest loan from the government (at least compared to the money thrown after Wall Street) during times in which credit is scarce (and during which competing automakers like Toyota are also experiencing a 30-year drop in demand and revenue) doesn't seem terribly ridiculous to me. I'd still prefer a private solution, but with the world economy in the shape its in, I don't see one forthcoming.

llimllib · 1 year ago

Thanks for being honest enough to dig and find the truth.

MikeF · 1 year ago

Anyone know the extent to which GM has filled the UAW trust fund, and what their remaining obligation is?

izforever · 1 year ago

For the moment, assume with me that the following items are all true:

1. Lending $25 billion to GM will not prevent its demise.

2. The loan will delay GM's demise by two years.

3. We will lose the $25 billion when GM collapses.

4. GM's failure will cost taxpayers $200 billion. (http://www.bloomberg.com/apps/news?pid=20601087...)

Assuming a 5%/year cost/value of money, delaying the demise by two years will make/save the government $20 billion, at a cost of $25 billion. This doesn't include any interest that we may actually collect from GM on the loan.

So for $5 billion, we can prevent the collapse from happening *now,* when it's negative impacts will be hard to absorb and hence greatly amplified.

All the moralistic arguments aside (arguments that certainly resonate with me), I think the $5 billion is worth it.

Lincoln: "Reason, cold, calculating, unimpassioned reason, must furnish all the materials for our future support and defence."

Ben Eng · 1 year ago

This Weekly Standard article <http://www.weeklystandard.com/Content/Public/Ar...> makes another excellent point on page 2.

"No cars produced by GM, Ford, and Chrysler rank in the top ten in the authoritative Kelley Blue Book. After five years a typical Chrysler product retains merely 24 percent of its original sticker price, whereas Honda's brands hold onto 45 percent of their original value. That allows the foreign-owned automakers operating in this country to offer more attractive lease terms, still another competitive advantage"

The cost of leasing a vehicle is determined by its residual value. If the vehicle loses 76% of its value, then that amount of depreciation must be covered by the cost of the lease. A leaser of a GM car would be getting a car of lesser quality at a much higher cost than if he leased a Honda. Thus, even if the labor costs could be fixed to improve GM's margins, the uncompetitiveness of their products is a whole other matter.

Jim Manzi · 1 year ago

WIll:

The elephant in the room here is the capital cost that needs to be applied to each hour of labor to properly understand the actual economic cost of one hour of labor. GM needs to tie up an enormously greater amount of cash in the form of PP&E and inventory than does Toyota per hour of manufacturing labor, and the implicit interest on that cash needs to be applied to get a true cost.

Further, if you extend beyond cost / hour to cost / profit dollar created, it gets much worse. The output of one hour of labor at a Toyota factory produces something that: (1) can be sold for a greater gross profit, and (2) requires less downstream costs and capital to generate one dollar of gross profit, in large part becasue it requires fewer dealers, commissions and on-lot invetory.

The economic comparison makes it clear that the Big 3 busienss model is totally broken. The market value of GM is below $2BB; probably more relevant, the enterprise value (equity plus long-term debt) is about $30BB (think of this as being like your equity plus the value of your mortage on your house - what we would normally mean in everyday speech by "what my house is worth"). The enterprise value of Toyota is over $200BB.

Noah Yetter · 1 year ago

izforever, very interesting argument but I don't think 5% is a reasonable assumption at this point in time. Using 0% or -2% the math comes out less favorably.

Tom Grey · 1 year ago

DC should be debating the terms of a pre-packaged Chapter 11 post-bankruptcy plan to help create a viable car making industry. With good, 90% of average wages (instead of 200%). That's right, less than average wage.
Far fewer office workers (there will be plenty of not so old computers to replace them, maybe 50%?) and much lower paid top execs -- all of whom share in profit sharing.

This restructuring to re-create a viable GM can't really be done w/o Chapter 11.
The real Elephants are:
1) who will pay / lose in the resolution of the prior unsustainable health+pension costs for retired workers? -- they should be switched to normal Social Security like normal taxpayers (who must pay for the gov't bailout/ investment).
2) What is a 'good' job? Right now, the UAW workers have, for non-college educated workers competing with illegal immigrants, what I'd call GREAT jobs. And they don't particularly deserve to have them at taxpayer expense. I think 90% of the US average should be considered a good job.