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I'm still interested in hearing why we can't have the government take advantage of the low market caps here and just loan UAW the cash to buy all 3. Force a merger - with foreign players active in the market there's no danger of monopoly - and make UAW bring in German management.
UAW would probably reform itself quick, once workers and the union have ownership interest, and also they would probably adopt Obama's "green car" initiative pronto. Bankruptcy/acquisition seem slower than this plan - as we saw with Bernanke's whirligig, when the Feds & Congress want to, they can move fast.
It's worth repeating that unemployment insurance for tens of thousands of workers is expensive -- to the government!
You may not accept that these particular circumstances are sufficient to overturn a general presumption in favor of letting failing businesses fail. But at least you should allow that the choice between "no help from the government" and "no-strings-attached help from the government" is a false choice. There is a whole continuum of possibilities here, and something in the middle is likely to be the best option.
Certainly the big 3 have lost market share over the years, and have missed pretty big on a number of opportunities. But its worth mentioning I think that Toyota only really challenged GMs position as top of market share after they started selling the now derided full-size trucks and SUVs they had cribbed from undesirable automakers like GM and Ford.
I'm really not a Detroit apologist (I did work for GM but have never owned one because they weren't desirable to *me*) but its really astonishing how heavily people are putting their thumb on the scale after the fact.
Of course the labor situation is untenable. But can you tell me how a graph that shows that the Big 3 pay their workers almost twice as much as their competitors is an indication that the situation is hopelessly beyond repair and not an indication that restructuring of contracts backed by a government loan could completely transform them in a short period of time? It seems the latter is a far more rational deduction from that data. Rather than point out how hopeless the situation is, it puts a bright highlight on the most urgent need for change.
I'd also argue that it is not the UAW worker that is the primary beneficiary, as they are very likely to lose pay in any new arrangement. The beneficiary is the $7.25/hr plastics plant worker who gets to keep her job. Is that sufficiently poor for you?
Still, I don't know that a bailout is necessary. But overemphasizing how terrible the management is doesn't really serve anyone. Its bad enough without making things up.
http://rationalitate.blogspot.com/2008/10/relat...
You've got over half a million retired autoworkers on healthcare and pension plans that aren't included in the denominator: liquidating the union isn't going to sever those old contracts, slashing present labor costs isn't going to save GM's bacon.
Also, if GM tanks, we'll all be paying for those retiree's pension and healthcare benefits anyway, through PBGC.
PBGC does cover pension benefits, but it also takes in premiums. The taxpayers won't pay a dime unless the PBGC goes bust, which, while possible, is a separate problem that should be dealt with explicitly.
There is this little program called medicare...
Recently the UAW agreed to 'two tier' wage systems, fewer job categories and is absorbing retiree health care costs. Also the car makers are (or were) about 2 years out (with current best practice product development cycles) from producing more fuel efficient vehicles. The problem is, both of these situations will not be effective until 2010 at the earliest.
What hit the Big Three so hard when they were already weak was the perfect storm of the unexpectedly high gas prices this last summer and the fallout in the financial sector from the subprime mortgage fiasco. The mortgage fiasco is at least partially the government's fault, from legislation passed during the Clinton administration to encourage lenders to loan to more 'economically challenged' Americans to own a home, the pressure applied to Freddie Mac and Fannie Mae for the same purpose, and the inflationary monetary policy that fueled the housing bubble. It is worth keeping in mind that the transplant companies (Honda, Toyota, BMW etc.) are all losing money in this climate as well, but they have more cash on hand to weather the storm.
Then there is the issue of the union. I doubt the union would have had such influence, to create such an unsustainable situation, if it were not for US labor laws and the specific state laws of Michigan. It isn't a mystery that all of the profitable foreign transplant manufacturers have built all of their plants down south in 'Right to Work' states. Michigan just lost out recently to Tennessee to get a VW plant, which would have been a tremendous reversal of what has been happening for the last 30 years.
I am not necessarily arguing that a bailout is necessary or even a good idea, but it will do us all well to remember that if one or more of the traditional American auto companies goes under, it was partially killed by bad government policy.
So.. they are making great strides in the major factor affecting their success-- the union straight jacket. They are winning many quality contests and their cars are inching up on satisfaction surveys. They have a larger array of high mileage cars coming on stream-- the Malibu is very good.
They face a credit storm diminishing their marketplace place from 16m sales to 11 millioin sales. Not of their own doing... their competence is not on the line. The 200,000 or so employees of suppliers across the country are at risk and so the famous SYSTEMIC risk exists that TARP was designed to address.
Most of the arguments beg the fact that we are trying to prevent a fiasco from descending into a disaster. $25B is a small amount to offer to insure that an auto bankruptcy isn't the tipping point to a depression.
Further, they asked for a LOAN not a bailout. I know... it is a higher risk loan, but the term is important.
Bill
Great charts, based on fine Chrysler data (OK, estimates for other carmakers).
Instead of a bailout, what should be the focus of discussion is the post-bankruptcy business plan for the car factories and the workers.
The gov't should probably offer matching loan dollars to the highest equity bidder for buying the factories, at an ARM starting at current Fed rates (of 1%) plus 1%, or some such.
What I don't know is whether union pension debt comes before or after bond holders in bankruptcy -- I know that equity investors get wiped out. And they should.
Gov't helping UAW buy GM after a bankruptcy seems excellent -- let the management work for UAW and decide about the workers and management salary levels. All prior UAW 'benefits' should have been funded by stock grant purchases to the UAW account.
Could you possibly look into this and give us a more appropriate factoid? I am all for union-bashing, but I want to be fair about it. :)
http://www.aam.com/index.php?s=217
"Does AAM already have a 2nd Tier wage structure?
Yes. In 2006, AAM and the UAW agreed to an all-in wage and benefit package for new hires at the original U.S. locations. This agreement is more closely aligned to what AAM’s competitors pay. Unfortunately, as a result of the decline in market demand for its products, AAM has not been able to hire any associates under this second tier wage and benefit structure."
http://www.reuters.com/article/latestCrisis/idU...
That's a great way to build your customer base, IMHO.
Maybe the best "long-term solution" for all of us would be for anti-worker blog-sites to go the way of the dodo bird. They sure as hell don't provide the public with much reliable information.
It also divides all current retirement benefits among current employees.
Thats just wrong.
those workers’ salary and benefits total more than $70 per hour!!
is false.
How did they do it? One trick is to add in 2005 profit sharing because the 2006 number was zero.
Another trick, apparently, is to include all payments to retirees (and dependents) in the costs, but not in the number of workers. From their figures, it appears that there are twice as many retirees as current workers. That's a good way to inflate costs.
I suppose, in some dubious libertarian fantasy world, these numbers could be seen as labor costs to the car manufacturer. However, these numbers are being reported as what the workers get paid - a real perversion of math and economics.
If you want to visit my site www.nfcu-org.com.