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No Bailout For You!

Well, as many predicted (but not me, alas), the bailout of the financial industry has triggered a long, long line of other businesses looking for their piece of the action from Uncle Sugar. And near the front of the line (probably because they drove over everyone else in their gas-guzzling SUVs) is the auto industry.

There's no denying that the Big 2.5 (and I think I'm being generous with Chrysler there) are in serious trouble right now. A lot of people like their products, but nowhere near enough. They are hemorrhaging money like a hemophiliac in a blender, and their stocks have tumbled to record lows. If you could pay for gas with shares in Ford and GM, you'd get about a gallon a share.

So they need help if they are to survive. That's indisputable. But that raises two points: first, should the governnment help them? Secondly,if it should, how should that help be delivered?

The first question is certainly debatable, but I'd have to say yes. The auto makers are one of the few major manufacturing industries left in the US, and we need that component of our economy. Being able to make things is so fundamental that we must not give it up. So much of our economy has shifted to services of late that it troubles me. We need people and businesses that produce actual physical goods. So yeah, we ought to put some effort into keeping the auto industry alive and viable here in the US.

So that then leads to the second question: how should we help them?

Not by a simple cash infusion.

Analogies are often imprecise, but in this case likening the auto makers' dilemma to a medical model is helpful. They are in serious financial trouble, and are cash-strapped, but simply throwing money at the problem won't help. Yes, it is the traditional Democratic solution (witness how well it's worked in education, in fighting poverty, winning presidential elections, and a host of other examples) and we are heading into a Democratically-run government, but it's seldom a solid long-term solution.

The problems that the automakers have are legion, but two elements keep coming up as major sources of their woes: the costs of labor and the dealer-franchise structure. And both of them are locked in by long-term contracts and severe legal penalties should they be altered.

With expenses like that, simply giving the automakers cash (either directly or through loan guarantees) won't do a bit of good. It would be like giving a transfusion of blood into a man who's just had an arm severed -- the fresh blood will just go gushing out the severed limb. No, you first need to stop (or at least slow) the blood loss before you start replacing that which has been lost.

The auto makers need the ability to restructure their obligations if they are to survive long-term. They need to re-negotiate their labor contracts, their obligations to retirees, and their agreements with their dealer networks to cut their massive financial obligations first.

And for that, no bailout is needed. The mechanism for such radical lifesaving surgery already exists:

Bankruptcy.

Yup, good old Chapter 11 reorganization bankruptcy. Let them file for bankruptcy, throw themselves on the mercy of the courts, and come up with a plan that will keep the automakers in business.

For example, the average auto worker makes about $150,000 a year. Think about that. That's AVERAGE. That's some damned good money -- but is it really worth that?

American auto makers, on average, have labor costs that run about 50% higher than those of Japanese automakers -- and that's based on the plants the Japanese have here in the US. The Japanese companies aren't in trouble, so the question arises: what is the major difference between the two?

The largest one is probably the fact that the American companies are unionized. The United Auto Workers have had literally decades to wring more and more concessions out of the Big 2.5, and now the costs of those are proving too much for the auto makers to continue to honor. This would be the time for the UAW to cooperate with management, to engage in triage, to realize that fewer jobs with less generous pay beats the dickens out of no jobs with zero pay.

But that's not how unions work The union leadership seems willing to engage in a game of "chicken" with the auto makers, hoping against reality that they can somehow keep their well-paying jobs (with commensurately high union dues) in the face of the start truth: Ford, GM, and Chrysler are on the verge of collapse.

The other problem is the dealer network. This is particularly true for GM. They simply have too many brands, and end up competing more with themselves for customers. As much as I respect the brands, GM would probably be better off if it dumped Pontiac, Buick, or both.

But that isn't cheap. When GM phased out Oldsmobile a few years ago, it spent roughly $2 billion to end the line. Under a bankruptcy court, many of those costs could be reduced as contracts are renegotiated or set aside entirely.

No, it won't be pretty. No, it won't be fun. And no, it isn't guaranteed to succeed.

But it offers the auto makers far better chances for long-term survival than simply writing them a blank check.


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Comments (49)

Excellent post Jay... (Below threshold)

Excellent post Jay.

The US government should not invest any money in the current business model. As you have well explained, this model fails for a fairly simple reason: labor costs are over 75% higher than auto plant manufacturing operations that are non union and that don't carry the legacy of unrealistic wage and benefit contracts.

As the WSJ said yesterday (on its op/ed page), such a bailout puts domestic carmakers that have a better business model at a disadvantage. By some coincidence, these other domestic car makers are almost all foreign owned. Can anyone say protectionism? There is more than one way to bring about the damaging results of tariffs, and bailing out the Big 2.5 with their current business model in tact would be one way.

It's time for bankruptcy. Big Steel did it years ago. King Coal did it. It's time for US automakers to do the same instead of insisting they are "special" again.

More here, with good links....

http://online.wsj.com/article/SB122628060458212379.html

I agree wholeheartedly. Th... (Below threshold)

I agree wholeheartedly. The $700 billion has everyone clamoring for a slice of the pie regardless of circumstances. Why even American Express is looking to get a piece of the action. I can think of ways for American Express to increase their bottom line and a handout isn't one of them.

The auto-makers are in trouble for a variety of reasons and you've hit on two of them. Another is that they haven't done a very good job of developing more fuel efficient cars. They've also spent too much in gearing their marketing of the Tahoe, Suburban, the big trucks, etc toward the ordinary individual leading people to think they really, really need a big vehicle, yet don't.

Should we bail them out for this? No. I'm tired of bailing out these companies. No one bails me out when I make bad decisions. How many times does the auto industry have to find themselves in trouble before they grow a pair and stand up to the unions? Before they understand cause and effect? Before they go with the changing times and the changing world?

I'm sorry, the bankruptcy s... (Below threshold)
jpm100:

I'm sorry, the bankruptcy suggestion is so wrong as a reform strategy for an auto company, its boggles.

In bankruptcy you can't pick and choose who you severe your obligations to. That means customers with their warranties are left out of the cold. You just put down $20,000-$40,000 on some thing that you no longer have warranty coverage for. So not only do you screw over recent customers, your future customers will be afraid that you will dump your commitment to them as well.

Buying a car is a long term commitment of a heck of a lot of money. People expect reliable warranty coverage. Bankruptcy runs counter to this.

BTW, the auto companies hav... (Below threshold)
jpm100:

BTW, the auto companies have never asked for a cash infusion. They have been asking for loans and unlike the financial bailout, they will spend the money to keep doing what they do and not just pocket it.

The auto-makers ar... (Below threshold)
Anon Y. Mous:
The auto-makers are in trouble for a variety of reasons and you've hit on two of them. Another is that they haven't done a very good job of developing more fuel efficient cars. They've also spent too much in gearing their marketing of the Tahoe, Suburban, the big trucks, etc toward the ordinary individual leading people to think they really, really need a big vehicle, yet don't.

No. The reason Detroit has been marketing big vehicles is because that's what most of their customers want to buy. You may wish that people would take your lead in deciding what they "really, really need", but most people are perfectly comfortable making that decision for themselves.

Of course, when fuel prices skyrocket, demand for high fuel use vehicles will drop, and those that market those types of vehicles will suffer. That's capitalism for you. Detroit's problem is that their market strategy is too focused on just one segment of the business. Their inability to competitively produce low fuel use vehicles is the crux of their problem, and Jay has identified the root causes of that inability.

jpmWarranties are ... (Below threshold)

jpm

Warranties are underwritten by different entities and treated separately in BK.

As for loans, why loan money to a broken business model?

You don't help long term by... (Below threshold)
Webster:

You don't help long term by giving money. You do by affecting the business environment, make their job easier. Make it easy for them to dump the union and they will become the businesses they used to be rather than the charities they have become.

The time for the Great Push... (Below threshold)

The time for the Great Pushback on the UAW has arrived. The business plan of the Big 2.5 cannot continue with the current labor costs structure. It's not about issues with product quality (which is now world class), it's not about fleet fuel economy (which with present fuel prices provides only a small cost premium over the lifetime of the vehicle).

The UAW needs to understand they are part of the risk equation: they can demand top dollar wages, rigid work rules, and opulent post-employment benefits, but such burdens will now bankrupt a company. Perhaps that has to occur before behavior is altered. (in fairness, it should be noted that the UAW has become more flexible, agreeing to a two-tier wage schedule for new hires, and company divestment of retiree medical benefits).

Anon Y. Mous, any marketing... (Below threshold)

Anon Y. Mous, any marketing strategy is to convince people they need something. I don't have as much faith as you in the general public for not falling for it. And I don't think GM had that faith either. Part of that marketing strategy did not include, "Hey! It gets 10 miles to the gallon!" or "Hey! Not everyone needs to haul 2 tons of gravel!"

No. They saw they had a market niche there and wanted to expand it. By the time people were spending $4-$5 for a gallon of gas Toyota, etc were locked in. They were actually looking forward.

The Dems will be fully in c... (Below threshold)
Bob:

The Dems will be fully in charge on Jan. 20 and will sink (an appropriate word) however much they can to bail out their UAW and affiliated union buddies. And, after the Republicans voted for the bank rescue (f/k/a Wall Street Bailout) bill, they won't stand any chance of stopping the money from flowing into Detroit. The idea that government, which is running huge deficits itself, can bail out anyone is a joke. Giving the auto execs more money is like solving an alcoholic's problems by giving him a bottle of booze (or in this instance, a case of booze). Bankruptcy reorganization is the only way these spoiled children will learn to run their companies without keeping a hand in Uncle Sam's pocket.

Incidentally, yes, labor co... (Below threshold)

Incidentally, yes, labor cost is one of the root causes that Jay has identified. I am unfamiliar with dealer franchise structures. My point is that they were not forward thinking. They made little effort to compete with the other companies. It's my contention that they took a defeatist attitude and R&D went to making the bigger vehicles even bigger and burlier.

The best car I ever owned was a 1972 Toyota Celica. They've had that long to compete.

jpm100 - They have been ... (Below threshold)

jpm100 - They have been asking for loans and unlike the financial bailout, they will spend the money to keep doing what they do and not just pocket it.

But what they've been doing has dug them into a deep hole. Letting them keep doing it will simply get the hole deeper, and when the money runs out....

I foresee nothing good longterm coming from a bailout, unless the unions SERIOUSLY revamp how they do things. At one time they were needed, now they're killing the business like a symbiote turned into a parasite.

(Cross-posted on Paul Hoose... (Below threshold)
Mike:

(Cross-posted on Paul Hoosen's post at Blue)

Before we give firms "bleeding massive amounts of cash" more cash to bleed, how about figuring out the source of the bleeding?

I would suggest we start with the UAW. Read this. Obviously GM is responsible for much of its own woes, but really --

Each day, workers report for duty at the plant and pass their time reading, watching television, playing dominoes or chatting. Since G.M. shut down production there last month, these workers have entered the Jobs Bank, industry's best form of job insurance. It pays idled workers a full salary and benefits even when there is no work for them to do.

For a union to demand such from a company losing billions of dollars a year and on the brink of bankruptcy is not only unfathomable, it is a textbook example of pure, unconscionable greed.

When GM and the UAW began negotiating these unbelievable benefits 60 years ago, America was coming out of the postwar recession, people were flush with cash they had saved during the war (when there was little to buy) and "new" cars (as opposed to recycled 1941 models) were selling like hotcakes. At that time, GM could afford to offer generous salaries and benefits.

But those days have long passed. Some people say that bankruptcy would be good for the Big 3, because it would allow them to dissolve union contracts. Others say that bankruptcy would be a disaster because it would destroy confidence among consumers that the auto makers would be able to honor 3 - 5 year warranties.

Whatever the answer to the problem is, I really don't believe it should include a government bailout. Unfortunately, Big Labor spent between $350 and $400 million this year to elect Democrats, so we can be damned sure that they are going to demand their money's worth from Uncle Sam.

All this bailout does is to... (Below threshold)
hermie:

All this bailout does is to take my money, gives it to Washington, who then gives it to the Big 3, who use it to pay the UAW.

It's a bailout for the UAW, and a way to keep Michigan politicians in office, by diverting attention away from their own mismanagement of Michigan finances.

It will not make automobiles better, safer, more fuel efficient. It will not streamline the business and make it more competitive. It will not ensure that the Big 3 will not come back in 6 months and ask for more money.

Let them go Chapter 11. It does not mean that the auto industry has died, but it has to make huge changes in order to continue. It won't be the same as it was 30 years ago, but it will be better positioned to remain in business another 60 years.

It may be best for one of the 3 to revamp itself and become a leader in Public Transportation, such as buses, light rail, etc. There are opportunities, but the industry, the unions and government need to accept that a bailout will do nothing but delay the inevitable.

Gee, no one wants to buy cr... (Below threshold)

Gee, no one wants to buy crappy cars that cost twice as much to make as the good cars that people are willing to go on a six month waiting list for.

If Detroit gets a bailout, all the legislators who voted for it should be removed from office for dereliction of duty.

Then flogged on the National Mall by taxpayers wielding Wiffle bats. Five bucks a whack, all proceeds to go toward a taxpayer bailout package.

I'll kick in $100.

If memory serves, Daimler a... (Below threshold)
Red Five:

If memory serves, Daimler and Chrysler parted ways last year, and Chrysler is now privately owned by an American businessman. It's Big 3 again.

Pre-packaged bankruptcy is ... (Below threshold)
Dee:

Pre-packaged bankruptcy is the only way out for GM. Customers do not have to be affected but what is on the table for cancellation or restructuring are labor contracts (executives, white collar & line workers), supplier contracts, dealer contracts, shareholder equity and debt holders (banks/bond holders). Chapter 11 PROTECTS the company from going completely under (Chapter 7).

Believe me, I don't want to see this either. My grandfather worked for GM for 30 years. But times have changed and GM never changed with the times and really battled the UAW on labor costs, particularly retiree pensions and healthcare. My grandfather never paid a dime for health insurance for well over 25 years before he passed away. And he left A LOT of money in the bank so he was perfectly able to contribute something to his own healthcare costs.

If our governement gives them any amount of money with demanding a complete restructuring of their cost centers, then we are throwing money down an endless pit and the car companies will come back for more within the next 3-6 months. They have a 1970's business model in a hyper competitive market place.

I agree Jay let the Auto i... (Below threshold)
hcddbz:

I agree Jay let the Auto industry file chapter 11 and restructure. I do not like any bailouts. No industry is too big to fail. When it does there will be other industry out there with a better business model to take their place. There will be disruption but better that putting good money after bad.

That being said if companies want a bailout (and since the government is going to give it) then, it should be treated the same way venture capitalist treat companies they invest in. The company has to show their business model. The short and long term plans to achieve profitability in short and long term (6,18 and 36 month) and the we can see a return on investment. Then they receive incremental amounts of money over a set period of time as long as they meet the stated performance criteria.

This plan should be reviewed by two independent auditors. If the government request things then the impact of those item against the company's business model has to be evaluated and stated in economical terms and how it will affect the long term viability and competiveness against other industry and countries.

Of course it is pipe dream, with so many other things there no rational thought it all about hype and what feels good.

Only one commenter so far ... (Below threshold)
bobdog:

Only one commenter so far acknowledged the elephant in the room: the Democrats got major support from the UAW and unions in general. They owe a debt that will be paid, regardless of the public outcry. Add to that the fact that Democrats have been humping the leg of big unions for generations. Witness the card-check bill for the latest union scam in Congress.

No, we're going to be bailing out the auto industry, and adult reasoning will have absolutely nothing to do with it. They're just working on plausible deniability in Washington. Best case, they'll do it under Bush's watch so they can shift the blame to Republicans.

The Unions are salivating o... (Below threshold)
MPR:

The Unions are salivating over the big win by liberals in the WH and Congress. Wal-Mart is their next target. No more low prices folks. Their profits are up 10%. That is absolutely un-American. That will have to stop. Just ask Obama.

If America bails out GM and... (Below threshold)

If America bails out GM and/or Ford we should demand a change in the leadership and management teams. Until someone Disrupts these companies and changes their management approach these companies will not be viable competitors. Read more at http://www.thephoenixprinciple.com

If America bails o... (Below threshold)
hcddbz:
If America bails out GM and/or Ford we should demand a change in the leadership and management teams. Until someone Disrupts these companies and changes their management approach these companies will not be viable competitors

I still want to see a business plan that can be executed against. I am sure just like in any corporation there fat and waste that needs to trim. A changing of the guard is good as long as that new guard has plan that they can use. During the Dot Bomb era there were so many new management techniques and most of them bankrupted companies in no time flat.
Unions have stoked many times and bragged how they got management to surrender to their demands. They also used the power of collective bargaining. The reveled in their success to get things there way well they also must take some blame in the results. No one is innocent so now we need to take a big step back and figure out what needs to be done.
The governmental regulations have also played into some of the problems. That is why every government mandates must be evaluated against the cost to the industry

Adam, it isn't just the car... (Below threshold)
hermie:

Adam, it isn't just the car conmpanies that need restructuring and new management. The unions also need to weed out those who helped bankrupt the companies by their unrealistic demands and unwillingness to change with the times.

You can't expect your employer to keep paying high salaries, overly-generous benefits, and maintain job 'protection', while they are going under or the market refuses to buy products which people don't want or need.


Hermie -I beg to d... (Below threshold)
JLawson:

Hermie -

I beg to differ - of COURSE you can do that if you unionize. If you don't mind the host you depend on dying, that is.

My father in law had a sweet gig at the steel mill he worked at - two-month paid 'sabatticals' every other year, high pay, reasonable working hours, everything you could want plus more! The union had the steel mill over a barrel. Every year they asked for more, and they got it.

Then the mill closed. It couldn't compete. There was no way it could - you have to be able to sell your product for more than it costs to make it, and the high cost of labor killed them.

The union officials were moved elsewhere. THEY didn't miss a paycheck. The rank and file? Well, if they were lucky they saved some of their pay. If not - too bad, so sad. We got your dues, employer's gone bye-bye, what do you expect WE THE UNION to do about it? You had it good due to us for a long time!

That was about 20 years ago in PA. The area's not really recovered yet. That steel mill brought in a LOT of money to the area.

And now Obama wants 'card check' so unions don't need a secret ballot. Yeah, nothing POSSIBLY could go wrong if the unions take over, could it?

As people enter posts on th... (Below threshold)
Van:

As people enter posts on this article of concern, I see that there is animosity towards the automakers. The present contract of 2007 pays the line worker $15.00 per hour, which $1.25 goes towards health insurance. This translates to $2600.00 per year for health insurance on a 40 hour week. They pay even more if they work overtime. There is NO defined pension plan, just a 401k. So, what is your point people? GM/Ford sell vehicles in Asia & Europe and make a profit because they are "allowed" to sell these cars over there but the same cars (small ones) are not allowed to be sold in the United States. So-called rules & regulations. 1 out of 9 jobs in the U.S. is auto related. Do not let them go down but just let them sell their vehicles here in the U.S. That is all they are asking!

Ref. #18. You said,"No indu... (Below threshold)
Allen:

Ref. #18. You said,"No industry is too big to fail." I agree, so why was Wall Street Bailed out? Just wondering, because it's the same thing, just a different industry, right?

I do believe that the gover... (Below threshold)
Van:

I do believe that the government should help the auto companies since Congress, with 10% approval ratings caused this U.S. meltdown. www.youtube.com/watch?v=1RZVw3no2A4 There has to be stipulations put on pay and no bonus's for Union & salary employees Which will be done I believe. One more item: Fords has a special stock which can be owned "only" by the Ford family members and it is called "Blue Oval Stock" which gives them majority vote. This stock has to be made available to the public if they receive taxpayers funded monies.

we found a picture of the n... (Below threshold)

we found a picture of the new Government Gravy Train and posted it over at www.bejohngalt.com

sadly, it now appears the train is FULL...and ya'll will have to WALK!!!

#25 says "Do not let them g... (Below threshold)
Mike in Oregon:

#25 says "Do not let them go down but just let them sell their vehicles here in the U.S. That is all they are asking!"

Uh, no, that's not all they're asking. They're asking for $50 billion. For starters. To prop up a failed business model for how long?

Meanwhile, in Salisbury, Co... (Below threshold)

Meanwhile, in Salisbury, Connecticut, Joseph Schumpeter spins in his grave.

F*ck 'em. What's capitalism... (Below threshold)
hyperbolist:

F*ck 'em. What's capitalism without the genuine risk of failure; and what's failure if not the current state of the American auto industry?

Your government should take monies requested by the Big 2.05 and instead use it as tax incentives to lure foreign automakers (Kia, Hyundai, Toyota, Honda, VW, Nissan) to build more plants (or buy GM/Ford plants) in order to maintain what's left of your manufacturing base. Who cares if the money you spend on a car trickles upwards to rich executives in Tokyo/Seoul instead of in Detroit? So long as reasonable protectionist efforts are made towards curtailing the hemorrhaging in the automotive manufacturing sector, an objective free marketeer ought not be concerned with which stock market a company lists itself on.

If it were just GM g... (Below threshold)
Larry:


If it were just GM going bankrupt, a lot of problems would be solved. Unfortunately, the industry is much larger than GM and includes suppliers who are already operating at margin.

If GM goes belly up in order to restructure, then what about the nearly one million workers who make parts and sub-assemblies for not only GM, but also for Toyota, Honda, Ford, Chrysler, etc.? Many of those workers are not union. A failure to pay by GM for parts delivered and outstanding retooling costs would bankrupt most of those suppliers. If our supplier chain goes belly up, we can no longer make cars in this country, period.

Then what? It is a huge mess with no simplistic answers.

At this time, GM is holding supplier and supplier labor hostage to a bailout until the new UAW contract begins in 2010, which has enough savings to maybe prop GM up, maybe. GM is doing this in an attempt to protect current stockholders, many of which are Pension Funds such as those for Schoolteachers, and public or private employees all over the US.

Like I said, it is a huge interconnected mess.

The current cost of labor at GM is upwards of $75.00 per labor hour. This includes direct hourly wages, FICA, Medical benefits to include retirees, retirement and a host of other charges.

Now imagine if - as planned - retirees shift their medical benefits to Part B and Part D, how much will it cost the Taxpayer? I have no idea, but suspect it is in the many, many billions and billions of dollars the taxpayer of this country would eventually pay.

I wish it were just a case for screwing the UAW to the wall folks. But it isn't. In understand this isn't going to be a popular post. Just keep in mind that I am an unrepentant conservative. And to show this, here are some suggestions that might make things work - and likely under a Democratic controlled everything, probably won't happen.

1. Loan them some money that includes warrants to buy stock at current prices at a future date irrespective any bankruptcy that might still happen.

2. Loan covenants for emergency renegotiation of labor contracts to bring costs in line with competitive American plants of foreign owned car companies.

3. Strip the Ford family from controlling interest.

4. Law that mandates supplier payments ahead of all others except for direct labor in the event of a bankruptcy.

Yea, I know, it ain't gonna happen.

I make this post in the spirit that we gotta watch for unintended consequences as we pursue the wish for a more conservative agenda.

hyperTake another ... (Below threshold)
Larry:

hyper

Take another look. If GM goes bankrupt, we are not going to make Automobiles in America for some time until the supplier chain gets redone.

This means Canada too.

I'll take hyper's side of t... (Below threshold)

I'll take hyper's side of this argument.

So what if all automobiles are made overseas or in non union domstic plants owned by foreigners?

The machine tool business went overseas long ago. So did most of steel. Television sets? Electronics? Metal bashing industry (that's pots and pans)? Textiles? The list goes on.

And hyper has another point: use the $50 billion to offer tax breaks for foreign companies to invest here.

I do not care about the Ford family's stock, and any GM shareholders out there that haven't figured it out by now are clueless. The same goes for the bondholders and unsecured creditors. The only difference between the auto monopoly and the industries I listed above is that the latter accepted reality and people got on with their lives. Why should the auto industry be treated differently?

Van - "As pe... (Below threshold)
JLawson:

Van -

"As people enter posts on this article of concern, I see that there is animosity towards the automakers."

I'm at the point where my animosity is more towards the unions than toward the automakers. The way I see it, it's like the difference between shearing a sheep and skinning it. The unions got a hell of a lot of wool over the years, and figured they always could get more. Over the last few years, they've gotten a lot of bloody skin in with the wool, and the sheep's damn near dead. They're not getting ANY wool at all, and want the government to make up the difference by giving them the wool the government takes from US, AND more sheep.

Hey, they DESERVE that wool! They won't back off on the shearing one bit, and it'll probably kill more sheep, but there's always wool from somewhere, right?

Baaah, I say! No more wool to the automakers and unions until they back off on the shearing!

I am concerned that Obama g... (Below threshold)
Deborah:

I am concerned that Obama got right on the bandwagon for a bailout. I voted for him but now I am really worried.
NO BAILOUT BARACK
Let them file Chapter 11 which is not the doom and gloom that they are predicting. Get rid of the big guys at the top, reign in the UAW, get wages and benefits so the they can compete on a global level.
I was amazed to find that the average GM worker makes $152,000 a year. Get real I went to school for 6 years and got a degree and don't make even half that. UAW priced themselves out of business.
Everyone is going to have to tighten their belts so why not GM and UAW.
And if they continue to not produce the cars that America wants and needs, instead of spending billions to tell us how much we need the gas guzzlers they have been producing, then let them go the way of the dinosaurs
If Barack does not do right on this I am afraid "a brighter day will come" will just be campaign rhetoric.

Virtually every airline ope... (Below threshold)
Mike in Oregon:

Virtually every airline operating in the USA today (except Southwest) has been through bankruptcy. Why didn't we bail out the airlines? They're a vital industry. Chapter 11 saved them, it wasn't their death knell. Time for the auto industry to take the bad medicine and get on the road to recovery.

Allen I said any ... (Below threshold)
hcddbz:

Allen

I said any industry, and meant it, Wall Street and the Insurance Industry both should have been allowed to fail . Then other companies could have come to the front and filled the gap and void. No every industry overleveraged and those that did not should have the spoils. You work hard and do rite you get rewarded. You screw up you pay the price.

The rest of my statements stand if we are going to do it anyway then do it the right way.

Larry, give them incentives... (Below threshold)
hyperbolist:

Larry, give them incentives to re-tool if need be, or subsidize them so that they can compete with foreign parts manufacturers.

Trying to keep smaller suppliers afloat is something I think the government ought to pursue, but bailing out an industry run by a pack of colossal failures is absurd. Throughout the 80s and 90s Japanese and German manufacturers outspent the Big 3 in terms of portion of operating budget devoted to R&D, whereas the Big 3 outspent them on % of budget pissed away on marketing. How'd that work out for them?

Anybody who buys a Chevrolet instead of a Honda or Toyota (or even a Hyundai, in which case you'd get far more car) is brand-loyal to the point of stupidity; delusionally patriotic (can always buy an American-made Toyota); or disinterested in quality:price ratios. The exception would be pick-up trucks, as the Japanese models are at a higher price point with no great advantage in terms of fuel consumption.

hcddbz, you fail to underst... (Below threshold)
hyperbolist:

hcddbz, you fail to understand the consequences of letting the financial industry collapse. It's far more integral to the lives of ordinary people than the automotive industry.

Any financial industry bail-out should have had punitive measures included to publicly humiliate those responsible and ensure that it never happened again. However, these strings were unfortunately not attached.

There were 3 large brokerag... (Below threshold)
hcddbz:

There were 3 large brokerage firms at the beginning of 2008. How many are there now? 0 These firms only hold stocks for you if you have 1000 shares in GE and it is held by Bear and they go under guess what you still have 1000 shares. You lose money if you are invested in Bear.

There are so many rules like 17A4 that protects all the communications to ensure if any company goes out of business the transactions are protected.
As far public humiliation goes who cares. I would like accountability from SOX with regards to mark to market, also FM/FM and Congress.

Companies should be investigated under current rules and if they are found guilty of crimes punished. That is why business plans and modes have to be review before any money is given to them. When I worked at Brokerage firms before we bought new technology a company's finical viability was always looked at. When the firm wanted to invest there were long meetings and reviews and guarantees before 1 dollar was invested.

However the Bailout passed. Therefore before they get billions of dollars then their business model and business plan needs to be looked at and accessed.

hyperOne out of ni... (Below threshold)
Larry:

hyper

One out of nine jobs in this country is associated in some way with the auto industry.

One out of nine !!!!!

I would bet that you have seen a bunch of dominos falling, one after the other. That is a good representation for what happens if GM goes into brankruptcy unless very, very carefully planned and implemented.

That means the existing management has to be on board.

And as for giving incentives to the supply chain, that means we are in effect subsidizing the competition; Toyota, Honda, etc. We would also have the task of managing the bail out for the suppliers.

That alone would be several orders of magnitude greater than just proping up GM. Oughta, Woulda, Shoulda, only goes so far, then you run into the stark realities of both intended consequences and the ones that are unintended.

Obviously we need to do something about the loaded labor cost pinned to each vehicle sold. But that isn't the only thing that has to be considered, just one of the biggest.

Much of our manufacturing base fled because of factors that in many cases had less to do with labor cost as it did other imbedded factors; tort, capital, regulation, taxes (big one), medical benefits & costs, land & buildings, etc. Our actual cost of labor is quite competitive in many industries because of our efficiency. An American worker puts out more work per hour than almost anyone else except the Germans.

I know how quite a bit abou... (Below threshold)
hyperbolist:

I know how quite a bit about the interconnectivity of manufacturing as it relates to the automotive sector, Larry. My dad's industrial safety engineering consulting business has suffered, but luckily he's practically retired. His younger partner, though, will likely be out of luck within a few years if foreign auto companies don't step into the void.

One of the interesting corollaries of government-run healthcare is that it provides an incentive for foreign manufacturers to set up shop as they won't bear as much of a burdern in terms of keeping their workforce healthy. Toyota built two plants in Ontario (big ones) in part because we pay for our own healthcare through taxes. We also have lower corporate tax rates than most States (Delaware and a few others are exceptions). They work people to the bone but they compensate them for it.

The American automotive manufacturing industry has failed--this much is true. Now the extent to which that failure affects the rest of the supply chain can and should be mitigated by federal and state subsidies for other companies.

And there's no guarantee that that will work. I don't take great joy in the demise of the North American manufacturing sectors, but don't think there's much that can be done at this point. Financial issues aside, their product is not as good as what can be imported from Japan, Europe, and now even Korea on a per-dollar basis.

Larry, you are correct in t... (Below threshold)
Allen:

Larry, you are correct in that labor costs aren't the biggest expense. But I haven't noticed any one mentioned about the huge salaries the CEO, CFO, etc. receive, let alone all their benefits, and golden parachutes.

It's a mess, no doubt about it.

This is all academic anyway... (Below threshold)
hcddbz:

This is all academic anyway CAP and Trade will Bankrupt Coal, Steal and whatever is left of Automakers .

hyperFina... (Below threshold)
Larry:

hyper

Financial issues aside, their product is not as good as what can be imported from Japan, Europe, and now even Korea on a per-dollar basis.

That is no longer true if you balance the very different labor costs because of legacy contracts. In fact, on a dollar basis, GM and Ford do very well with product.

The guy I follow on the state of the Auto industry is Ed Wallace out of Dallas. He knows his stuff up to the point where when he talks, the industry listens. He is also in Business Week from time to time.

I invite you to read a few of his editorials from the Star Telegram and or listen to his radio show on Saturdays. You can get the audio feed on the web.

http://www.star-telegram.com/ed_wallace/

http://www.insideautomotive.com

He is also the guy who wrote the several books that are now available for free on the web that I have referred to in the past:

"The Backside of American History"

Seriously hyper, this guy is a very real, pragmatic car guy. He is also into energy. For example, he thinks and can prove that ethanol based on corn is a joke.

Between overpaid union work... (Below threshold)
Webster:

Between overpaid union workers and overpaid execs does anyone worry about the stockholders' interests? Let it go under. Unless you break the union, politician, exec lockhold, the auto industry will remain a ludicrous mockery of a business. No hope, bailout or no bailout, it's only a matter of time and how much money you and I want to waste.

Corn fuel is a joke, for su... (Below threshold)
hyperbolist:

Corn fuel is a joke, for sure. I'm interested to know how/why this guy thinks a $20,000 American car can go toe-to-toe with a $20,000 Japanese or Korean car. Also, if you were going to drop $60,000, would you go German, Japanese, or American? I'm not talking about the prestige of the hood ornament, but HP per liter adjusted to fuel economy and other considerations related to performance. Ford has improved in the past few years with the Fusion and improved Focus, and the Malibu is a good car, but (IMHO) too little, too late.

I'll read some of this guy's stuff tomorrow, thanks for the suggestion. Off to bed for now, g'night.

First off, I don't think yo... (Below threshold)
James H:

First off, I don't think you can fully blame unions for pressing for higher wages, etc. for the workers they represent. That's a union's job.

If the feds are going to pump cash into the automakers, I'd prefer that the federal government do so AS A CUSTOMER rather than simply giving the automakers money. Meaning, the feds give money, but as part of an exchange for something of value (i.e., a car).




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