Freddie wants me to talk about the human costs of not having the auto bailout. That's easy: they're terrible. Lots of people will lose their jobs. Those that don't will have their expectations for an upper-middle class life crushed.
Am I glad to see this? No. Am I rooting for the demise of the UAW? No. I don't buy American cars. I don't work for an American car company. I could care less about the UAW.
I do think that the UAW is perhaps the grossest example of something toxic about what a lot of American unions have turned into. I don't care, particularly, whether unions use their power to wrest higher wages and benefits from companies. Even if they kill the company with excessive demands--hell, they're the majority of the workforce, they can destroy their jobs if they want. I feel bad for the non-union workers. But I don't want to, say, legally prevent unions from forming or negotiating. (I don't want to legally encourage it, either. I think the government should be neutral, unless companies use physical force.)
What bothers me is twofold. First, after the unions have put companies into an untenable position, they come to the rest of us looking for a handout to continue the unsustainable levels of pay and benefits. Almost everyone I know makes less than an autoworker, and has a whole lot less job security. Why should they pay autoworkers for the privilege of making cars no one wants?
I also really loathe and despise the way the unions use work rules and featherbedding to make their companies and industries less productive than they otherwise would be. Salary and benefit negotiations seem to me to be neutral; there's a zone of possible agreement, and I don't care if the unions claim all or most of the value in that zone. But the way economic growth happens--the way we become a richer, more productive society--is to produce more stuff with the same amount of people. The union goal is to keep the number of people at least even, and if possible increase it, regardless of the level of production. Hence the fight between the west coast port operators and their unions, who wanted to keep exactly as many jobs loading ships as they'd ever had, even when there were vastly more productive ways to do things. I don't think any thinking liberal should support this.
Nor am I a fan of seniority rules and job protection. Most of us function perfectly well without these, and I don't think that advancement solely by time-in-grade, or protecting everyone who does not actually set the plant on fire from being sacked, is either reasonable, or economically desireable. I understand that people want these things, but I would also like to be able to force other people to buy me dinner at will; this does not mean that I should be given that right. I too, would enjoy being protected from ever losing my job no matter what, and having all my raises based on my ability to keep my butt in a chair. But I don't think this would be good for my employers, my readers, or for that matter, me.
But that doesn't mean I don't understand how awful and terrifying it is to have expected a certain life, and have it stolen away from you by a fate you do not very well control. In June 2001 when I graduated from business school, I had a management consulting gig that was scheduled to pay over $100,000 a year and had just moved back to New York. Two months later, two planes crashed into the World Trade Center, killing a number of people I knew and leaving the rest of us traumatized. Four days after that, I was working at the World Trade Center disaster recovery site, trying to come to grips with what had happened. Four months after that, the consulting firm, having pushed back my start date twice, called my associate class and told all of us that our services would not be required.
For the next eighteen months, I struggled to find a job, in the teeth of a recession that kicked MBAs especially hard. It was awful in a way that is difficult to describe to anyone who hasn't been unemployed long term; the thing makes you question everything about your life. I remember going to see Avenue Q on a date, and writhing in humiliation, thinking that my date must be identifying me with the aimless failures on stage. I was 29 years old, and living at home. I had money--I always managed to work. But as far as I could tell, I had no future.
When I finally did get a job, with The Economist, it paid about a third of what I'd been expecting as a consultant. I had about a thousand dollars in loan payments, and of course, I had to live in New York, where my job was. For the first time in my life, I understood what Victorian novelists meant when they described someone as "shabby". Over the years since I'd had a steady income, my clothes had stretched out of shape, ripped, become stained, gone out of style. I couldn't afford new ones. And I wasn't one of those whizzy heroines who can make over her own clothes. Instead, I frumped around in clothes that never looked quite right, and felt the way my clothes looked.
It took me a long, long time to crawl out of that hole. I'll never make what I expected to make as a consultant. I'll never have the job security that I had learned to expect in the pre-9/11 world. The universe will always seem a potentially malevolent place to me, ready to unleash some unknown disaster at any moment.
I was in a better position than auto workers in many ways; I didn't own a home in a dying area, or have children who needed to be educated. I'm not trying to claim that I managed to overcome with hard work and pluck, so why can't they? What to do with a fifty year old who pegged his future to a failing industry is a real question.
Nor do I think it's funny to see autoworkers who lived quite a bit better than most of America get their comeuppance. It really doesn't matter what you make; losing everything, most especially your dreams and your sense of security, is one of the worst things that can happen to a person. Laid-off consultants don't starve, of course, but neither will laid-off auto workers. They'll just be forced several rungs down the economic ladder. It will be humiliating, difficult, and it will sour a number of them permanently on life, and their country. If I could stop that from happening to people, without making some other aspect of life much worse, I would.
But whatever your feeling about government intervention in the economy, or the correct level of income inequality, I think there's one thing we can all agree on: for the world to get better, things that don't work have to fail. We cannot keep alive every company, every car and every job that someone once liked, because that way lies stagnation and death. Places where production decisions are made based on how much labor they can consume, rather than how much value they can produce, make everyone in society worse off in the long run.
So while I fully understand the human cost (I think), it has to be borne, for the same reason we couldn't save all the folks who loved their gentle home-weaving traditions, or their jobs making buggy whips. This is, of course, easy to say, when I am not bearing it. But I'm not against helping the auto workers transition to doing something else; I think unemployment assistance is a good idea, and should be extended during this crisis to at least 52 weeks. I would be fine with a job training program, if we could find one that works (so far, government training programs seem to run from useless to actively harmful). I'd be happy to take some of the money we aren't using bailing out auto companies, and offer relocation assistance to people who are trapped in factory towns.
I understand that this is not what the auto workers want; they want their jobs. But while I am happy to help the auto workers, I am not happy to help them manufacture undesireable cars at massive social cost. I too, would have liked to keep my job as a management consultant. But I didn't have a right to have the job I wanted merely because I liked it. And it wouldn't have been good for America if I had.
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.
OK. This is beyond sufficient.
A right to work. A right to work.
Megan, a lot of people outside of the auto industry will also be crushed by the colapse of the industry, have never lived or dreamed of an upper-middle class life, and the contagion from their failure will have wide-spread effects on the entire economy.
Wasn't that part of your justification for saving the financial industry?
Excuse my horrible grammar.
DDP, the theory is that banks are necessary--if all or most of the big banks disappear, then there's no one to make loans, and businesses start shutting down. If GM doesn't make cars, someone else will. The theory could be wrong--it might be that someone else would have made the loans, or that the stronger banks would have survived and been strengthened by the disappearnce of the insolvent banks, or that new banks would quickly have been capitalized and started lending. But at least in theory there's a difference. And if there's no difference, then of course the financial bailout was wrong, but there's no reason to compound it with another wrong.
Someone else will be there to make loans if many banks fail. The regionals might rise up. Or banks like CS, Santander, UFJ, etc will take marketshare. And, like with autos, the bets people and equipment will make its way to the stronger companies.
Heck, if you're going to extend unemployment benefits to 52 weeks, you might as well extend them until the next election......BO's economic plan and tax hikes are going to make Bush's "failed policies" look like the Clinton years........then, they can all decide if they liked the change they voted for and do it again.....
Greg Mankiw links an article yesterday which talks about the 'solutions' in the Great Depression and how they prolonged the depression. Excessive union power was enshrined in law and only broken by the War Board as it turns out. Autos, meaning the Big 3, are a mature industry and bear the marks, analogous to an individual's decisions, of our governmental and cultural decisions. To repeat the metaphor of a Jeremiah,' the chickens have come home to roost.' This may not be allowed to happen however as we will pursue fantasy with the 'One,' I read that $50 billion has already been bruted, perhaps until we tire of pious insufferability and begin to fear that the light at the end of the tunnel is a train. Not that we will necessarily be thoughtful then.
Why do conservative writers continue to indulge Freddie's requests for a Dickensian accounting of the "human costs" of conservative policies?
This act has worn thin -- MM and others undestand that GM failing will have devastating consequences; she believes the consequences of bailing them out will be worse.
I am tired of her and other writers having to go to great lengths to prove how much they care.
It will never be enough.
Meg,
It doesn't really help your case that you understand what unemployment is all about when you admit that you went to see a Broadway play even while unemployed, and that you see a prominent job at a major magazine as a step down. It just makes you seem like a spoiled brat.
Frankly, at times I want the bailout to go through just so we can see you conservatives squirm. Unemployment, to be quite blunt, doesn't seem to truly bother you.
I don't understand what you mean by "a right to work," Freddie.
Are you proposing that everyone in America should have a right not to have their employer go bankrupt, or just some people, and if so, which?
It should also be noted that there will certainly be laid-off workers who go on to flourish in ways that would have never been possible had they not been kicked in the pants.
I am tired of her and other writers having to go to great lengths to prove how much they care.
I'm tired of most people not caring; I'm okay with going on being tired. No one is twisting their arms to respond to me, nor is anyone twisting your arm to read them, me, or any combination thereof. The fact that we have a promiscuous and robust political conversation means there will be some rabbit holes you don't feel like going down. At those moments, all you have to do is not go down them.
What a country, huh?
I objected to the financial bailout because it seemed motivated more by fear than by evidence. A few people who were very close to the financial industry - I think too close to be objective about it - scared the Congress into thinking that the sky would fall if the bailout weren't made.
I object to the auto bailout for the same reasons. The people who are most in favor of it are the most panicked and the least objective.
In both cases, fear is triumphing over reason and evidence. There would have been a financial industry without a bailout. There will be an auto industry without a bailout. For all we know, GM would do better in bankruptcy than it would with a bailout.
I would ask DDP and others to ask themselves whether fear is a reasonable basis for a bailout. I was born in Detroit, my dad worked for Ford, but we moved in 1981 when the car industry cratered. And we ended up in Pittsburgh, which was not exactly thriving at that time. I have spent my entire life in the industrial midwest, occasionally traveling to other parts of the country and always amazed at how much more vital and prosperous they appear. In the process, I've learned that fear of collapse is worse than the collapse itself. I oppose the bailouts because they are motivated by this unreasonable fear.
Bravo.
Freddie, I think you're mis-using the phrase "right to work". In a situation where there are jobs offered, everyone who is qualified should have the same right to get that job regardless of race, creed, sexual orientation, or amount of facial hair.
In a situation where the jobs are no longer needed, there is no "right to work". That is blatantly ridiculous.
I think it's funny that the reality of Megan's situation is shown through not having new clothes. All of her points are spot on, and her anecdote is relevant and packs oomph, but I did giggle a little bit to see her so serious and saying, "You want to know how bad it was? It was so bad I couldn't dress well, that's how bad it was."
Well, what the hell are you supposed to say? If you don't talk about how much you care, you look like a heartless bastard who just doesn't care.
The situation sucks and it will be terrible for tons of people. That's however it goes down, bailout or not.
Bailing them out doesn't solve the problem which is that these companies can't make a profit as currently constituted, and GM in particular was losing plenty of money even before the economy went to hell.
Sometimes life sucks. Tossing GM a few billion won't solve the problem. It's too deep for that. Chrysler got caught in a bit of a liquidity crisis back in the day. This is a hell of a lot more serious than that. The business model is fundamentally flawed, and fixing it will involve a lot of pain.
It sucks, but there it is.
Of the people who would lose their jobs in a U.S. industry collapse, which could be easily be triggered by the bankruptcy of one company, only about 5 percent would be active UAW workers. The rest would be salaried workers, dealership employees, and employees and owners of small businesses across the country that rely on the auto industry for their income.
That seems a little like killing the fly on baby's forehead with a hammer.
Or maybe it is like allowing the banks to fail early in the Depression to teach careless bankers a lesson. Taught 'em a lesson, didn't we?
(Impact data from cargroup.org)
Look - whatever your estimate for the number of jobs that will be lost in Detroit - and that estimate cuts as high as 5 million people - we're on track to trump that in less than 2 years time unless we get financial institutions liquid and lending again. That's why we're running the bailout. This isn't trickle-down lending or golden parachutes, it's remaining fiscally solvent - keeping the flow of money through the system and ensuring that organizations capable of producing financial growth are able to do so even while the looming specter of the financial storm falls upon us. That's the fundamental crisis that's facing the whole globe, at once. Whoever you are, conservative or liberal, coming in here talking about the "human cost" of Detroit while having no appreciation of the profound difference between letting banks and auto manufacturers fail are, I'm sorry. You are total idiots.
Whatever job loss cost you want to ascribe to letting the big 3 crumble, it is infintely smaller than a global banking collapse. Truth be told, I don't feel that badly for employees at GM. They have been living high on the hog while all around them their neighbors and colleagues were out of work. They knew full well that if their work weren't so vastly overpaid, that friends and neighbors could get jobs. Instead, they argued longer and harder, secure in the belief that GM would never fail, secure in the knowledge that if they choked it to death, they could always lobby as "America's Bluecollar Worker" that GM WAS America and deserved twenty five billion or so of taxpayer money. "Our pensions!" they'll cry, having taken out enormous mortgages leveraged on 100k+ salaries, lived beyond their means and argued, kicking and screaming, against anything that would have been Detroit solvent.
Sorry. I consider myself a liberal, and if this shit stinks this badly to me, I can only imagine how it smells on the other side. Good luck, Detroit, but you're not worth saving.
Again, Megan never fails. Management, feeling invincible, capitulates for half a century in hopes of avoiding strikes, and then all of a sudden life sucks at GM and, wouldn't you know it, had those unions hadn't made those demands in the first place, American cars might be the best cars ever.
Of course, Detroit initiated a terrible system of management, based on targets and quotas, that led to low-quality automobiles. Robert Strange MacNamara, former CEO of Ford, managed the Vietnam War the same way. Unfortunately for Megan, she can't blame that failure on any union.
Look, I'm not trying to defend the UAW, but it's not representative of bloated unionism in America. It's just like all the other Detroit institutions. Overvalue of seniority. Overvalue of targets and numbers. Undervalue of quality. Short-term bottom line - awesome pensions for the uniona and solid quarterly earnings for management - over a long-term commitment to quality products and a stable job. All it took was a crisis that affected the whole auto industry - superior automakers like Honda and Toyota included - for GM to finally be pushed overboard.
And this is where I agree with Megan: good riddance. No, I dont' want anyone to get hurt. I think the whole of the federal government needs to engage in aggressive stimulus. But we should only reward bad behavior, like with the financial institutions, if it benefits the country. But to act as if all of this could have been prevented had UAW been less demanding is way off-base.
People have no idea how fucked GM is.
This isn't a bridge loan situation. This is a GM has to fire a few hundred thousand people, kill 6 brands, and cut off 1500 dealerships--- MINIMUM.
It's going to have to happen to get them healthy. You really think that will happen if the government is giving them money? What politician is going to give taxpayer money to GM so they can fire thousands of people?
Status quo is a no go. There has to be blood.
The phrase "a right to work" is not logically concluded by the clause "...at the industry, wage, benefits package, and time of my choosing."
The fact that low- and medium-skilled union jobs in the rust belt are capable of net compensation that significantly exceed not only a market rate for non-union low- and medium-skilled labor in comparable industries, but are in fact higher than the compensation for many types of engineering and other skilled professions, is a plain evidence that the union jobs are premised on unsustainable grounds.
Nobody has a "right" to those positions as they are currently structured. They certainly do have a right to collectively bargain, but if they collectively bargain themselves into a sinkhole, them's are the breaks -- live with them, or renegotiate.
Tom, why would the bankruptcy of one car company cause its collapse, much less the collapse of the entire industry? If GM filed for bankruptcy it could cut dealers, get out of some onerous contracts, and in general make its operations look more like Honda and Toyota's. That would allow it to make cars and make a profit. That's not a collapse.
If Chrysler shut down, that would remove capacity in the industry, which is suffering from significant overcapacity. Why wouldn't that help GM and Ford?
Hi Ms. McArdle,
Before I go to the trouble of disagreeing with you, I'd like to express (what--sympathy? compassion?) one of those for what you went through in the past decade. It sounds tough. I'm sure it was.
The auto industry is at the top of a complex web of manufacturing and service companies that rely on the health of the big three to stay in business. I think a more pragmatic attitude is called for here. I think we should probably eat Wagoner for his sins, and maybe a wholesale firing of the boards of all three is in order. But I think the knock-on effects of letting any of the big three fail outweigh the moral lesson it would impart.
Thomas said: DDP, the theory is that banks are necessary--if all or most of the big banks disappear, then there's no one to make loans, and businesses start shutting down. If GM doesn't make cars, someone else will.
Right. In addition, average folks would be hurt by massive bank failures just as much as they would hurt by the auto industry collapsing. If businesses can't get loans they scale back or even close down, leading to job losses. Moreover, bank failures hurt consumers that want loans (e.g., for cars, school, home, etc.) All the Wall Street versus Main Street rhetoric we heard during the election is pure bunk. We're connected, like it or not. Especially given the fact many middle class people have retirement money in the market now.
A second thing that makes banks different is that they are one another's customers. That is, they are completely interdependent.
Not true in most other industries. (Although competitor alliances are common in some. But usually they're just focused on one project, like developing some kind of industry standard.)
I don't see any reason to believe bailing out the auto industry is more righteous than bailing out the banks. The cost of failure in terms of real human misery is great in both cases. But the cost of government intervention in terms of dysfunctional incentives and distorted information is great in both cases too.
Two thoughts --
First, the U.S. based carmakers have made a lot of progress in the past decade, and have repaired most of the damage done during the long slide downward that started in the 1970s. So if you are basing your opinions (or emotions) on stuff that happened a decade or more ago, please ask yourself if that is fair.
Second, this kind of "Kill Piggy" attitude, directed at the bankers, turned the Depression into the Great Depression. Nobody likes government intervention, but you have to seriously consider the risk of the alternatives.
Megan, thank you for this candid post. Being unemployed for 18 months is awful -- I've been there and I sympathize. As one who agrees with your position on the auto bailout, I understand your personal story as proof that you are not merely saying, "Let them eat cake." Thanks for sharing.
The market cap of GM and Ford combined was under $6 billion yesterday. Can we buy out the public and give the equity to the UAW and tell them to do whatever they want with it? That would cost a heck of a lot less than $50 billion, and wouldn't involve the rest of us--those who pay taxes and save for a retirement that won't include gold-plated retiree health care--funding something better than we could ever hope to have.
I agree with Thomas that the collapse of one automobile firm would not necessarily lead to a collapse of all of them. Each automobile company has tiers of dedicated suppliers. (They're almost an extension of the automobile company.) Those suppliers will be damaged by that auto company collapsing. But I don't see any reason to believe ALL the firms will collapse. In fact, it might be in their best interset for one of them (GM is my nominee) to go under.
Moreover, can't these companies just go into bankruptcy? Isn't that one way to shake off these union obligations that this bailout is actually all about? I'm not an expert on bankruptcy so I'm curious what others think.
Tversky, if anyone should collapse, it's Chrysler. They make crappy cars, unlike GM and Ford. File, sell Jeep, sell whatever assets are worthwhile, and shut it down. Cerberus doesn't have any real money in it--they got it for free essentially, because the risks were obvious.
The horrifying job loss and damage numbers seem to presuppose that GM will disappear into a black hole if they declare bankruptcy, taking all of their suppliers with them. I don't see why that would be the case. Yes, life would be rough for some, and uncertain for all, but nobody's planning to set GM on fire. You go into chapter 11, you reorganize, you come back out. You continue to make cars. Probably less of them, but you're still making cars. Those cars still require parts from suppliers. Fewer parts, but those suppliers still need to build them. Maybe the suppliers need to downsize too, but it's not like everyone in the Detroit area is going to lose their job.
Megan, what about those who would like being forced to buy you dinner? I can understand the rest of the media and government not thinking of our needs, but you?
Thomas, that is a great idea. WAY too great. Why isn't it getting any serious consideration? Heck, I'd chip in for that myself, just to laugh at the UAW having only themselves to blame for stiffing older workers.
@Tom_Wilkinson_at_GM: Hey, I have the impression that GM was declaring intent to pay DIVIDENDS into June of this year. What can you do to shake me of that impression? Oh, right, you can't because it's 100% true.
I also have the impression that GM has had negative book value well back into the 70's, under modern accounting standards. What can you do to shake me of that impression? Oh, right, you can't because it's 100% true.
Explain to me why the hell I can trust a warranty from a company that won't be able to honor it under the most optimistic sceanrios because it doesn't believe in pre-funding its obligations, AND which, even if it *did* honor it, would be at the cost of some little old lady's pension.
GM sickens me.
There is pretty good research (accepted by everyone from buy-sell analysts to economists) that customers would shun a carmaker in bankruptcy. Why take the risk when there are healthy brands right next door at the automall.
Also keep in mind that every player in the chain -- carmakers, suppliers and dealers -- are interwoven and heavily leveraged.
The sharp loss of revenue of a carmaker entering bankruptcy would not only impede its reorganization, but it would instantly cascade through the supplier and dealer communities, triggering more failures.
Again, if you recall dedicated suppliers, you are living in the past. The Detroit 3 and transplants share many suppliers. With lean manufacturing (thanks, Toyota) there is almost no slack anywhere in the system. GM going down could quickly halt most car production and sales in the U.S.
Like it or not, the auto industry has evolved into a complex, heavily leveraged, totally interconnected system.
The idiomatic phrase is "couldn't care less," not "could care less." If you write for a living you should know this. If you even think about what you're writing, you should get this.
Silas -
GM suspended the common stock dividend in July.
Also, the company was heavily leveraged but fully functioning until the credit crisis.
GM's financials are about as transparent as those of any company on earth. Skeptics should visit our investor site for facts, rather than trafficing in myths and rumors.
I just want to say that I totally agree with the sentiment and substance of the article, but the whininess of it was irksome, and I just lost it at: "We cannot keep alive every company, every car and every job that someone once liked, because that way lies stagnation and death." Melodramatic much?
That's going to be my new war cry for any economic issue I disagree with: "Stagnation and death, sir! That way lies stagnation and death!" It's very Dickens.
Megan, I liked this sentence especially: "For the world to get better, things that don't work have to die." It makes sense, and it' s seen in every area of life, most notably (to me) parenting. Parents cannot reward dysfunction in their child's life, or enable that child to continue living dysfunctionally by withholding punishment. We all have to live with the consequences of our actions--it's an old adage but still true. And when Pelosi and the other illuminati insist on breaking the sowing from the reaping, they are changing an order inherent to the world.
Wonderful post..
I graduated in geophysics in 1987..
right when oil hit $10 per barrel..
I can empathize..
Still - you are right.. adjustment will be harder for older workers. that said.. adjustment must be made. you can't live in the past.
Tom, are buyers shunning GM now because of the risk of bankruptcy?
The consumer risk can be managed, it seems to me. How about we give GM a few hundred million dollars--give!--for an advertising campaign explaining why folks don't need to be worried about warranty claims?
Tom_Wilkinson_at_GM:
GM suspended the common stock dividend in July.
Which contradicts ... which statement I made again?
Also, the company was heavily leveraged but fully functioning until the credit crisis.
Sure, but only in the sense that a Ponzi scheme is "fully functioning" before it implodes. Which is to say, not a meaningful sense at all.
"Before the credit crisis", if you had sold off all of GM's assets at the very very very best price you could get for them, it would still not be enough to pay for all of its legacy obligations, such as pensions and job guarantees. That, by itself, should tell you that there was nothing healthy about GM whatsoever.
As I noted in my blog at the time, even in July, GM bonds maturing in 2011 were yielding almost 30%.
GM's financials are about as transparent as those of any company on earth. Skeptics should visit our investor site for facts, rather than trafficing in myths and rumors.
Nothing I said is a myth. Remember, GM wasn't required to list their B/S pension promises as genuine "we actually plan to pay this" obligations until, iirc, the 90s, when really they should have from day 1. That means all the time before that, they were not being transparent.
I'll let you in on a little secret: the only reason people were bidding (and continue to bid) more than $0 for the stock is because they believed in a government guarantee, not because GM could ever dig itself out of that hole.
***
I have a proposal for how to get GM back on its feet; perhaps you could share your shill opinion. This is the only honorable and realistic way to avoid bankruptcy:
-Find 3rd party AAA-grade insurers willing to take over all legacy costs.
-Get a quote for how much you'd have to pay them to accomplish that.
-Sell ALL non-essential assets (like a certain tall building they don't really need), including divisions. Then start whoring out brand names. Then, issue any new bond or stock you possibly can.
-Apply the funds raised to pay those insurers to take those obligations off the balance sheet.
-Wall Street investors then begin a heartfelt debate about whether a share is worth 1/100th, or 1/99th of a penny.
Tom Wilkinson from GM:
I've heard that anti-bankruptcy argument Tom, but only from auto industry reps or people whose incentives are aligned with the auto industry (e.g., Jennifer Granholm, other Democrat politicians) But I didn't know there was any research on it.
Regarding the supplier relations in the auto industry:
So you're saying that all the auto companies share the same suppliers? When did Chrysler abandon the tiered supplier networking idea (that they got from the Japanese)? I thought part of the idea of such networks was to produce innovations, make operations leaner, etc. through increased supplier collaboration. Sharing suppliers with OTHER auto companies would work against that. Why did the auto companies shift strategy? I'm curious about the trends and objectives that led to this shift in supplier relations.
bcg said - I think it's funny that the reality of Megan's situation is shown through not having new clothes. "You want to know how bad it was? It was so bad I couldn't dress well, that's how bad it was."
The truth is, not having decent clothes to wear can cause a huge hit to one's self-esteem at any age. Unless you've stood out at the bus stop on the first day of school wearing hand-me-downs, you probably wouldn't understand. I'm with Megan on this one. Excellent post BTW!
here's a stupid question.
is it really a misuse of resources to give them a loan?
even if they don't repay it, doesn't that money get used to pay health benefits, retirement benefits, severance packages? doesn't that money get injected back into the system the same way that unemployment benefits do?
i tend to agree with letting them die naturally but i'm not entirely convinced that we shouldn't try to give them one last chance.
on a side note, is anyone reminded of atlas shrugged at a time like this?
who is john galt?
Daniel Gross argues (more or less) for a bailout in Slate. He makes a pragmatic case -- along the lines that the economic disruption caused by bankruptcy of the Big Three would be worse for the country as a whole than the alternatives. I would be very interested to hear your thoughts, Megan!
(Also, you should think about going on Bloggingheads with Gross sometime. You are both clever pragmatists with somewhat different ideological instincts.)
Huh. If that ever happened to me I'd probably die, since I require ongoing expensive health care to live. Funny that treating me in that case would not cause something much worse to happen elsewhere, but libertarians prefer to let me rot anyway.
Who is John Galt? He probably died of cancer at the age of 8.
What are the odds that the first sporting event at the new Yankee Stadium will be the throwing of bankers to angry bears? At least saving GM (as dumb as it would probably be) won't get you thrown out of office like the wall street bailout is definitely going to do unless some miracle happens in the next two years (or things are so bad that the incumbents have no opposition).
The suppliers started to evolve as the industry went global. Japanese companies setting up here brought some suppliers with them, but also used U.S.-based suppliers who are already here. GM uses Korea-based suppliers who set up shop in Alabama near the Hyundai plant. And so on. The big captives (Delphi, Visteon) were spun off (some not so successfully) so they could play globally, too.
As for the research, I would not consider the buy-sell analysts to be in the pocket of the industry. Even they are convinced that the risk of contagion and collapse are real. Just Google "GM" on Google News and you will get an eye full.
Christopher M. Daniel Gross seems to be saying 'though imperfect, the auto companies are just so perfect in an ugly way' they need to be saved, kind of like an anteater put in a zoo. There was a regal statue of Queen Victoria in New Delhi. When the Indians took over well they moved it, to a back lot at the zoo. Maybe the Saudis have a taste for a little kitsch over where there money came from; maybe they would buy Michigan GM and move it to like a zoo in Saudi Arabia.
Megan,
The issue is not that you're heartless and it's not whether or not bailing out GM sets a good or bad precedent or is fair, or even good economics. The issue to consider here is political. So far, the US taxpayer is on the hook for north of $400 billion in Iraq. $700 billion has been committed to bailouts for such finely run firms as Bear Sterns and AIG. AIG it should be said, is so badly run as to make GM look like Honda. Every cent pumped into AIG is more and more looking like a truly lousy investment. Now go tell taxpayers in the Great Lakes region that a mere 25 billion just isn't good economics. You're picking a hell of a time to to be a budget hawk, Megan. I'll say it once more, if Republicans (and Bush) don't bail out GM, this will be a one party country for a generation. As stupid as the Sarah Palin/Joe the Plumber GOP has been lately, I doubt even they're stupid enough to not support this bailout.
The really difficult thing is that new manufacturers don't want to move to Michigan because they'd be forced to deal with the unions.
So these people will lose their jobs without much chance of getting new ones in the area. Their houses will be hard to sell because the area isn't growing. Service people in the area will suffer.
I would like someone who knows more than me to tell me if it would make sense to put pressure on Michigan to change its labor laws. It may not save the Big 3, but it may save the people that worked there.
I've been in rough spots, but only because I took risks that left me in danger of bankruptcy. If you've never laid awake, staring at the ceiling, wondering how you'll survive the week, you've missed out in life. Too many parents make that mistake with their children, not wanting the children to have the fear the parents went through. Children grow up and when that day comes they don't know how to handle themselves.
If the government bails out workers every time we have a downturn, workers will never consider themselves responsible for the firms they work for. Sometimes its best to turn down a good, well paying job with a firm that you don't see as sustainable. Too many people, management included, don't ask what they can do to make their company better and more profitable.
ROFLcopter!!!! Oh, this is too rich. Right in the MIDDLE of the article, they post a link to Gross's previous article where he REJECTED the claim that the auto industry was doomed. Check out these gems:
"...the Big Three enjoy remarkably large market caps: $21.5 billion for GM .... Throw in all the money that has been lent to the companies, and you have to come to the conclusion that either there's an awful lot of stupid money invested in the survival of the U.S. auto industry or the declinists are mere alarmists."
"...the Big Three are unlikely to seal their own near-term doom for the sake of short-term labor peace. It's safe to assume that the companies will gain the upper hand in negotiations ..."
"Ford, as Moneybox has described it, is a profitable bank lashed to an unprofitable carmaker."
"...it's hard to go out of business when you have a great deal of brand equity, ready access to the capital markets, and the potential to print money when you have the right product mix at the right economic climate."
I really have to hand it to Slate: linking to an author's unfortunate earlier work is quite a selfless, helpful act :-)
Tough break out of school Megan. Been there; I feel you. Thanks for sharing your story.
I feel little sympathy for the UAW -- they're the most effective argument against unions I've ever seen. But, as a more general point, I think it's wrong to suddenly "change the rules" on workers. The best example is NAFTA and the other free trade initiatives that kicked off in the 90s. People had invested decades of their lives in a certain career path -- usually, in that case, some kind of manufacturing -- when we suddenly changed the rules on them by allowing the free flow of goods from countries where labor and other standards are virtually non-existent. Suddenly, you've got 40 and 50 year old workers who have their whole industry go away.
The idea that we'll provide some re-training assistance is bogus. You want to change the playing field like that it'll require a lot more than just free tuition at the local community college to make up for it. The same argument could be applied to many of the workers who will be affected by the coming implosion of GM. Those workers are somewhat more culpable than, say, the out of work factory workers whose plant just got shipped to Mexico, but the same general principal applies.
Nathan: The fact the govt. fucked up twice before is no reason to do it a 3rd time.
And my point at least re: the bailout is that 25 billion isn't even remotely enough to fix GM. That money will keep GM afloat until mid-2009 at their current cash burn rate. Unless you see a miraculous economic recovery on the immediate horizon, it will only delay the pain.
To get GM healthy without a bankruptcy, we're easily talking 70 billion. As a starter payment. That might just cover killing off all the brands and dealers and firing everyone who needs to go. Keeping GM on life support long enough to survive this recession... that'll be extra. Paying for the R&D and product development to get GM a viable portfolio... whooo....
GM is bankrupt. Bailout or not, its bankrupt. There are going to be consequences.
Rumor is the suppliers for Ford and GM's Euro ops can't get credit insurance anymore; look for them to start demanding cash on the barrel. And so the cash burn increases and the run on the bank increases.... if the government just hands out a fat check, it'll just fund a run on GM.
www.thetruthaboutcars.com --- if you are interested in this whole situation, go there. They've been on the ball and scarily accurate for the 3 years I've been reading them. But have stiff drink first, the situation ain't pretty.
Thanks for the response Tom.
I wasn't specifically thinking of the "big captives" like Delphi or Visteon but rather *networks* of independent supplier firms allied with each carmaker. The reason I didn't think there was a substantial amount of supplier sharing between the automakers was because these networks are meant to facilitate firm specific innovations and/or increase efficiency (the coordination requirements among multiple automakers would be huge.) Bottom line, I didn't realize how much between automaker supplier sharing there was so thanks for the info.
As for your other point:
I never doubted there would be some contagion if one of the automakers failed. At the very least that automaker would impact it's network of suppliers - particularly if they are as closely allied as I used to believe before you informed me otherwise. (That is, the supplier couldn't just start up business with another automaker unless they sold a pretty standardized product.) Moreover, I acknowledge the impact of an automaker failing on Michigan's economy. So I never questioned that there would be SOME contagion. I just questioned the degree of contagion relative to the degree of contagion associated with a major bank failure.
I'll see if I can find that research you speak of that says consumers won't buy a car from a company in bankruptcy.
Thanks again.
Nathan:
I don't see the GOP rallying behind this bailout. For one thing, they see the unions as a de facto arm of the Democratic party. Moreover, millions of conservative members of the GOP stayed home last Tuesday rather than vote for McCain and that was at least partially due to him signing a pork filled bailout bill. These folks are still extremely pissed off. Of course Pelosi and Reid won't NEED the GOP. The question is whether they'll go ahead and vote for the bailout anyway. This was true for the financial market bailout but Pelosi wanted the political cover of GOP votes. I don't know if she'll see the automaker bailout the same way. I doubt it since, like I said, the unions are practically a wing of the Dem party. The bailout is probably going to go through.
Is it at all possible that GM and it's factories would just disappear?
No one would want it? It could not be purchased and used for anything?
If that's the case it must indeed be wortheless and we can probably forget worrying about it.
I'm personally not worried about their being 1 (or 3) less dealerships in my town.
How do we have people who on one hand say we need to tax polluters (cars!) and on the other we have to save them so they can continue to produce and pollute.
Toxic, Tversky, Etc.,
I'm not saying the American public is always rational. After all, they voted for Bush twice. I'm saying, after you have already flushed 1.1 trillion dollars down the drain, you don't look like you're serving the public's interest by quibbling over 25 billion. Unless Bush and a sizable number of Republicans get behind the bailout, the GOP is SOL until the 2030 elections. Further, claiming that 25 billion won't save GM is like saying $700 billion won't save the financial sector and by extension the American economy - very likely true but short on much needed optimism. Further still, it's the freezing of credit, and by extension tougher terms for car loans that's the culprit here. Chrysler's product line has been poop for decades but they've stayed in business so it's not quality that's the issue. Without easy credit, fewer people can lease cars, thus foreign carmakers - even the good ones - are in the same boat, if at least on the side that's not yet under water. These are truly dark waters we find ourselves swimming in. I think we should bail out GM, if for no other reason than to spend at least a little tax-payer money on actual American taxpayers - for a freakn' change!
Someone else pointed out the following:
We can build good cars--see the Honda and Toyota plants in the US.
We can design good cars--plenty of US auto designers all over.
But we cannot seem to manage a car company.
I really don't see how handing a huge bailout to the auto industry does any more than put us back in this situation in a few years--mid 2009 by Toxic's number. You can't reform something by firmly stating that everyone should do better now. The union will not suddenly agree to lean mean workplace rules--cuts in jobs and pay. The health insurance won't go away unless we get single payer through in a year, which isn't even a goal of the new administration. Pensions will be there. And if I'm looking for a new car, it'll be another Toyota.
By the way, Honda says it will bail on its manufacturing plants if the big 3 get bailed out and Honda is expected to compete with no bailout--punished for producing something people want to buy.
And I'll join the side rants at AIG: they evidently weren't coming clean about the size of their losses, and appear to lose nothing for selling 100 people an insurance policy on Joe not defaulting on his mortgage. The insurance was mostly on bad debt bundles? Getting every industry into the Too Big To Fail pot is a terrible idea--see Honda above. Then the big firms can take big risks, socializing the losses and capitalizing the profits, and the smaller firms, forced to be more careful with no bailout backup, will be pushed out. I thought the bailout was the emergency cash infusion as we got If You're Too Big To Fail You're Too Big To Be In Business in place, and I'm not seeing that. And I only agreed to it for banks, because I do kind of understand the liquidity issue. When AIG spent the money on manicures, that should have made it clear that leaving the disastrous management in place doesn't work.
After reading the Slate article it seems GM has two things to worry about
1) Consumer will not buy cars from a firm in bankruptcy
2) The UAW will pick the bones clean in bankruptcy. Simply, the UAW will demand, and will get help from some politicians, to take their pound of flesh from GM leaving few assets with which GM could try to restart.
I thought bankruptcy was the best path for GM. Now I understand why GM is afraid of that path.
GM is once again afraid to confront the UAW, this time in bankruptcy court. That fear is not unfounded given the history of the UAW.
I'm not sure where they will declare bankruptcy, or how responsive the judge will be to getting GM running again. But the UAW may have less interest in helping rebuild GM then they are in making sure their senior members get the lion's share of assets.
GM must have a good idea of how the UAW will act in a bankruptcy. And they seem afraid.
BTW I am not anti-union. For a period I was a union member. But if GM declares bankruptcy, the UAW may have zero interests in every letting them off the floor again.
Tom Wilkinson at GM,
Can you please explain what this money will be used for, and the chances that GM will be a viable, profitable company in 2/5/10 years (assuming the bailout).
I have a sinking feeling that taxpayers are auditioning for a role in "Weekend at Bernie's," where we put sunglasses on a corpse and drag him around to parties to convince everyone he's fine.
DanC, I don't think even the UAW is stupid enough to pick the bones of the golden goose. No GM = no UAW. They know that much.
Nathan, Congress already approved $25 billion in loans. Now the bid is $50 billion for some sort of bailout. And of course that won't be enough--that's $75 billion to get a year, maybe a bit more.
This bailout is deadly politics. Tell some guy who has a 401(k) with a declining balance and a health insurance premiums going up at a double-digit inflation rate that his tax dollars should go to someone who retired from GM in 1985, who's got a boat and gold-plated retirement and health benefits and lives better than most of the rest of us. No, really, go have that conversation, tell me how it goes.
Yes, if you want to win Michigan, you have to support the bailout. Who cares about Michigan? Beautiful state, but why would anyone live there? Want some help? I say send them bus tickets to Texas, Arizona, Florida, Nevada. Heck, my understanding is there are lots of houses available in the latter 3.
It absolutely isn't true that it's the credit markets which are the problem. Sales have been declining for months, because Detroit makes trucks and lousy cars, and no one wants a truck and no one wants a lousy car. Financing isn't as available as it was, but there's no reason to think that we're going to see a reversal in that anytime soon. The Japanese automakers aren't doing well, but they're not in the same boat as the Big 3.
Some are tired of liberals "demanding" that conservatives show they "care". I'm tired of conservatives and libertarians repeating ad nauseum the basic and widely accepted truths of the free market economy. Badly run firms need to fail so well run firms can replace them, making us all better off: this liberal says "no duh".
As a liberal, I don't really want conservatives showing they "care". "Caring" doesn't amount to very much; many conservatives genuinely care about poverty and suffering and hence give a lot to charity, which does very little to reduce poverty and suffering in the long run, while opposing the government-provided safety nets that can actually sharply reduce poverty and suffering in a sustainable fashion. In any case, "caring" with words is rather different from "caring" with money out of your pocket or time out of your life, and the fact is that neither I nor Megan really "care" about auto workers in the latter sense.
The argument about an auto industry bailout doesn't, or shouldn't, have much to do with "caring". It has to do with an argument about network economies. The way I generally hear the classic Friedmanite argument in its vulgar version, companies are like kids making and selling lemonade: the ones who make bad lemonade expensively and slowly go bust, the ones who make good lemonade cheaply and quickly expand and take over the market. Very nice. But that doesn't describe what happens with network economies, where one region becomes a hub for everything associated with an industry, like Manchester's textile industry in the early 19th century. Do we really think all of the people who made cloth in Manchester were better businessmen than any cloth makers in Lyons at the time? Of course not. But the concentration of efficiencies and technological advantages around Manchester at the time made it a place where a mediocre clothmaker could make better cloth cheaper than an excellent clothmaker in Lyons.
Supporting network industries like this sometimes takes state intervention. When today's shipbuilders, for example, look at whether to build yards in Vietnam or in India, they look to the governments' plans for port and rail modernization and building new power stations. As a result of these kinds of network economy issues, South Korea and China and Japan today have huge shipbuilding industries, while Brazil and Indonesia don't. The only question that seems relevant to me in the Detroit bailout is: would the simultaneous failure of all US car manufacturers destroy an entire network economy in a fashion that takes down otherwise productive and efficient companies, and that destroys a potential center of competitive economic power for the US economy? I don't have a good opinion on this question because I don't know enough. But what frustrates me is that the conservatives and libertarians here are unable to speak in a way that distinguishes between what it means when a FIRM goes bankrupt, and what it means when an entire regional INDUSTRY collapses. Not in terms of how sad it is for the employees, but in terms of what the economic incentives, rewards and damages are.
One thing that seems crucial to me is that all US automakers seem to be failing at the same time. What accounts for this? Why should three completely different firms all become uncompetitive at the same time? Similar union work rules might explain this. A similar corporate culture across the firms might explain it. The fact that they make cars for the same consumers could explain it. What else?
I think the UAW is that stupid. I also think that the senior ranks of the UAW are more concerned with funding health and welfare, then they are about a future GM.
For example, if GM voids the UAW contract in bankruptcy what will the UAW do? The UAW will strike GM knowing that if GM tries to fight they have no reserves.
GM could try to break the union, but we will need to bring troops home to deal with that. Plus in the last GM UAW strike Presidential candidate Obama was highly critical of GM management. With Democrats in charge of 2.5 of the three branches, who do you think they will exert pressure on?
But we will see, and I will bet that the UAW would sooner pick the bones of a dead GM then deal with a strong fit GM.
And don't for a minute think that the UAW cares about the supplier network, dealers, etc. To the UAW they will just be step children trying to some of the dead man's money.
Have you ever dealt with the UAW?
As much as I usually agree with Ms. McArdle--including the main point of this post--I have to disagree with her claiming that she was unemployed for 18 months. She herself says that she always had work... that means she wasn't unemployed, just that she wasn't employed to her satisfaction.
Well, guess what. Many of us are not employed to our satisfaction. Just because I wish I were a unicorn wrangler but actually drive a snowplow doesn't make me unemployed.
Megan, stop giving ammunition to prevaricators like Freddie. Claiming that you were unemployed when you did actually have jobs only supports his whines that autoworkers will be 'unemployed' when the market balances out and they have to work at their legitimate market value instead of an extortionate union rate.
I would like someone who knows more than me to tell me if it would make sense to put pressure on Michigan to change its labor laws. It may not save the Big 3, but it may save the people that worked there.
Letting the mess collapse without intervention would probably be the fastest route, since Michigan would finally have to confront the tax-crash trifecta of no major industry, low property values, and very high unemployment. There would also be a very ugly five years thereafter, probably culminating in a huge repeat of the Detroit Riots. It might be the kick in the teeth Michigan needs to finally abandon the legacy rot and pull out a midwestern version of Ireland, but it would be painful to say the least.
I would ask DDP and others to ask themselves whether fear is a reasonable basis for a bailout. I was born in Detroit, my dad worked for Ford, but we moved in 1981 when the car industry cratered. And we ended up in Pittsburgh, which was not exactly thriving at that time. I have spent my entire life in the industrial midwest, occasionally traveling to other parts of the country and always amazed at how much more vital and prosperous they appear. In the process, I've learned that fear of collapse is worse than the collapse itself. I oppose the bailouts because they are motivated by this unreasonable fear.
I don't have to provide anything considering that I oppose a bailout of the US automotive industry. I live in Detroit. I've lived there most of my life. I am an engineer in the automotive industry. My mother is a Ford pensioner.
I oppose the bailout.
If the auto industry is to fail, it will fail. I will lose my job. Maybe my home. My mother will lose her pension. Many friends and colleagues will suffer the same.
I oppose the bailout.
There are over 3 million people in the metro Detroit area. Many are directly connected to the auto industry. The rest are directly connected to those people. There will be massive unemployment and massive numbers of foreclosures. BOA operates in Michigan, don't ya know? These are my friends and family. The failure of the US auto industry will, without a doubt, create a further depression in the Midwest economy worse than we have seen since the Great Depression.
I still oppose the bailout.
For those of you who oppose this bailout and supported the financial bailout:
Why would you expect a Michigander to care whether BOA fails or whether GM fails? It's all the same to them. They have the same fears that you did regarding the financial industry and this will cause a downturn in the area the same as if we had that collapse. What justification do you have to bailout an industry because the TED spread was at levels not seen since 1990? Or that the commercial paper market stalled for a couple of days?
I oppose the bailout, and I'll tell you why - because I do not wish to live in a world where my subsistence depends on stealing from others. But when it was your turn, you blinked. That isn't a proof of the high quality of my character, it was a lack of yours. You were all cowards. And now you would excoriate those who are acting the same, but simply live an area exposed to this failure while you don't.
That is the only difference.
Megan
This was an eloquent testimonial, but you seem squimish about taking the obvious next step... unions as currently structured do not contribute more to the nation's welfare than they subtract. I believe all thinking people will agree unions served an essential purpose at a certain stage of our economic development, but what is the justification for keeping them in their current cocoon? So they can confiscate dues to finance the No on Prop 8 campaign? So they can provide leftish bloggers an unaccountable nest? So they can provide the labor barons with a generous six figure salary, a bottomless expense account, enough perks and a posse of coffeefetchers and gofers that would make Jesse Jackson blush? We've built institutions like OSHA, the wage and labor enforcement bar, etc that covers most of the old functions, and management has been educated about the value of good employee relations. Why not sunset these dinosaurs?proceed?
Ms. McArdle,
Though your personal story about how your life as a budding MBA before the tragic events of 9/11 is quite touching, your object of derision is quite misplaced for two very clear reasons.
First, as I'm sure you know (as an MBA) union members do not design the crappy cars that Detroit has been making for the past 25 years. These plans are laid out by management in support of the stockholders.
Which brings me to the second point. If you want to point the finger you need look no further than the stockholder. Why blame the people who make the cars for wanting more when you can blame the people who make money from their work? Get it?
Yes, this is how capitalism works, and no, I'm not interested in bailouts and government ownership any more than your average American, however, when you consider that the Detroit strategy for the past twenty five years has been built around satisfying stockholders increasingly greedy demands it is no wonder we have the SUV system.
This is all to say that the market didn't used to be a pension fund. Stockholders used to know there were risks. Now you hear people talk bemoaningly about how the stock market is starting to be a real gamble. THE STOCK MARKET IS A GAMBLE. If you invest in bad companies, you should lose money.
It's not the union's fault.
Failure should fall to the CEOs and stockholders, not the employees.
Best,
JGR
DB Cooper
The loans under discussion are essentially a bridge loan to get the industry through the next year or so until the economy starts to stabilize and people have enough confidence to start buying cars again. Despite what some of the skeptics above think, GM and Ford were well along in restructuring (including building a new relationship with the UAW) when the credit crisis hit. Keeping the companies alive long enough to finish the job makes more sense (to me at least) than letting them crash and burn and then spending $100s of billions to clean up the wreckage.
Sorry this pragmatic approach seems to offend so many, but building and selling cars is, in the end, a very pragmatic kind of business. Working through a recession/depression will be, too. Theories will be rewritten and ideologies tested. In the end, reality will triumph over ideas. Hang on, it will be a wild ride.
DDP: "my mother is a Ford pensioner"
I also grew up my entire life in Detroit and it's suburbs and I've never heard a GM, Ford or Chrysler "retiree" called a "pensioner".
Ever.
When I read your comment, why do I feel like John McClane in Die Hard III when he walks into an elevator with three bank "guards" and one of them calls the elevator a "lift"?
If you are an auto engineer who's lived in Detroit, tell me - what's the name of the street everyone traditionally cruises on?
Gratiot
At least when I was young, but Woodward has the Drean Cruise.
DDP - and while you're at it...What's the color of the boathouse at Hereford?
Tom, you say that GM is building a new relationship with the UAW. But the facts are that UAW members are still overpaid relative to their peers in the industry, that retiree benefits are still too high to allow GM to be competitive, and that the UAW has indicated that they won't make any further concessions. I don't know how to characterize that relationship, but it isn't one that's going to allow GM to prosper absent continuing government help.
I haven't the slightest clue what you are referring to.
But I was born in South Macomb hospital, I own a home in Sterling Heights just by Lakeside Mall, love to go to the wonderful and pristine Lafayette Coney Island, took field trips to Boblo, went to CMU and Oakland, and my good friend is a DJ at Woody's in Royal Oak.
Shall we ask me questions about my engineering knowledge now?
This was a really great post that I enjoyed reading a lot. I added this site to my Google Reader list after seeing the Reason.tv Talk Show with McArdle, and am now glad I did.
A bailout, especially in the piddling 25-50 billion range, WILL NOT SOLVE IT. There is no serious question about this. Brands have to go. Dealers have to go. Workers have to go. All this will cost way more than 25 billion. The rest have to take paycuts. Upper management needs to get fired out of a cannon into an lake full of hungry pirhanas.
Bankruptcy + 25-50 billion... maybe.
There is no easy path for GM now. They are in the valley of the shadow of death. Patting them on the head and promising easy government bucks will not get Rick Wagoner, possibly the most delusional jerkoff since Hitler decided to invade Russia, to get off his ass and do the bloody work that has to be done.
This all reminds me of the way the CRA of 1977 managed to destroy the economy in 2008.
How long has the UAW been around? Just maybe, let yourself entertain the possibility: This is a bunch of bullshit.
Anyone who has to work with the UAW is usually quickly dissuaded of their wonderfulness.
They are not the whole problem. They are, like in most other massive failures, only part of the problem.
Tom Wilkinson
No thanks for the wild ride - we've seen this movie before with Eastern Airlines, Braniff, Pan Am, Continental, et al. And your sophistry about how groovy relations were getting between the UAW and management before the credit crunch just doesn't comport with reality. When management offers to work for a buck a year [like Lee Iacocca back in the day] and the fat slobs in Florida start paying a copay for their Viagra and everyone else takes a pay freeze until all loans are paid back then I might listen.
DDP: Shall we ask me questions about my engineering knowledge now?
Ok - how come you designed such shitty cars? As has been pointed out, UAW members don't design cars - people like you do.
Why have you ruined the economy?
Please explain. And tell us why all these people have to lose their jobs because you don't know how to do yours.
Anyone who has to work with the UAW is usually quickly dissuaded of their wonderfulness.
Pretty much my entire family was UAW. I'm looking at a six-inch long American flag that flew on the inaugural flight of the Discovery that's framed up with a picture of Reagan, the former president of Sundstrand, and my grandfather, head of quality and UAW shop steward.
I know the history of the UAW and if you want to pick on them for getting greedy the last three decades don't work.
This is beyond bullshit.
Brooksfoe,
Thank you for trying to look at this issue by asking what we want as an end result. The question is, do we want a domestic auto industry? I would argue yes. It is a complex product that creates high-wage jobs in many sectors -- engineering, manufacturing, industrial design, media, management and more, as well as the assembly workers. These highly paid workers buy iPods and TVs and pay taxes and donate to local museums. They also create new knowledge and ideas that spread to other industries. If we only assemble autos here that are designed and engineered elsewhere, we lose all that creative knowledge. I would also argue that there is a significant national security issue in having a domestic auto industry.
So if we want a domestic auto industry and they all seem to be failing at once, it's worth asking why. The simple answer is frozen credit. When your buyers need loans to buy your product and you need loans because your product is so expensive to build and inventory, and loans aren't available, then it's a crisis.
The car companies are all in different positions. Ford and GM have both been steadily solving their problems but they need income to keep their recoveries going. The automotive industry is like a shark -- it needs vast amounts of cash every day just to keep breathing.
Ford was either prescient or lucky because it mortgaged everything down to the blue oval just before the credit crisis, so it has a bit of a cushion. GM has plenty of unencumbered assets to borrow against, but now can't get money. Toyota is richer than God, so it can hold out, but take note that Toyota threw a quarter of a billion dollars in incentives and rebates and advertising in the third quarter alone and its sales still dropped more than 20%. It's a BAD market out there. All the other car companies have their particular sets of strengths and weaknesses, but they all share the problem that their customers need loans to buy their product and that's not happening much right now. Whirlpool is shutting factories now, as the next level down of consumer goods that are expensive enough to require loans to purchase is showing its weakness.
We could experiment and let the domestic auto industry go down and hope that, phoenix-like, some new and improved version will emerge. I look at Ford and GM and the way they've largely overcome their structural disadvantages and now just need to persuade people to look at their products, and I say, why dump them now? The Chevy Volt is on the cusp of producing a major game-changer in the fuel-efficiency arena while building our domestic stake in a whole industry. If you let that go, how long will it be before it emerges from some new company?
Given that the car companies weren't asking for any government help until their knees were whacked by a credit freeze that wasn't of their making*, I think it's a legitimate request worth filling AND likely to work, unlike the Wall Street mess, which is seeming more and more impervious to government levers.
*(I exclude the $25 billion that was part of the CAFE deal because that's a separate issue. If the government had been willing to put gas prices at European and Japanese levels, the domestic manufacturers would have been providing plenty of fuel-efficient vehicles because sufficient demand would have been there.)
Megan, I'm interested (but not expecting) to get your opinion on the Mgmt of the Big 3 over the last 30 years vis-a-vis the UAW.
Like you, I'm a young (28) MBA consultant and am not heavily opinionated on the concepts of unions either way.
But in theory it seems to me that the mgmt could have simply told the unions no, go on strike until we come to a deal that makes sense for the long term viability (after all that is THERE jobs, not the unions). And if the unions didn't like it, then you explain to the board that we can cash out and sell now while our stock price is at ($45) instead of begging for money when it's at ($3). If I'm a board member and my sr mgrs bring me that proposition, that is something I might sign off on. I know, I know who would buy the company without the union contracts in the air...but you're screwing up my point.
My main point, is that the mgmt has the money and AGREED to these benefits when they shouldn't have or at least they should have been some type of strata that linked benefits to quarterly and yearly metrics.
What's ridiculous is not that autos are dying, they are not. There is NO reason that in 2008 the US shouldn't have two of the strongest automakers in the world, the problem is that MGMT of these firms (IMO) hasn't been tough enough, hasn't been smart enough and hasn't been savvy enough. It seems like they've been content to eat from the trough of million dollar bonuses, car service and Marquis Jets and not buckle down and learn to win, that includes putting the union in their place.
Like your article mentions the union OWN most of the jobs in this industry, MGMT should have called their bluff on this long time ago, instead of just kicking the can down the road.
The cheapest route at this point is to just buy GM. They are cheaper to buy out than foot locker, and I'd give management to the UAW. Extend credit, tell them they have three years to make a business model that works or the credit ends.
You would have something you could sell at a handsome profit at the end of it and everyone would benefit.
Hmmmm, since I was in the suburbs - Novi actually - I was more of a National Coney Island kind of guy. Washed it down with an ice cold Faygo Red Pop and Better Made Potato Chips.
But then I could be using Google to come up with names of places and products local to metro Detriot Michigan.
I guess my question is why does a native metro-Detroiter call a retiree a "pensioner"? That's a UK term that I had never heard used by anyone - whether they were born at South Macomb, William Beamount or Detroit General.
Michael Garrity, you're a nut. It's quite clear to anyone who's thought about it that he calls his mother a pensioner because she did not work with the UAW and thus is not a retiree, but that she collects her husband's pension and hence is a pensioner.
One thing that strikes me over and over and over again in these discussions is that . . . management never takes a hit in these get tough schemes. Didn't happen in the financial industry, it's not going to happen with the auto industry.
_That's_ what is wrong. Elaborate explanations about why it 'makes sense' for the not-so-higher-ups to take the hit; even more elaborate to the point of ludicrous explanations about why it makes all kinds of economic sense to keep paying management their horribly bloated compensation packages.
No, if people like Megan want to convince me that she's sincere (and she doesn't seem to have had it very tough, quite frankly), they would be calling for the new management to take severely restricted pay packages. No golden parachutes. No use of the company planes to fly family and hangers-on around, or for purely recreational perks. Just strictly business. Compensation kept at a ceiling of twenty times at most what an assembly-line worker makes(that line about management being 'worth' those big bucks has got to have a stake put through it.)
Speaking as someone whose father had little love for the union, and could relate at length perfectly horrible stories about perfidy on the plant floor, I will say that those stories paled in comparison to the hijinks management got up to. So don't even try to blame the unions _unless_ you're prepared to savage the management for their part in all this.
So far, it hasn't happened yet; just a robotic insistence on the horribleness and badness and ungoodness of the unions. That's not taking a tough but fair stance; that's mindless bashing on a par with what I hear from the Three Guys at the end of the bar.
hummm...
We need to invent a field called "crisis economics".
The ideological notion that "things must fail, for the situation to improve" is not nuanced enough.
During normal times, perhaps, GM could fail. Not now.
Does that mean that everyone gets "saved"? No. Does it mean that a lot of people might queue up to be saved? Probably. So what?
Does that mean that one accepts, uncritically, the plan that GM's management has, a plan for loans only? No.
Does that mean that you sit up on The Hill and ... wait for GM to come to you? Hell no. Someone should have been racing to Detroit eight weeks ago, at least, to see *them* (and preferably before it came to this, Mr. Bush).
Given all that, the most important issue are the technical aspects, which can be very important. The discussion of how to handle a "bankruptcy" or how to handle a out-of-court bankruptcy is where the bulk of the best talent and effort should probably be invested, once the general outlines of "a deal" are stuck among Congress, GM, and the UAW.
If the government had been willing to put gas prices at European and Japanese levels, the domestic manufacturers would have been providing plenty of fuel-efficient vehicles because sufficient demand would have been there. - whyaskwhy
But it seems to me auto makers were lobbying pretty hard to keep those gas prices low. Which reflects a very short term perspective. Obviously in the long run gas prices are going up, either by taxes or by falling supply. Betting on gas guzzlers and pressuring the government to cut gas taxes is a dumb call.
I do think, like whyaskwhy, that the way to look at the question is in terms of industrial policy. Does it make sense for the US to have an auto industry? Some of my sense that the US should have an auto industry is probably sentimental. But it also just seems to me that the country that drives the most in the world and that has most organized its social and residential structure around cars ought to have an advantage in sustaining a domestic auto industry. Perhaps this is misguided and the key question is whether the US has the most best engineers and designers; there, we clearly lag Japan and Germany, and perhaps increasingly China (on the engineering front anyway). But there are a lot of brilliant designers coming out of US design schools in the last 20 years. Why do they go into cell phones and furniture, not cars? Is it the familiar midwest/coasts culture gap, writ industrial? Hell, just down the street from Detroit, in Grand Rapids, you have Steelcase still kicking ass in the world of office furniture design.
Anyway, I tend to think it makes sense for the US to have an auto industry. The question for me is: how screwed up are the Big 3? Are they salvageable, or is their corporate culture terminally stupid and mired in half-century-old attitudes?
I'd say that corporate culture is in many instances in this country mired in terminally stupid and half-century old attitudes. It seems that many corporate cultures regard unions as an enemy to be subjugated, not someone to be worked with (sound familiar?)
How many times has it happened that the various unions in this country have been asked to take a hit - for the good of the company - without management taking one at least as hard? Getting the gravy in the good times, and still being on the gravy train during the bad times, is a symptom of a terrible disease. If it were in a human, I'd call it a drug dependency.
"But the way economic growth happens--the way we become a richer, more productive society--is to produce more stuff with the same amount of people." Said the Harvard-educated blogger.
Oh sorry Harvard I meant Penn. Blech
Scent, the focus with GM is on the UAW because that's where the money is. We can fire management and put new folks in at $1 and GM will still go bankrupt. Fix the deals with the UAW and the company can survive.
whyaskwhy, I'm absolutely baffled. The automakers need a bailout because gas prices were and are too low? How do Honda and Toyota make money here?
Amicus, there's no deal involving the UAW. That's their public position, and as far as I can tell that's the position that GM is taking as well. The largest creditor is telling us we've got to give GM more so that they don't lose anything. Apparently UAW doesn't think this is a crisis.
Really, Thomas? Have you yourself run the numbers? What sort of analysis have you done that makes this a credible opinion (and uh,'unions are bad' is not analysis.) And why is this an excuse for not instituting some fiscal discipline amongst the management?
Why would they? Management doesn't seem to be doing anything terribly significant in trimming their own compensation packages. That doesn't strike you as sending mixed signals?
Scent, according to GM's proxy statement, their top five officers received almost $40 million in total comp last year. They sold 4.5 million vehicles, roughly. What does that come to per car? GM spent more than $4 billion in 2006 just to get rid of some UAW employees. What does that come to per car?
"Explain to me why the hell I can trust a warranty from a company that won't be able to honor it ..."
You can hedge the cost of potential repairs. An example was the service contract I took out on a used BMW I bought several years ago (from GE capital) - $1200 for 5 years with $50 copay per garage visit. Functioned pretty much like a warranty for me and turned out to be a good deal.
Scent, remember my proposal is to hand the whole thing over to the UAW. If they want to fire management, great. If they want to invest their assets in running GM, great. If they don't, well, that's ok too. That's the $2 billion solution. Not the principled libertarian answer, but I think it gets to the same place.
"General Motors Corp Chief Executive Rick Wagoner's salary and other compensation rose 64 percent in 2007 to about $15.7 million...GM, which reported a record $39 billion net loss in 2007, released the figures in a proxy statement on Friday afternoon that was filed with the U.S. Securities and Exchange Commission."
Fuckin' unions.
Michael, how does Wagoner's bloated salary get GM to its $1500 per car cost disadvantage?
It doesn't.
This is simple math.
Loved your comment about feeling the Victorian 'shabbiness,' really done like Tolstoy. There is a 'blog' that highlights people on the street in Helsinki; they have there some great self expression in clothes and the explanations that people have of their style can be drop dead. I'll link a spirited black girl on our election day.
Assuming this statement is true . . . you're saying that each of the top five received $8,000,000? And that's if we take this statement at face value.
If these guys are taking home $8,000,000/yr, just how badly off can the company be? My guess is, the UAW thinks not very. This disconnect between what is demanded of the unions in terms of sacrifice, and management in terms of sacrifice is amazing. And, I would think, not terribly libertarian.
Thomas -
It's not simply a "bloated salary" - it's a 64% salary increase after a record $39 billion net loss. This isn't about a CEO padding his expense account - this is theft. Authorized by and for the benefit of management.
Increase of executive salary is a management decision. Just like plant closings. Or automotive design. Or union wage/benefit negotiation.
If you're in charge and everything gets fucked up becuase of the decisions you made, it's your fault.
This is simple logic.
I know this point has been made, but shouldn't we be more concerned that no one wants to buy a GM even if they get bailed out? Can we get some polls and some Nate Silver analysis as to whether or not anyone will even buy this shitty product post economic crisis? I know that supposedly the quality gap is non existant now but good luck convincing those who have been burned by GM in the past on that. Why it was just last week that my chevy colorado fuel pipe line shattered while I was driving down the hiway in a vehicle with less than 50000 miles on it. Quality gap or not these things just don't seem to happen with Toyotas. Who cares about management and union differences? No one wants this product anymore. That has got to have some bearing in the decision.
Michael, how does Wagoner's bloated salary get GM to its $1500 per car cost disadvantage?
When the company goes to crap and the CEO ups his pay by 64%, I think we can all understand why the workers don't think their pay should be cut. The CEO did a terrible job, and still got his raise then why should the workers give up anything? I agree that executive pay wouldn't solve the problem along, but if the CEO had taken a pay cut it may have signaled to the rest of the company that the problems were being taken seriously. The CEO needs to lead by example in hard times, and in this country they often don't.
To illustrate the difference, when I was in Europe this Spring, British Airways had just opened a brand new terminal at Heathrow, solely for BA. They had massive problems with baggage handling at the terminal at the opening, which ended up being resolved. They also posted profits, during a time when other airlines were posting losses. They gave the CEO about a 800,000 pound bonus. He gave the bonus back to the company because of the fiasco that happened at the new terminal, and felt he didn't deserve it.
Rick Wagoner is grossly overpaid. The management at GM leaves a lot to be desired. The UAW could not care less about GM customers.
And yes, I think UAW GM relations have improved in the last ten years. From awful to bad, I guess that is better. UAW cares about health and welfare payments, not much else these days.
BTW, when GM management went to Washington, I didn't hear anything about UAW people being in the room. Is it because they sure as hell are not giving anything more back.
So given poor management and a self serving union, why should we give them a government bailout?
National defense? Please, be serious.
Sigh. Seen in marriage counseling: "We're not talking about her infidelity or her spending habits or her friends right now. We're talking about your yelling at her."
This has been pointed out multiple times by many people, including top union officials: if management were perceived to be sacrificing along with the rank-and-file, union members might be more amenable to cuts in benefits and pay. If management doesn't do this, in fact, continues to pull down bonuses during a down year, it doesn't send the signal to the union that management is all that serious in a real turn-around.
So, to put it back on you: why do you condone these few selfish people at the top standing in the way of a beneficial reorganization?
The market cap of GM and Ford combined was under $6 billion yesterday. Can we buy out the public and give the equity to the UAW and tell them to do whatever they want with it? That would cost a heck of a lot less than $50 billion, and wouldn't involve the rest of us--those who pay taxes and save for a retirement that won't include gold-plated retiree health care--funding something better than we could ever hope to have.
Heh, this is the best idea I've heard. Let the workers really own the means of production and see how it goes.
"The market cap of GM and Ford combined was under $6 billion yesterday."
The market caps don't take into account the companies' debt; look at their enterprise values, which do. The combined enterprise value of GM and F is about $164 billion.
Please keep in mind that if GM goes bankrupt completely, with no one buying any of their assets, the demand for cars will not actually decrease (well a little due to people losing their jobs) and therefore other companies will see an increase in sales volume.
If Pepsi was gone tomorrow from the shelves, would the demand for coke go down much? Would the demand for the inputs? No, not much.
Also, if you are a parts company that only had GM as a customer, you should have been diversifying anyways.
Scent of Violets,
Maybe he's yelling at your hypothetical woman because of those infidelities. Best to start with the root causes and not treat the symptoms.
"union members might be more amenable to cuts in benefits and pay"
Good idea. Why doesn't the UAW come up with some numbers? You know, to save their jobs. Nah, wait for management.
Finally, somebody that gets it.
I too made in the six figures in 2002.
Since then I've been lucky to make 30,000
Only reason I bring it up is that I have an article on my site titled "Your wages do matter" that demonstrates what these large salary costs do to our countries operating budget, especially when it happens to 20 to 50 % of us and it will be devastating to America.
I frequently write articles about these affects and I have a short video titled "The sky is falling" that attempts to demonstrate what we are doing to ourselves as a country, as are our fellow democratic countries overseas in our corporations quest's for ever greater profits at the cost of their community, county, state and country.
This madness has to stop.
Please help me to spread the word about this site.
Virgil
http://www.KeepAmericaAtWork.com
Actually, Wagoner doesn't even make the top 400 in Forbes' latest CEO pay survey.
Again, for those of you who think the crash of GM will be relatively painless and that "there will be plenty of other cars to buy," please visit cargroup.org and review their latest research.
This economic crisis is the real deal, not some game of Beer Pong, where I win and you go home with a hangover. Millions of jobs are at stake, The collapse of the auto industry would parallel the collapse of the banks in the early 30s, which turned the Depression into the Great Depression.
Ok - how come you designed such shitty cars? As has been pointed out, UAW members don't design cars - people like you do.
Well, I've been an engineer for four years and I work primarily on powertrain development for a consulting firm. I develop small block TGDI engines and passenger car diesel engines. Most of my products haven't even seen the market yet, as I work on very early development stages. I'm all in agreement regarding the lack of quality in American automotive engineering, and I've only tried my best trying to change that. But like I said before engineering is only part of the problem, just as the UAW and management are both part of the problem.
As for your suggestion that the UAW shouldn't bear any blame for quality, remember that the UAW plays a big part in the the development process, not just assembly.
I've had test cells go down for an entire day becuase I wasn't allowed to enter a test cell and measure an intake hose diameter. Because if I had, the union would file a grievance and take my customer for several grand.
These are just brief anecdotes. Many other people that work with them have had similar experiences.
At my consultancy, our own test cells have been down for entire days because the UAW had the day off or were striking. Even though our cells had capabilities that our customer did not, we were still required not to do any work.
Having worked with the UAW at several customers, I can say that this type of behavior is a common bond between them all. I've also found myself working in environments not bound by strict union rules. Based on my comparisons, those companies are 25-50% more efficient in day-to-day activities because of labor rules. And those places were in Europe!
This all, of course, even discludes the tactics the UAW engages in regarding the labor force. The UAW is highly nepotistic. Whether you get in can be dependent on who one knows, rather than any skill set or work ethic that one has. that's why my roommates retarded, drug-addicted brother still has a job, while my technician at my consulting firm (a brilliant mechanic) was left out of the UAW for 10 years. And younger, smarter, hungrier workers are often excluded, stuck in contract positions that are only pressure release valves and payed like shit. Oh...nobody gives a damn about them do they?
Management has been incompetent, selfish, and undeserving of their compensation. They should have been cleaned out long ago at GM. No doubt. But if the union has the power to control the labor force and business operation, then they must take some responsibility in the quality of end products and the health of the business itself.
Hmmmm, since I was in the suburbs - Novi actually - I was more of a National Coney Island kind of guy. Washed it down with an ice cold Faygo Red Pop and Better Made Potato Chips.
Do you know how they got the name Novi?
No.VI
I guess my question is why does a native metro-Detroiter call a retiree a "pensioner"? That's a UK term that I had never heard used by anyone - whether they were born at South Macomb, William Beamount or Detroit General.
Because I wanted to stress to non-native Detroiters that she does indeed collect a pension which likely won't exist anymore. Sorry if it bothers you so, but I am indeed from Detroit.
The collapse of the auto industry would parallel the collapse of the banks in the early 30s
Even if GM collapsed, the auto industry as a whole is not going to collapse. Let go and let Toyota.
From Wikipedia: "Toyota has a large presence in the United States with five major assembly plants in Huntsville, Alabama; Georgetown, Kentucky; Princeton, Indiana; San Antonio, Texas; Buffalo, West Virginia; and a new one being built in Blue Springs, Mississippi."
The American people have ALREADY decided that the US automakers are EXACTLY where they should be. The American people have exercised their free will and have chosen NOT to purchase cars from these entities in sufficient numbers to keep these companies in business absent significant changes to their business models. The American people have ALREADY decided that they do not want their money going to pay for bloated union wages, executive compensation, healthcare costs and pensions...they did this by NOT BUYING THE CARS!!! Therefore it is absurd for the unions to now DEMAND the AMERICAN taxpayers FORCIBLY keep them in business via use of a federal bailout. The concept is riduculous on its face. THE UNIONS HAVE DESTROYED EVERY MANUFACTURING INDUSTRY IN THE UNITED STATES. Unions have allowed workers to receive wages to which they were never entitled. Wages should always be determined by the skillset required to perform the job, educational level required to perform the job and number of workers available to perform the job...supply and demand. If most auto jobs do not require more than a high school education...then these jobs should NEVER have been paid more than a high school level wage. Menial labor jobs should be paid menial labor wages...period.
All of the "pragmatists" worried about the effects of a Big 3 failure on suppliers, et al, desperately need to read some Bastiat. Every billion that gets shoveled into GM's craw to give a supplier another 6 month reprieve is a billion that's not going somewhere else. Those somewhere else's also use suppliers, who are going to be just as out of work.
Market incentives don't stop working just because the government throws itself in the middle. The more success become a matter of greasing the right political palms and less related to the value of the product made, the more palms are going to be greased and the less value is going to be created.
The Great Depression was Great and long in no small part because of the futile effort to pretend that the world hadn't changed when it had (see, Hoover's proud claim that wages hadn't fallen in the face of 25% unemployment). The bailout mavens are actively walking us right down that plank.
The point I was making, Aaron, was that while both sides might bear some responsibility, one side not only bears far more, but is also in a better position to fix things. The marriage counseling analogy was an apt one: frequently the counselor will buy into one sides version of events for whatever reason, and then focus on the 'guilty' party while gliding over the far more serious transgressions of the other, frequently for reasons of ideology(the instance I mentioned, of the wife committing multiple infidelities, managed to dig up a 'men are the oppressive patriarchy' type whose starting axiom was the general disrespectfulness of husbands.)
So it is with people people here who want to see the unions humbled (there really is not better word for what they want) while proposing nothing of actual value in terms of a plan; Tom up above, for example, has already mentioned that the management types have no intention of leading by example. Not when it comes to sacrificing.
Scent, I think Wagoner and company should be fired. Fired. How's that for a cut in pay? All the way to zero. Now what will the UAW do? Because GM can't make money just by firing its execs. The cost disadvantage per car doesn't go away just because there's a new team at the top.
Give the companies to the UAW. Let them worry about what management should get paid.
Mr Wilkinson
You are a forceful advocate for GM and I think it is important that another side be heard. Thank you for your input.
But your case is far from compelling.
Your explanation for a reluctance to import cars implies that GM Europe lacks sufficient flexibility in production and GM finance lacks an inability to hedge currency risk. Plus you seem to ignore the issue of excess capacity and the perceived need to keep some factories in North America operating. None of these gives me great comfort.
The great depression was caused by failed monetary policy that negatively impacted the entire economy. Then government attempts to tax and spend it's way to a better economy made the situation worse. Not to mention that government policies to encourage cartels to save distressed companies raised prices and decreased output and employment. Today, for Michigan and Ohio the economies may not recover for a generation. That is awful. I do shudder at the thought of what will happen to these people.
Still, the way the Democrats want to structure the bridge loan sounds more like a stupid attempt to add more destructive micromanagement from Washington then any real help. I think it was a writer at the Free Press who wrote that Tony Soprano offers a better deal on his loans.
When Pelosi is working with the Sierra Club to write the terms of your loan, well I don't know how forcing GM to build more cars that don't sell in great numbers is going to help the long term health of GM.
Give help to the auto industry or don't give help. But these strings are destructive. Or just give the money to the Sierra Club and let them buy GM assets to start their own car company.
But the fundamental question is why is a government loan better then bankruptcy?
Awesome post. I agree completely.
Perhaps rather than focusing on the human costs of not having an auto bailout, Freddie ought to question his self-righteous liberal assumptions and look at the bigger picture by pondering the human costs of the labor unions that induced this mess.
Does that mean that you sit up on The Hill and ... wait for GM to come to you? Hell no. Someone should have been racing to Detroit eight weeks ago, at least, to see *them* (and preferably before it came to this, Mr. Bush).
Michigan has a governor. What has she done to facilitate a solution? What has she done to try to get new manufacturers to Michigan? What has she done to try to convince the highly paid CEO to reinvest in the area? What has she done to push for a change in labor laws?
Bush has 50 states, many with healthy auto industries. Granholm has one state.
Michigan has a governor. What has she done to facilitate a solution? What has she done to try to get new manufacturers to Michigan? What has she done to try to convince the highly paid CEO to reinvest in the area? What has she done to push for a change in labor laws?
Granholm doesn't really deserve such blame after the tenure of Mr Engler, which was a disaster in terms of financing. She has, in conjunction with the state legislature, worked very hard to try and get big business into the state. The thing is that big business won't help us. We need economic growth. We need an environment in which small businesses can grow and create jobs. Large business only bring jobs and people, and they leave whenever they please, and take their jobs and people with them.
She will never try for a change in labor laws, so you can forget it. It's politically impossible right now. It's a shame, too.
My point above is that I want smart people like Megan working on figuring out whether the bailout is a good idea, and demonstrating why or why not rather than responding to shakedowns to prove how much they care.
Now, the result was some good writing, so maybe I shouldn't complain. But whether MM lived on the streets half her life or has never had to cook a meal for herself doesn't change the prudence of the bailout of GM. And I don't think our discourse is served by forcing her and other commentators to take a public moral shower to show how much they care.
Hopefully, we're all grown-ups here. Nobody wants to see families thrown into crisis.
She will never try for a change in labor laws, so you can forget it. It's politically impossible right now. It's a shame, too.
We just elected a black man named Barack Hussein Obama president.
I no longer accept "politically impossible" as an excuse.
Granholm doesn't really deserve such blame after the tenure of Mr Engler, which was a disaster in terms of financing.
She has been governor for 6 years now, so blaming Engler doesn't cut it any more.
Businesses are not going to go to Michigan if they have to deal with unions like the UAW. If she isn't willing to discuss changing labor laws, she will not be able to accomplish getting manufacturing business of any size there.
Reality: all of these choices are simply points along a continuum. It really boils down to what kind of society that you want to have. If you want to have a society where peoples lives are continuouly buffeted by boom and bust cycles of short duration, you can take Megan's path. This path provides some people with more opportunity and the personal freedom that goes along with it. If you want society where people can believe in some form of collective security you can take the other path. Perhaps personal freedom and opportunity will be sacrificed on some level, but in exchange you will get more stability and security for more people. Those are the choices plainly put.
Decide what point you wish to be along that continuum (what kind of socitey you want to live in) and economists can craft policies to get you there.
The Big 3 is like the Airlines in that they still sell millions of units of product but manage to go broke doing it. Unless and until the Big 3 get out from under their union contracts and lower the cost of producing their product, they will never be profitable. No amount of bailout will fix that.
In an ideal world, they should do Chapter 11 and forcibly change the terms of the contracts, reorganize with new management and emerge on the otherside leaner more competetive companies. The problem is that Chapter 11 really isn't an option for car companies. Once a car company goes into bankruptcy people stop buying their cars for fear of not being able to get any service support or spare parts. No one wants to own a car they don't make anymore.
So this is actually one place where the government could play a role. The government could offer bailout money in return for contract reformation and an overhall of management. Since the big unions virtually own the Democratic Party, this will never happen. Instead, we will blow $25 billion that will go to pensioners and inept upper management and still have an unprofitable auto industry that will be begging for another bailout within a few years.
The auto industry is crucial to our future energy independence.
If you can hold your nose and bailout the financial industry, then you can bailout the Big 3. Not out of pity, but because we'll need that industry.
Spending will have to be on an astronomical scale to pull us out of this, and this seems as good a buy as any.
Btw, your story shows that you seriously do not understand how well you've had it in life. Go visit a 3rd world country for a couple months.
Nice piece, except that, take it from a late-blooming geezer who never got mentioned in David Brooks' column, in ten years you'll be making a lot more than an auto worker. The secret of getting rich, sadly, is getting old.
"Btw, your story shows that you seriously do not understand how well you've had it in life. Go visit a 3rd world country for a couple months."
She doesn't even have to do that. She should try living in this country without a family support structure and mommy and daddy to run home to when she can't find a job. Megan is a smart, earnest person and means well, but she really hasn't lived very much or seen very much. It is the Achilles heel of her writing.
It's looking less likely that the lame duck Congress will pass bailout legislation. Things could fall apart for GM pretty fast. There seems to be real doubt that GM could get DIP financing in bankruptcy. It may just be the end of the road for GM. There are going to be a lot of local governments asking for $10 billion here and $20 billion there as well.
The Core:
Megan has no desire for such a society. She was an absolute shill for the finance industry bailout by shamelessly stoking fears, which will likely cost over a trillion dollars. There are those that would like a fair society. She ain't one of them.
If she can't see the pain firsthand, then it doesn't exist.
DB Cooper:
Actually, they don't know that much. Union locals are collectively stupid enough to drive their factories out of town.
In my opinion, GM's problem still is that they are an enormous company with a small product line. When GM consolidated its product lines in the '60s into platforms shared by all divisions, they sealed their fate. Eventually people noticed that the engines, drive trains, and much of the the sheet metal are shared from Chevrolet all the way to Cadillac. There are only so many Chevrolet Caprices you can sell, even if you put different badges, grills, and taillights on them. People who might have bought a Cadillac didn't want a rebadged Chevrolet, so they bought something else.
The other problem is that the UAW has a classic monopoly. It is a labor contracting company with exclusive access to three automakers plus other companies like Caterpillar, International Harvester, and John Deere. If one customer goes under UAW management won't feel a thing.
I can't help but thinking that Republicans want to return to the wild west but don't understand even vaguely what it would be like to live in that kind of world. Survival of the fittest is alot of fun if you are the fittest and most ruthless. I hardly think MM would survive.
Amicus, there's no deal involving the UAW. That's their public position, and as far as I can tell that's the position that GM is taking as well.
======
There is plenty of leverage to get everyone to the table, don't you think? I'm mostly worried that we'll spend all the energy fighting about whether to do it at all, so that few spend much time thinking about how _best_ to do it...
Michigan has a governor. What has she done to facilitate a solution?
====
I'm just talking "crisis economics". If you are in Washington, and you worry responsibly, you don't _wait_ for this kind of thing to come to your doorstep.
"The other problem is that the UAW has a classic monopoly. It is a labor contracting company with exclusive access to three automakers plus other companies like Caterpillar, International Harvester, and John Deere. If one customer goes under UAW management won't feel a thing."
True. It really is a UAW thing more than a union thing. Japanese car companies are heavily unionized in Japan but they seem to have done okay. Why? Because Japanese unions understood that everyone wins in the long run when the company wins. The UAW didn't care about the long run. They only cared about getting benefits now regardless of the cost to future workers or the country.
is a smart, earnest person and means well, but she really hasn't lived very much or seen very much. It is the Achilles heel of her writing.
No, it's not. Ideas should be judged on their merits, not whether the person writing them has qualified by braving hardships.
MM's point isn't that poverty and unemployement aren't so bad, or that it's better for people to be unemployed than for CEO's to have one vacation home rather than two, it is that there would be more unemployment and poverty with the bailout than without it.
She may be right or wrong about that, but the correctness of that is not dependent on how many times she had to have ramen noodels for dinner or went to bed hungry.
We could point to MM's trip to Vietnam last year, but I doubt that would satsify you. Because there's probably another commentator who's been to a more depraved country. I don't care. I care about who has the better argument.
To Thomas and others commenting on the UAW:
The 2007 GM-UAW agreement included major changes in the relationship between the two parties, which will close the cost gap between union and non-union plants in the U.S. by 2010. New workers coming in have a two-tier wage system and less generous benefits than those who joined when the U.S. companies had a virtual monopoly. This is a historic change and should not be overlooked by those recalling how things used to be.
It is worth noting that carmaker were unionized at a time when there were widespread abuses of workers. There have certainly been problems on both sides over the years, but recent negotiations have been very clear-eyed, and the real issues have been dealt with openly and honestly.
One other point worth considering -- the wages and benefits at non-union auto plants in the South are to some degree determined by a desire by the companies there to keep the unions out. Without that pressure, wages and benefits would almost certainly be lower.
As someone who has spent years working in the auto industry, and more years covering it as a journalist, I am well aware of the excesses and abuses on both sides. But I can't help worry that the gradual fading of industrial unions will lead to a race to the bottom for wages and benefits for blue-collar workers.
If the UAW just focused on high wages and lavish benifits, they could have made it. But the combiniation of high wages, lavish benifits and stifiling work rules killed it for them.
If you go to the AUDI factory in Germany you see rolls of steel come in one end and cars come out the other and almost no one working inside. In order to pay high wages and secure lavish benifits for the IG Metall folks they had to increase efficiency by subsituting capital for labor. That works.
You can't ask GM to pay high wages and provide lavish benifits if you don't allow them to adopt the most efficient work practices.
I agree with most of what Megan wrote; I'm agnostic about how GM got into this situation, but it's clearly not sustainable so why try to sustain it? Whatever the ethical merits of bailout vs. no bailout, the bottom line is that there is no realistic scenario in which a bailout would actually work by the standards of bailout proponents. Why are we even having this discussion, except to show that we care [TM]?
Come on, let's be serious for a moment here.
It wasn't the UAW that killed the Big Three (and they are most certainly dead as we knew them,) but a lack of vision on the part of the Auto Industry's grossly overpaid leadership.
With the all the money that the Big Three lavishes on Washington, the government has protected Detroit from the demands of the marketplace. We've already bailed out one of them, to no obvious avail. Why should we, the taxpayers, allow Washington to make such a mistake twice?
If the Big Three are "too big to fail," perhaps they are too big, period. They've closed plants and shipped jobs American overseas, refusing to retool aging factories and relying on the same platforms year after year, eschewing the flexibility, innovation and long-term investment practices of successful foreign car manufacturers in favor of short-term profits. In the face of diminishing oil discovery Detroit has successfully kept mpg requirements at bay for decades, as with air quality restriction, not to mention the curb-weight exemption given to SUVs. Are these the kinds of businesses we wish to see succeed?
Of course, when offered the same menu of ever more expensive sameness, American consumers spent ever-increasing dollar amounts buying better-built, better-performing, less-expensive foreign automobiles: Foreign cars with sticker prices that don't carry the added costs of retirement and healthcare because other car-producing nations have both a national retirement and national healthcare systems in place of our punitive arrangement of passing all costs on to the consumer. Sure, these retirement and healthcare systems are supported by taxes, but honest, efficient, non-profit government can and will always provide these safety nets better, cheaper and more efficiently than any for-profit system our "Free Market" could ever hope to devise. We, as a nation are as much to blame as the Big Three's leadership for the collapse of the auto industry.
As for the Big Three, bankruptcy would be good for them, forcing them to retool, rethink, transform, from the brain-dead, top-heavy industries they are into something more creative, inventive, flexible, equitable, progressive. Something aimed toward the challenges of the future rather than mired hopelessly in sentiment for the past.
You can't place the blame for Detroit's collapse on the UAW. In their successful lobbying efforts to protect themselves from the demands of the marketplace, the Big Three dug their own collective grave.
Nobody's made the case as to how the bailout actually resolves the basic problem that GM's sales don't support its current obligations. Bankruptcy's the only path that resolves that issue.
I didn't support the finanical industry bailout and I don't support the GM bailout. Something likely needs to be done (in both cases), but simply giving more money to organizations that have pointedly demonstrated incompetence is definitionally stupid.
I lean libertarian, but I believe there's a legitimate role for government in minimizing the pain to innocent bystanders (those who didn't voluntarily take on counterparty risk), but surely there must be a better way to help those people (us...) out then simply shoveling more money to the same group of proven failures while making no structural changes. Doesn't anyone have any other ideas?
To those looking at executive pay figures in GM SEC filings. -- Keep in mind that most of that is incentive comp that ONLY gets paid if the company does well and the stock price goes up. If you have been following the news, you realize that has not happened lately. If you go to the most recent CEO pay survey on Forbes.com you can see what Wagoner actually made over the past one and five years and how that stacks up with other companies and industries.
The Financial Times reports 14 Nov. that 'European credit insurers have removed cover from Ford and GM.' Traditionaly suppliers of parts are covered by insurance in the European auto industry.
"is a smart, earnest person and means well, but she really hasn't lived very much or seen very much. It is the Achilles heel of her writing."
I didn't say it was the problem with this writing just her writing in general. If you read all of her stuff she has a bad habbit of being very provential. Her thinking about city planning, cars, suburbs and things like that is where she really goes off the rails.
But I can't help worry that the gradual fading of industrial unions will lead to a race to the bottom for wages and benefits for blue-collar workers.
That's happening irrespective of the role of unions. Regardless of how you choose to apportion the blame, the UAW hasn't made the Big 3 more competitive against other auto makers/
Some people (although not necessarily you) seem to think that unions extract increased wages and benefits from management. By and large, they don't - they extract them from customers. Any premium the unions extract must ultimately be reflected in the cost of the goods they produce. That only works if a) the premium translates into some tangible increase in quality or productivity, or b) customers don't have a choice. All the evidence suggests that a) is not applicable to the UAW and their model only worked because of b).
That's going to have to change and that change is going to be painful to a lot of people. But we should be discussing ways to ease the transition because the old way just isn't coming back.
SB says "Nobody's made the case as to how the bailout actually resolves the basic problem that GM's sales don't support its current obligations."
How many ways do they have to say "credit crisis"? Until credit froze up, GM's sales WERE covering not only its obligations but its very expensive restructuring. Consumer purchases dropped 2.8% in October, the greatest drop on record. That number was twice what was expected and was largely pushed by evaporating car sales, which dropped 5.5%.
All carmakers' sales dropped, not just the domestics. Consumers who have cash aren't spending it, and those who need loans can't get them. And the carmakers can't get the loans they would normally seek to get through a downturn.
The Wall Street bailout is a flat-out cash injection with the taxpayers getting stock that might be worth something if the companies survive. The automakers want bridge loans they will repay once people start buying cars again, secured probably by stock that might make a profit for the taxpayers as well.
"But I can't help worry that the gradual fading of industrial unions will lead to a race to the bottom for wages and benefits for blue-collar workers."
...and WHY is this anything that should be worried about...as illustrated below UNION workers have been OVERPAID commensurate with the skillsets and educational level required to perform their jobs...if you do not need more than a high school education and skills to perform a job...then you should not be paid anything more than high school wages...menial labor jobs should be paid menial labor wages...Blue collar workers should always make blue collar wages...an average of $79 an hour...counting pension benefits and healthcare is absurd...
The prospect of concessions from the union came up during a meeting involving executives of Detroit's Big Three auto makers and Democratic Congressional lawmakers on Capitol Hill Thursday. But UAW President Ron Gettelfinger made clear that concessions were out of the question, union lobbyist Alan Reuther said in an interview with Dow Jones Newswires Friday.
"Workers and retirees have already made significant sacrifices," said Reuther, paraphrasing remarks that Gettelfinger made to House Speaker Nancy Pelosi, D- Calif., and others in the meeting, including renegotiated contracts. "We feel we've already stepped up."
Translation: Taxpayers are just supposed to accept the UAW-imposed cost structure as it exists, even though those being bailed out earn $44.60 an hour more in wages and benefits than other working families
For a good argument on why arguing about a Detroit "bailout" without considering the broader context of an energy policy or a manufacturing policy, read Warren Brown in the Washington Post:
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/01/AR2008110100804.html
why heap scorn on the union?
do you think there may be a better target
the union leadership negotiates contracts with auto industry execs
they deserve some responsibility for what has happened but they own a small slice of responsibility pie
auto industry execs set corporate strategy, pick and choose markets in which to compete in which countries/continents, lobby governments for favorable environmental, labor union, and transportation regulations, in the US they also lobby against public transit and universal and single payer health insurance, worker and consumer safety rules, product liability, unemployment, workers compensation, consumer protection, consumer protection in bankruptcy, credit card regulations, and more
i wonder how you missed a executive/board of director target that is so large
Megan: A valuable essay.
In a sound-bite world we need more of it.
Thank you.
"Translation: Taxpayers are just supposed to accept the UAW-imposed cost structure as it exists, even though those being bailed out earn $44.60 an hour more in wages and benefits than other working families"
But But But Unions are good and only look out for the working man right? Unions exist to get above market wages for their members at the expense of everyone else. This is not an auto industry bailout. It is a union employee bailout.
The funny thing is how this conversation goes back-and-forth between the practical and the moral. We must bail out GM because losing GM would hurt everyone, but when we start talking about methods to return GM to profitability, we hear about the CEO's pay increases and "fairness" and how pissed auto workers are seeing him get a raise.
If you want this to be a moral case, then OK. Morally, I don't owe either the UAW or GM management a dime. So they can go out of business, for all I care.
And I certainly think it's grossly immoral for my tax money to go to Chrysler after how much they swindled me. I've done my part bailing them out already by being their customer once upon a time.
The nice thing is that everyone's favorite culprit gets their just desserts this way. Don't like CEO compensation? Well, it's now zero. Think the unions have destroyed the company? Now you have actual destruction to point to.
If you want to tell me that that's not practical, OK. But then answer the question: what does the CEO's obnoxious pay work out to per car, compared to UAW compensation per car? And which, if cut, will actually fix GM's problems? And why are we even talking about, say, two dollars per car to fix a $1500 price differential, when the UAW's take is, say, $1000 per car?
(Numbers pulled out of the air. Don't complain about mine if you don't have better ones.)
jamzo
The Limping 3 have been strong supporters of national health care, they make public transport vehicles, they have more generous unemployment benefits then any industry, etc.
Indeed, in general, the Limping 3 have more closely reflected the view of most Americans on these issues (except health care) then the special interests that have pushed some lame ideas out of Washington and various states.
Indeed I am almost willing to give them bailout money in return for fighting against some of the crazier ideas out there.
And I am not anti-union, even if I really dislike the UAW. Still, I do think that the UAW is far less hostile to management then they were. Regretfully, they are like the smoker who decides to quit after they have been diagnosed with lung cancer.
Unions can serve a purpose. For example a young person can agree to go to work for a firm and agrees to acquire a skill set that is important to that employer. By agreeing to enter this contract, the young worker gives up other potential career paths. The employer agrees to offer the young worker some job security and the union serves to enforce the contract.
The employer is able to attract a high caliper of worker then would be possible without the contract. Hopefully the long term prospects of the company and the young worker are connected and they work together for their mutual benefit.
That is what you hope happens. In the trades it often works that way. With the UAW it didn't. Was management at fault? Was the UAW at fault? Or was it just a bad marriage that was destructive for all involved.
Tom Wilkinson at GM,
Thanks for your reply to my question. I appreciate your input and patience here. That said, I am unconvinced by your argument: Namely that but for the recent financial crisis, GM would have been just fine; that this really is just a bridge loan. I am keeply skeptical of any claim that, as of July 1, 2008, GM had rosy prospects for a profitable future.
If someone could show evidence to the contrary, I'd love to hear it. Until then, I think we're throwing a great deal of money down a well, in hopes of pushing the inevitable back a couple years.
The marriage counseling analogy was an apt one: frequently the counselor will buy into one sides version of events for whatever reason, and then focus on the 'guilty' party while gliding over the far more serious transgressions of the other, frequently for reasons of ideology
Apt or not, I contend that you have gotten the antagonists backwards. If anything, the management taking $40M in unjustified salary is more akin to the actions of the yelling husband, while the UAW raking in billions and dictating ridiculously inflexible and therefore inefficient workplace structures (some of which DDP has now described) is akin to the gross indiscretions of the wife. Neither action is the honorable or productive work of reasonable people; but which one is guaranteed to sink the relationship by virtue of scale?
A different perspective in terms of national security - "In 1942, GM converts 100 percent of its production to the war effort. During World War II, the company produces airplanes and airplane parts, trucks, tanks, guns, shells and other war-related products. According to GM, it delivers more than $12.3 billion worth of war material to lead the Allied war effort."
How many ways do they have to say "credit crisis"? Until credit froze up, GM's sales WERE covering not only its obligations but its very expensive restructuring.
Saying it doesn't make it true. Their sales were basically covering cost of goods, but my understanding was their retirement liabilities were woefully underfunded. Certainly the bond market, which has considered GM debt at junk status for years, didn't think they were on solid footing.
But perhaps my understanding is incorrect. Can you point me to whatever it was that led you to the understanding that their restructuring was not "too little, too late"?
So how does that apply to what we would need in 2008? Does GM even have the capacity to make airplane parts, etc.? Have other firms emerged that can do this type of work now? Is modern warfare mostly about heavy machinery nowadays?
That's a nice historical footnote, but hardly instructive for what we should do in 2008.
No one is twisting their arms to respond to me, nor is anyone twisting your arm to read them, me, or any combination thereof. The fact that we have a promiscuous and robust political conversation means there will be some rabbit holes you don't feel like going down.
The long-ago Literature major in me can't help but to perceive Freddie as someone who fantasizes about being a prolific rapist.
The unions drove too hard a bargain against the Detroit auto companies, and now the companies can't pay. So, we're supposed to pay.
Note that the "foreign" auto companies in the south are in good shape at more reasonable employement terms.
I have an idea. I'll write a contract where Fred promises to pay me in the future for my work today. When Fred defaults, I'll go to the government and ask them to pay. It is only fair.
Along with this is the argument is that we need bailout and stimulus to avoid a further collapse and more recession. Supposedly, even if the government spends a lot money for nothing, it is still money, and we are all better off. This is wrong.
Jobs change when people change what they want to buy or can afford. Bailouts and Stimulus are like throwing a party after losing your job. It interferes with looking for the next job, and it uses up savings. Worse, it is more of the borrow and spend policy that helped cause our problems.
If GM goes bankrupt, it will be reorganized under realistic terms, where the workers get money consistent with the company prospering. There will be new management selected by investors and not a congressional committee.
See also Stimulus Does Not Cure a Recession
So how does that apply to what we would need in 2008?
I am a realist not a Fukuyama-end-of-history type. Unfortunately, we will have near-term wars that require a substantial industrial base to produce war material.
Does GM even have the capacity to make airplane parts, etc.?
GM rapidly retooled during WWII to produce airplanes which they did not produce prior to the war.
Have other firms emerged that can do this type of work now?
Yes, General Dynamics produces the M1 Abrams tanks that saw around 2000 in combat during the first Gulf War. The tank was designed by Chrysler. The Humvee by GM and the Bradley Fighting Vehicles by BAE Sytems both used extensively in Gulf Wars.
Is modern warfare mostly about heavy machinery nowadays?
Yes see above. Also requires supply and engineering equipment needed to fight any war.
The bailout the Unions are pushing so hard for is to stave off a Chapter 11 bankruptcy. Such a bankruptcy, far from ending GM or Ford or Chrysler would actually ensure their survival.
The bankruptcy might result in the break up and/or even termination of some business units. Would GM not be a more efficient company if it were not burdened by the GMAC Mortgage company? Leaner and meaner makes more sense than "welfare recipient" company.
It seems like forever the Democrats have been decrying "Corporate welfare" but now they are crying for it.
A bankruptcy did not end United Airlines. Bankruptcy allows corporations to rid themselves of deadwood resulting from past bad decisions. In the big three's case it would include the bad decisions of allowing the UAW to become too powerful in dictating the corporations' decisions.
Bankruptcy not bailout is what the big three need.
I was a lifelong resident of the Detroit area until very recently. Unions didn't kill the automotive industry, Wall Street did. Management started playing to the quarterly expectations of Wall Street rather the the long-term sustainability of their business. Rather than building fuel-efficient cars that make a $100.00 per unit, they built SUVs that made $2,000.00 per unit. Instead of laying workers off or allowing a strike, they built unneeded units w/ rebates and conceded on union demands to avoid a panic by traders of their stock. You can't run anything 90 days at a time. The automotive industry and the banking industry have proven it.
I don't give a crap who killed GM. Let them die. If I wanted to invest in GM, I would have bought one of their Detroit Crapmobiles instead of a BMW.
It's not a "bail-out" it's a hand-out. Unless the union contracts are restructured, the US auto-makers will never be able to make money. It's better that 1.5 million workers take a 5% haircut than ever U.S. tax payer has to cough-up 7% so they can keep their job. Stewart Culbreth
I love this post. I too sympathize with laid off auto workers. But I am not willing to subsidize their gold plated salaries, "job bank," (paid for not working), featherbedding work rules, benefits and pensions.
GM couldn't make smaller cars because their cost per car (unionized) is so high.
Not to say that its bloated, indifferent management isn't also at fault. But we could fire management tomorrow and the UAW imposed cost structure would remain.
This is just wierd:
followed by:
Since we've been talking about practicality, It's difficult to see how you've missed this point repeatedly: if you want to see the UAW make some significant concessions, you'd better look to the executive offices for some leadership there first.
As I said, this has been pointed out repeatedly - often by the union reps themselves!
No, the problem is, you guys want the union to make serious, big sacrifices, concessions they won in good faith years ago . . . but you won't demand the same from management.
So from here, it looks like management - again - is the big stumbling block. But as usual, you somehow just don't get that. Not unlike the marriage counselor in my example.`
I'd have to say that one of the rotten things about American business that no one is admitting to is the rotten corporate culture that causes pay scales to be so out of whack with reality.
_That's_ the root problem.
Unless executive and managerial pay is drastically restructured - downward - the US automakers will never be able to make money. Everything else follows, including those union contracts you want nullified.
Willing to meet me halfway? Or is this where you say, no, the unions have to forgo what was previously negotiated, _and_ the management does not have to make any significant sacrifice?
I'm guessing that's what you're really saying, so prove me wrong. That would be nice.
I understand that this is not what the auto workers want; they want their jobs. But while I am happy to help the auto workers, I am not happy to help them manufacture undesireable cars at massive social cost.
People are still buying them, and there is still a market that the Big Three of Detroit are answering. That market is affordable cars that aren't underpowered for the price (see the transplants Toyota, Honda, and such with I-4's all around). Who would serve this market seeking affordable performance first, fuel economy second in a non compact package?
The transplants won't make anything close without adding about $20-$40k "performance tax" to the car - minimum.
To kill Detroit auto manufacturing is to reduce choice and to create an oligopoly of cars from the Far East. Not much choice other than compact or very expensive would exist.
Well, if that really is a viable market, then somebody will capitalize on it when the Big 3 dinosaurs finally croak.
I don't give a crap who killed GM. Let them die. If I wanted to invest in GM, I would have bought one of their ... instead of BMW.
Well, I have no problem in buying something from Detroit even in current conditions - and making it last longer than any of the Southern transplants.
Fail to maintain your car, and even the "Ultimate Driving Machine" will fall apart.
If the Big Three are "too big to fail,"... then bail them out until the transplants make what GM does - affordable performance.
Well, if that really is a viable market, then somebody will capitalize on it when the Big 3 ... finally croak.
That sounds like you're trying to make room to ignore that market or only say that nobody will service it without exorbitant expense.
GM totally burdened hourly labor rate=$76.00
Toyota totally burdened hourly labor rate=$48.00
Do the math...
Mark
When I was seven, back in 1961, I got a scratch in the back of my left knee. Having a profound fear of iodine---Mom's favorite topically applied antiseptic, I didn't tell her about it. It got infected.
The infection spread. It spread from hip to the arch of my foot. Nearly lost my leg. Nearly lost my life. Wound up with a shortened leg, and scoliosis because of it.
For those of you who have trouble connecting a knife wielding maniac with the moaning bodies he leaves behind him, putting bad things off makes them even worse. The question is not what do we do when the American auto industry fails, the American auto industry has already failed. The question is, what happens when the lurching, lumbering, undead corpse collapses in a pile of rotting flesh? Do we let the collapse happen now and rebuild, or do we hold the collapse off until we no longer have the resources to maintain the facade and the recovery takes a much longer time?
Millions of people could be hurt by this? Tens of millions will be hurt if we let this continue festering. To avoid harm to a comparative few some here would inflict greater harm to many more, and for a much longer time.
Finally, how can we be sure that we can fully recover from a delayed catastrophe? The collapse comes on its own terms the ultimate effect could be a crippling of American industry and drive that leaves us incapable of maintaining anything greater than the role of crumbling empire, watching as our ways and our territory are eaten away by emboldened enemies. Not going to happen? What do you think the Romans said before Adrianople?
Changes are coming. They are going to be bad changes. They could be far off, long term, nation destroying changes. They could be soon to occur, short term, nation changing, world changing changes we not only recover from, but which provide the impetus to badly needed improvements and reforms. Would you rather live through really bad events that lead to even worse events for your descendants, or through bad events that lead to better lives for your descendants? Your choice.
Hm. Well--on the subject of "feelings"--this particular taxpayer is FEELING a bit put-upon by the recent (and future) bailouts, and is not FEELING predisposed towards buying another American car if the Big Three end up swilling at the government trough. They've already taken my money, paid to Uncle Sam as taxes; can anyone explain why should I give them another damn dime to purchase one of their craptastic creations?
Given the amount of money they'll be taking from my wallet soon, they should be GIVING me a new car. Too bad the Camaro's not in production....
You make it sound as though those folks in their 50s will just have to move down a notch or two. Into what jobs, pray tell? Corporations do not like to hire people in their 50s. Most of these folks will be out of work permanently, as in scrounging in garbage cans until they hit the age they can collect whatever is left of social security. If they are lucky, they will be pushed down into minimum wage jobs, pushing even more young people out of the job market. Once you get caught in career deflation, you are stuck there for life.
You had a rough time, but you had education and youth. A lot of the folks working in the auto industry have neither. Community college training may sound like an option, but it won't make anyone hire them. I know what I'm talking about. I went from $50,000 a year to $8 an hour in the tech bust. I've worked my way back to $12 an hour since then. People with that kind of income do not buy houses, cars, or much of anything beyond food and basic shelter. It's not a good way to run a country.
Ah. That would be my story as well. And after I had just bought a house, and with a four-year-old daughter to boot. And of course, my sob story, much as it makes Megan's look like so much whining, doesn't hold a candle to some of the ones I've heard before, and by no means uncommon ones at that.
Note to all the liberals saying the Republicans want to have a Wild West economy without any safety nets: Please stop beating up strawmen.
If GM fails, the workers will get unemployment. Maybe the UAW also has some financial safety nets for them, as well.
They are not being put on ice floes.
"Prosperity was shared by fairly large segments - although certainly not all - of the populace, but in very unequal portions. The rich were getting richer at a much more rapid rate than the poor were becoming less poor. Government policies....were designed to achieve this just end. The unfavorable climate for labor unions made it more difficult for workers to obtain their share of the benefits of rising productivity. And...tax cuts for the wealthy helped to aggravate the gross disparity in income levels....convincing Americans to buy now and pay later required a reversal of many traditional American values. Advertising was the medium through which this message was transmitted to American consumers." - Robert S. McElvaine, writing about how the maldistribution of income in the 1920s led to the Great Depression - published 1984.
The past is prologue.
Pretty sure that American trucks are very popular so lose the pompous "undesirable" stuff. Other than that you are correct. The big three don't need a bailout. What they need is bankruptcy and a way to kill those CBAs and pensions.
I *love* McMuddled. Paragraph after paragraph about the Evul Unyunz, and how autoworkers have it too good.
Meanwhile, I don't see a multi-hundred billion $ clawback program implemented to regain those Wall St bonuses which were fraudulently collected under grotesquely inflated claims of 'productivity over the past decade.
Trillions for Wall St, sh*t for the rest of us. Chicago Rule.
Right, Barry. As usual, the issue is one of consistency. Millions for management, not one cent for the actual workers. Haven't we seen this movie before?
Gina -
Kill Pensions? A pension is deferred compensation. That would be like your boss going into to your bank account, taking your money and calling it a retro-active pay decrease.
What is it with you guys and your absolute hatred of unions and their workers? If I proposed government going back and "killing" the Bush tax cuts is a similar manner, you'd all grab your pitchforks and torches and storm the castle.
I think it comes down to a sorry mix of elitism and jealousy - you don't think they deserve the compensation they've negotiated over the years and you're pissed people in overalls make more than minimum wage.
If we are going to bail out the auto industry, I want Studebaker, Packard, Tucker, and Nash to be included. They made some pretty cool cars.
BTW, I saw in the local paper, that BMW--located here in SC--and Mercedes--where my son works in Alabama--expect to be in line with everybody else for any handouts to the auto industry. Once you get started with this sort of thing, it's very hard to stop. BMW and Mercedes have reduced profits and talking about layoffs, but they are still making a profit. The U.S. auto industry is not in trouble. It's the Detroit auto industry that's in trouble.
Actually Michael I know what a pension is and no I am not a fan of defined benefit pension plans. When bankruptcy occurs these people will get 50 cents on the $ if they are lucky and that is unfortunate. But I don't think unions should drive a company to bankruptcy and then complain the workers have lost their pensions. The problem with the Big Three is in great part the unions and Michigan. The Big Three need to rewrite their collective bargaining agreements and have much more realistic pension plans if they are going to survive. Bankruptcy would allow them to do so.
I think that all the people tsk-tsking the UAW and big 3 are missing some key points. Sure, they have both made many, many bad decisions and deserve much scorn. But many of those decisions are in the past, and are currently in the process of being reformed.
The premise that the auto companies are looking for a handout to maintain a gold plated way of life is simply incorrect. They are looking to avoid chapter 7 bankruptcy, since chapter 11 is impossible due to the market crash decimating DIP loans. Overnight, GM will close its doors and 100,000 people will be out of work. Within a week, almost all tier 1 suppliers will shut down due to lack of capital. This will cascade through Ford, Chrysler, Nissan, and even affect Honda and Toyota. The CAR estimates 3 million job losses in a month; the most optimistic estimates are 1 million jobs lost. The American auto industry as a whole will be decimated (including Honda and Toyota plants), and the recession will spiral into a terrible situation.
The auto industry has already made sweeping changes to the way it does business. Last year the UAW relented to a tiered-wage structure and a trust fund for retirement benefits - paid and managed by the unions,not the automakers. This will cut in half the gap between unionized and non-union workers, making the whole industry more competitive. The bailout isn't giving a hopeless industry a temporary reprieve; it's about giving an important industry in the middle of a complete transformation a chance to complete that transformation.
The impact of this change is already materializing. The Jeep plant in Toledo is the most efficient in the country; Chrysler already matches Toyota on plant efficiency while Ford and GM are catching up. Ford is just about even with Toyota on reliability according to consumer reports. And GM is poised to lead the world into the electric car market with the Volt.
One must also look at why the German and Japanese companies are more cost efficient: their engineering and part supply chain get health care paid by their governments. It's not a true free market system; US companies are trying to compete on an unbalanced playing field. The US has to accommodate that either in matching socialized health care, or higher labor burdens for our workers.
The biggest challenge that remains is repairing the brand so that people who have had bad experiences in the past give a chance. This is where a bailout could really shine: force even more dramatic union reform, reductions in executive pay, tighter fuel standards and a focus on technology.
I would like to remind everyone of a fact that underlies this whole debate:
Unions get their money primarily through union dues. Any reduction in the workforce reduces union income by a similar amount. They can recoup some of this money by raising dues, but a 20% workforce reduction can hardly be accompanied by a 25% rise in union dues.
This is why unions are so interested in keeping jobs. It has little to do with workers, and more to do maintaining income to the union leadership.
Gina, it's been pointed out ad nauseam that unions would probably be more willing to renegotiate if management did the same. So what's really standing in the way of this reform is the management themselves. You think it's just my opinion, that I'm just as empty as the libertarian side? How about this guy:
When I see people like you going on and on about the Evuul Uniuns without acknowledging a basic, easy-to-assimilate fact like this, I don't think of you as anything but a corporate shill. Certainly not one who is expressing a well-considered opinion.
SoV
You obviously know nothing about bankruptcy law if you think management would not take a hit as well. I think bankruptcy would allow these companies to survive and go on employing people. I think its a better option than the bailout. Sue me!
This is a no-brainer. The crony capitalism represented by the proposed GM bailout is the worst of all possible worlds for the U.S. I haven't heard one even plausible argument for it.
This is what should happen. GM should file for chapter 11 very soon - while it still has about $10 billion in cash. Without cash on hand, it will end up liquidating. If it files with enough cash to carry it through the next year or so, it will be able to reorganize successfully.
That reorganization will impose severe losses on all those people who benefited from GM's success back when it was successful: management, workers, retirees, creditors, shareholders, dealers and suppliers. Probably the only people who will be protected will be car owners: based on how the airlines treated their mileage programs in bankruptcy, it is safe to predict that GM would continue to honor - and the bankruptcy court will bless this - pre-bankruptcy warranties. As for the rest:
- senior management will be replaced
- stockholders will be wiped out
- unsecured creditors will take severe haircuts (probably losing well over 70% of their claims)
- retiree medical coverage will be eliminated or severely cut back
- pensions will be dumped onto the PBGC, with resulting big cuts for pensioners
- GM will rationalize its brand structure; this means eliminating one, two or more of its existing brands (conceivably they could be sold to other car companies - Buick is very popular in China and a Chinese company might want the brand); it's very hard to do this absent bankruptcy because of state franchise protection laws, but chapter 11 will allow GM to kill brands and terminate unproductive dealers - all the terminated dealers will get is an unsecured claim in bankruptcy (see above)
- GM will start using the internet to sell cars directly to consumers if it can figure out a way to use chapter 11 to nullify state dealer protection laws, which would prohibit this
- as part of the rationalization of GM's brand structure, a lot of workers will be laid off
- while the unions will remain, a lot of work rules that contribute to low productivity (e.g., the job bank) will be eliminated
- the remaining workers, both blue and white collar, will make a lot less money - they will get wages and benefits comparable to what the US employees of Toyota, Honda, BMW and Mercedes make, i.e., a market rate
At the end of the day, GM will emerge with a sensible brand structure, far fewer dealers, a direct-to-consumer sales outlet, far fewer workers making a lot less money, much more flexible work rules, few or no legacy costs, and a capital structure that can be supported by the business. Someone please tell me how the proposed bailout can accomplish any of this?
Gina -
The. Unions. Didn't. Drive. The. Big. Three. To. Bankruptcy. Management. Did.
As stated above, the constant drone of "it's all the union's fault" smacks of a talking points memo issued at the last GM Shareholder Meeting.
From Wiki: Some critics have claimed that Chapter 11 bankruptcy is excessively lenient in giving a needless "escape hatch" to the incompetent management of a failing company, damaging the efficiency of the economy as a whole and allowing poor managers to continue managing. It is unusual for the management of a company in Chapter 11 to be fired, as it is usually assumed that the present management team knows far more about the company and its customers than would a new set of management.
WOW! What a great idea!
To which I reply, "well, Gina, obviously you can't read." If you had you would known that many people are rejecting a bailout on very pragmatic grounds: they argue that even if the loans are granted, there will still be problems with the payouts these companies are burdened with, and that these obligations are the fault of the unions. My point, made several times, was that this obstacle might be removed if, instead of calling for more sacrifices, management might, you know, actually make some of their own.
But you either don't get that, or refuse to get that, and I don't particularly care which it is.
This is what should happen. GM should file for chapter 11 very soon - while it still has about $10 billion in cash. Without cash on hand, it will end up liquidating. If it files with enough cash to carry it through the next year or so, it will be able to reorganize successfully.
DBL, your whole analysis is based on a flawed assumption. Chapter 11 isn't an option, even with $10B on hand. If there is no DIP money available to pay for supplied parts (and there isn't), GM's only option is Chapter 7. $10B isn't enough to being to touch the funds needed to keep the Tier 1 suppliers rolling for any time at all.
DBL -
TO your point: senior (GM) management will be replaced
On what planet does this ever happen during a Chapter 11 filing?
Richard Fuld is STILL CEO of Lehman and will be until year end. And when he does leave, he's staying on as chairman of the board.
I personally am outraged at the lack of feeling for GM executives and shareholders on this blog. Imagine a world where we're actually debating whether or not to help bail out our fellow rich people!
What will become of my diamond shoes? Or my cigars rolled in $50 dollar bills that I light with $100 bills?
This is American people! What will happen to my children, Buffy, Jody and the other older one? What will happen to my maid, my butler and my driver if I can't afford to replace the lash I beat them with on a regular basis?
I spent years waiting for my father to die so I could inherit his stock portfolio and now, because of UNION THUGS I can't replace the cracked leather seats in my private plane? I HAVE TO USE A TOWEL TO COVER THEM UP?
OMG - what has happened to this country?
This "saving" of the Big 3 car companies cracks me up. Why should we taxpayers save car companies? This is a perfect opportunity to rid our nation of several types of evil.
First, the left rails at big corporations as evil and corrupt because their CEOs are overpaid and corporations don't pay their fair share of taxes and don't pay their people fair wages and fail to "give back" to the communities they steal from and blah, blah, blah. Yeah, Biden tells us it's all about the three letter word "jobs," but though we love jobs, we hate employers. They are greedy, unfair and evil. Get rid of them.
The algorean environuts preach to us that cars are bad because they are ... well, bad. CO2 producers. Killers of the planet, unrecycled land fillers, etc.
Harry Reid says coal and oil are bad because they "make us sick."
I say, do as Barack and his leftard friends want: get rid of any corporation you can, when you can. And get rid of cars, period. And while you're at it, get rid of greedy and polluting oil and coal companies, too.
Letting GM, Ford and Chrysler go under gives us the opportunity to scrape those massive eyesores from the face of the earth and allow Detroit and its environs to return to untouched, pristine, government-protected/owned land.
Think ANWR, but in Michigan. It would be a nice place to plant trees and visit...on foot, of course.
//sarc off.
I see no problem with GM folding. Americans will buy cars from Honda and Toyota, and maybe from Aptera and Tesla.
Anyone simply connected to 'autos', like mechanics, auto retail stores, etc. will survive easily without GM.
I get irritated when someone says 'what is good for GM is good for America.' No. What is good for entrepreneurship is good for America.
The UAW = Japan's best friend in the 80s.
The UAW = China's, India's, and Tesla's best friend today.
_____________________
One tax policy that would ensure that a safety net goes to the people who need it most, and that stimulates the economy in the most precise way, would be :
Income Averaging.
That way, people who are not laid off are not affected, but people who are can average their incomes.
The key here is not to help 'poor' people. Some people will be poor no matter what. The key here is to help 'jolted' people. Someone earning $200K, who is laid off, is 'jolted'. It takes very long to get another job like that again.
Income averaging should be allowed. That is the most ideally tagerted form of a safety net.
Hey! Here's an idea:
Merge and nationalize the Big Three and outlaw all other car companies, or tax them into bankruptcy. (Like Obama's plan for any new coal companies.) Pass an annual federal car registration tax of $50,000 for each existing car to get them off the road immediately.
Have the new American National Motors (snazzy name, eh?) make one electric car for all (call it the Folkswagon or the Democrat) and force everyone to buy it or go without. If you need a truck, add a trailer.
We end pollution, get rid of those pesky non-union Japanese and German car companies, strengthen the UAW, employ millions of people under control of that union, destroy Big Oil and OPEC and get rid of overpaid CEOs.
See? Easy answer.
Why to people on the left like Mr. SofV refuse to take yes for an answer -- I don't know of a single libertarian that doesn't think the self-dealing compensation arrangements that management enjoys shouldn't be clawed back. George Will profferred a GS 15 salary cap for anyone asking for govt assistance. I would go along with that and would like to hear Megan argue against it.
Tom Wilkinson at GM seems like a sincere person. I wonder if he realizes what he sounds like to us outside the bunker. Reading his posts I hear Bull Conner or George Wallace circa 1962: We wuz makin remarkable progress with our nigras until these outside agitators started rilin things up...
A couple of responses to Michael and John:
1) More often than not, senior management does not survive ch. 11. See, e.g., United Airlines, K-Mart. Sometimes it does. See, e.g., Continental Airlines. For better or worse, the bankruptcy laws don't require the replacement of senior management; if they did, as in other countries, few managers would turn to ch. 11 and they would instead just stay on until the company crashed and burned (liquidated).
2) Ch. 11 would reduce the cash demands on GM; its current cash burn rate of about $1 Billion/month would go down, I'm not sure by how much, but at the very least it would stop paying debt service and it would stop making lease payments on all the unecessary leases it would reject and it would stop making payments to the Delhi pension fund, and it would stop paying the laid off workers in the "job bank," etc., etc., etc. The $10 billion on hand would last for over a year. If the financial markets haven't improved within a year so that DIP financing becomes available, well, that would mean that the whole economy has gone to hell and GM would be toast anyway.
3) If, however, you believe that DIP financing at the outset of the case is essential, then why aren't you advocating the Government provide a DIP loan? You have not disputed the benefits I outlined to a GM reorganization under ch. 11. You just seem to assume that giving GM more money to stave off the day of reckoning is any different than heaping it in a pile and burning it.
DBL,
If GM can structure a chapter 11 and survive for probably 24 months, I mostly agree with your opinion. The only practical question I have is if people will buy from a bankrupt automaker, but I feel they will.
A federal DIP loan rather than a bailout is an interesting proposition, if it's tagged with the same sort of conditions a bailout would be (union restructuring, CEO pay, etc.) I did not suggest it because it had not occurred to me.
I also think that GM (and the other automakers) are on the road to a fundamental turnaround, if given the chance. And I think a GM chapter 7 would be very, very bad for the economy at large - worse for the entire country than most people posting here seem to understand.
Sigh. Yet another libertarian who either can't read (or at least, finds it beneficial to pretend so), isn't very smart, or is just plain dishonest.
For starters, I'm not 'on the left', I'm not particularly liberal, and I don't have any particular inclination to that tribe.
Now, if you read what I have written, you will see that I have asked, repeatedly, why libertarians don't see management as the obstacle, given that all they have to do is to wring those concessions from the unions is to actually, you know, make some sacrifices of their own. Now, I'm willing to be proven wrong - you say that I "can't take yes for an answer", so why don't you actually post some quotes where my point has been addressed? You do that, I'll take what I said back, and handsomely apologize. If you can't do that, why don't you do the same?
Sounds like a fair deal to me. What am I supposed to think if you don't take me up on it?
I think we should be bailing out profitable businesses.
How do you do that?
Lower taxes on business.
Specifically lower taxes on profits.
Mr. Violets
These are very long threads, and I'm not really committed enough to review them for pithy comments. Let me just say that I would be more than willing to blame management. A generation ago Ross Perot became the biggest single stockholder in GM when he sold EDS. He joined the board, banged his head against the granite for a few years until he gave up. He blamed both management and labor, like you he held management in even more contempt. I pointed to Lee Iacocca somewhere in this conversation as an example of leading by example. He was a man who loved cars, not perks and balance sheets. I think maybe Bob Lutz is in that category too, but I can't be sure. The rest deserve not a zero salary after being fired, they deserve to be prosecuted for fraudulent conveyances and be stripped of much of what they have looted over the last few years. Is that anti-management enough for you?
Now that I've shown you mine, it's your turn to show me yours -- why do you think the auto workers in Spartenburg are happy, well compensated and successful; couldn't it have a little bit to do with the fact that when BMW decided to come to America they ran as far from Detroit and the UAW culture as they could? Iacocca referred to the phenomena in his book, euphemisticly calling it "going to the cornfields."
Tom at GM: "There is pretty good research (accepted by everyone from buy-sell analysts to economists) that customers would shun a carmaker in bankruptcy."
Um, so? That means we must fund failed companies in this industry? Let. them. die.
"Also keep in mind that every player in the chain -- carmakers, suppliers and dealers -- are interwoven and heavily leveraged."
Ah, the poor suppliers. For those not familiar with the Big Three supplier practices, he is talking about the same poor suppliers the Big Three rapes each year when negotiating next year's orders. I have seen the Big Three cram outrageous demands down supplier's throats, with the threat that contracts will be immediately pulled unless agreed to. To make the story short, the Big Three force leveraged suppliers to eat their own equity each year in order to keep the Big Three-provided cash flowing. To now hold those same suppliers up as additional supplicants is real rich. Here, the Big Three thug is claiming he needs leniency at sentencing to tend to the victim he beat and robbed previously.
"Like it or not, the auto industry has evolved into a complex, heavily leveraged, totally interconnected system."
So fund it ... or else!
Don't buy it, guys. I live in Michigan, worked in and around the industry. I see it up close still Let. It. Fail. Please. It is the only way Michigan and other Midwest states can come to terms with its circumstances.
There are real benefits to having US car companies in the US, as opposed to having only Japanese, European and Korean car companies in the US.
One of them is having management and workers who will put something together for the country if a crisis occurs. For example, in WWII, Detroit learned how to make tanks for the US Army. Would a foreign-based company have done as well?
That said, there has to be investment money for the new car companies, and there has to be a customer base. Neither bankruptcy nor bailout solves it all.
I don't have a solution, I just try to understand the problem.
People who blame the UAW miss the point entirely. Work rules may create some drag on efficiency, yet in recent years, all observers agree, the big three have made great strides in efficiency and quality vis-a-vi their Japanese and Korean competitors. And the UAW did not stop this from happening, nor are they responsible for the boneheaded strategic decisions that have brought the American auto industry to its current position teetering on the brink of extinction.
Healthcare costs, both for current workers and retirees, are a crushing burden on the auto industry and other big employers -- a burden not shared by companies in any other developed world economy. Reform healthcare, and you won't need a bailout of the auto industry -- or the airline industry, or high tech, or a dozen other big employers that will be screaming for help within six months.
Two of the reasons that got the big 3 into the trouble they now face are quality control and the union regulations. Does any one remember Dr. Deming? He is the quality control guru who helped Honda and Toyota gain the prominence they now enjoy. One of his points is that if an asembly line worker sees a flaw in a piece coming down the line, he/she can stop the line to correct the problem. That would never have happened in a UAW plant. For too long, when American cars were selling well, the UAW would threaten a strike and the company would give in, rahter than face a stoppage that would interrupt the supply of cars for the purchasing public. Part of the problem now is perception, thanks largely to a biased media. For a long time, the top of the quality surveys was Toyota/Lexus. Now, Mercury and Ford are just behind, but does anyone mention that?
Another problem with the current situation is the word "bailout." All we hear from are politicians who are the most self-serving group in this country. Has any group thought to ask some finance people (except Cerberus)on how to restructure the automotives to help them return to profitability?
I wonder what it would be like to be a Union Boss.
Schmucks like us who work in the private sector in expensive places like NY or Silicon Valley are fools. We get laid off in recessions, and live in expensive places that drain our savings.
A Union Boss is immune to recessions, and lives in cheaper locations. Paradise.
I'm a free market guy aware of the law of supply and demand.
Last month, GM, Ford and Chrysler sold 55% of the new cars and light trucks sold in the US, about 400,000 units.
There's no way, short term, that Toyondissandai can increase production to meet that demand, particularly if vendors in their supply chain dependent on the domestics fail. Prices on new cars in North America will rise significantly.
You won't just see prices going up, you'll see content and features go down because there's less competitive pressure. Japanese domestic market cars are "decontented" compared to the same models in the US. They have fewer standard features.
Finally, the list of technological innovations by the US car companies is almost endless, down to the magnetically controlled shock absorbers on the Corvette ZR1 (Google Magnetorheological). GM & Ford alone (Chrysler is privately controlled so this data is proprietary) spend over $15 billion a year on r&d. This doesn't count r&d by vendors closely tied to the domestics. The GM Warren Tech Center has as sophisticated design and test equipment as exists in the world, including Cray supercomputers that many small countries would love to have. Take GM, Ford & Chrysler out of the picture and the pace of technological innovation in the auto industry will slow.
Like I said, I'm a free market guy, but in a country that's spending $300 billion rebuilding sub-sea level New Orleans, and insures folks who build on flood plains, rebuilding the same houses after every flood, I don't mind my neighbors here in SEMI getting in line behind the bankers for a helping hand.
GM is not guaranteed to fail. They just might turn it around. Floods, on the other hand, are as regular as rain, so not only are bad decisions rewarded, they are rewarded with 100% expectation that the "failure" will happen again.
When you lose your job at Dell, Microsoft or Autodesk, I suppose you can still blame the UAW.
BTW, the whole UAW workers make $72/hr argument is a red herring. I'm sure there are government workers, with their golden benefit packages, who earn that much. The UAW has already renegotiated its contracts with the Big 2.8 that pretty much even the playing field in terms of structural costs. The problem is that most of those savings don't start until 2010.
By way of comparison, in 2005 there were ~1.6 million executive agency federal employees with another 2.4 million pensioners. The average salary for all civilian non-postal Federal employees in 2006 was $66,371. That's salary folks, not including a benefit package that is much more generous than anything available in the private sector. Almost 20%, of Federal civilian employees make over $77,500 a year in salary. That's 288,000 people sucking hard at the Federal teat, about twice the number of UAW members working for the domestic auto companies. At least the UAW members do stuff for their wages. Their wages are paid out of the voluntary purchase of products they make. The Federal employees on the other hand, don't seem to do much of anything productive, and they are paid by taxes coerced from the general public.
I'm no fan of the UAW and I've been a vocal critic of the management at the domestic car companies. We've let our manufacturing base get hollowed out as industry after industry has gone away because of a lack of a coherent national industrial policy. Shoes, apparel, steel, consumer electronics, machine tools, etc. etc. All gone. Were those industries all run by knaves and fools and staffed by lazy incompetents?
Are you and your friends the only honest hard working Americans?
including Cray supercomputers that many small countries would love to have
Bozoer,
I agree with many of your statements above, but I have to nitpick this detail. GM has been using IBM's since 2002; their old Cray systems are comparable to the quad core machine I currently have on my desk, and way slower than a modern 64 processor linux cluster.
As of 2004, GM had a 2000 processor supercomputer which was one of the largest in private industry anywhere, comparable to NASA AMES. So your point was well founded about their investment in technology. But if you compare computer resources per engineer, GM doesn't compare to the aerospace companies who do some crazy heavy duty analysis.
This essay is based on flawed assumptions. It rides, unencumbered by reality, on the chariot of ignorance to the land of unfounded conclusions.
A waste of time for both the author and the reader.
I also live in Michigan, and I agree: Let them die. The problem with GM isn't upper management, or the UAW, or any other particular part of the organization, it's the entire corporate culture. It's too pervasive and deeply embedded to be rooted out by anything short of closing the company and auctioning the equipment to others who won't let such a dysfunctional environment begin.
You've all heard about the GM board laying off thousands of workers because of lost business, and rewarding themselves with many millions in bonuses. In a functional company, shrinking the business is not a sign that the top management has earned a reward. This has been going on since the 1970's. I don't know why the stockholders haven't voted the bastards out long ago, but it's too late now; the attitude has permeated the whole company. As is seen in the union demands as the whole company collapses...
An engineer I know used to work for GM. He saw a table get bumped by a forklift and pushed out partly into the main walk-way. So as he walked past, he nudged it with his hip. The union filed a grievance because a salaried employee had "moved furniture", instead of leaving a safety hazard in place while paperwork went through the office and a team of union furniture movers was dispatched. The heaviest cost of UAW-style unionization may not be the extra wages and benefits, nor the extra jobs caused by featherbedding, but the slowdown in work from waiting for the featherbedders to show up.
I've been handling contracting out of electronics design for LED lighting systems. We pay on completion of the job, and the designer doesn't seem to feel a need to hurry up about sending us the bill. But he's told me about a contract design for an auto company where it took over six months to get paid. Now, if it's auto-related, he gets paid and the check clears before he starts work. And he charges them $125/hour, versus $75 for us, to cover the extra paperwork and aggravation. I've heard similar stories elsewhere; if you want to be an auto parts supplier, you've got to accept that the Big Three purchasers will try to screw you, so you've got to screw them first and harder.
I've worked for 18 years for electronics contract manufacturers making boards for other industries, including banking, medical equipment, safety equipment, and vending machines, and in most things non-automotive, suppliers and purchasers work together to solve problems and generally trust each other. Japanese auto companies are notoriously intertwined with their suppliers. But if you're selling to GM, forget about working with them; just make sure you can prove that the parts are built to print, and making them fit in the car isn't your problem.
In the case of the auto-makers' bailout, it's a relief to have a national issue that is so straightforward: American cars tend to suck therefore people are not buying them. If GM and Ford don't want to go out of business, they should start making decent cars. To bail them out would be to reward their terrible manufacturing standards.
To those who are trying to determine the relative contribution of management costs and labor costs in making the Big 3 uncompetitive, maybe the proper analysis is to compare those costs relative to other industries employing individuals with the same educational levels.
Most of the people in Big 3 management are probably MBAs/college grads, while most of the people in Big 3 labor unions are probably high school graduates/some college types. Comparing the compensation of these groups within the Big 3 to their compensation elsewhere in the economy would clearly show that those at the lower levels of educational attainment were very overpaid relative to their peers working in the non-Big 3 companies in the economy.
As much as Wagonner's compensation is BS, the fact is that if he had gone into some other industry with his credentials, he would have made more had he made it to the same level of management. The typical high school grad working the line with UAW membership can't say the same thing.
That's the real "apples to apples" comparison to make for this industry. All you guys calling for management to set the tone by "sacrificing" have to realize that they've already sacrificed just by going into that terrible industry.
Why is it only heavily unionized jobs are the ones where the workers seem to think jobs and businesses should come to them?
There are other jobs in other parts of the country. Pick up and move! It's not easy but nothing in life working having ever is.
If I wanted to make food from produce I grew myself I'd have to move somewhere those plants grew well. I couldn't just insist that someone, somewhere, provide me with a solution that would allow me to grow any plants wherever I chose to, regardless of growing conditions.
Yet we're told that jobs have to stay in Detroit (and elsewhere) while other car companies are doing just fine building plants elsewhere in the United States.
If automakers want a bailout then I say give the taxpayers a say in running those companies.
And may I suggest that automakers stop building dozens of different models that compete with each other as well as your competition. There's no reason why Chevrolet has to have a zillion models that overlap product categories, for example.
Another suggestion: why have seven divisions if you are simply going to run all of them the same way? Make them semi-autonomous so they can find their own niches.
wow whats the point of posting comment #224? Well here goes -
Why dont we give the entire $25 billion to Ford? That way, we save the domestic auto industry without rewarding failure.
Bozoer Rebbe,
Thanks for that informative post.
It is far more costly and cruel to plant employees and tax payers alike to allow these companies to continue receive life support from us when they're circling the drain. In keeping the car manufacturers solvent and alive, resources (natural, capital, sheer human talent and otherwise) are being squandered that could be used to advance similar industries that don't need a financial resuscitation every six months. No matter how many billions of dollars the government injects into their collective systems, the Big Three will not make it in the long run. That these corporations haven't come forth (publicly) with a platform that details how our billions will haul them out of the red is telling. Are they so in denial that they think they can become profitable in 2009? Or are they hoping that we will only look at the possible – but by no means permanent — unemployment figures and overlook the fact that corporate restructuring and product development cycles take years, not mere months, to complete? Using fear mongering tactics to receive sympathy from us, while simultaneously treating us as though we're stupid, is profoundly insulting.
We're not slapping a $1 band-aid over a small cut that will eventually heal, we're packing billions of dollars of gauze into a gaping, festering chest wound that the patient ignored to treat. We've done all that we can; it's time to pull the plug.
Learn the difference between "I could care less" and "I couldn't care less." You're a professional writer, for Christ's sake.
Here is a great point on behalf of the auto industry. Toyota is having problems too and the thing is we do not see that their country is helping them and supporting them. So our country and congress not helping is wrong and is making us look like bad guys. I forget the guys name but he said "the big three is looking for a gift from Santa when they have been bad all year". Well this is not true if we look not just at the big three and look at any and all companies and families we are all having this problem because of our government and congress not our faults. They allowed this credit crisis to happen by allowing the banks get away with so much then we see all this corruption of politicians being greedy and messing this economy up. Don’t get me started on them allowing the oil companies get away with what they have been doing to bring down America which is treason by our government allowing all this to happen (the fall of our economy). The point that the woman was making about if this does not go through so many people will loose their jobs like 30million people, well she was just giving a estimate of just the auto companies and this is just the tip of the ice burg or a quarter of the people. Now look at all the other companies that have something to do with the auto industry we are gonna have so many more people loose and we will be well on our way into a depression. Get ready our government is going to fail us and send us into a depression and the blood will be on their hands. Our government will not support us but other governments support their own. Lets hold on we are gonna go on a scary roller costar ride.
Very well written. I applaud you for saying the right things.
With over 25 years in construstion I have had employment problems based on economic factors. Forces to take a demotion after Enron due to work slow downs. Lost a position In Australia after
9-11. An continue to find a position to use my training and experience in the field.
To bad the Government can't bail out overone but we need to be realistic.
To paraphrase: After getting my MBA, life was so hard when I didn't get that fat consulting job figuring out ways to screw people who actually build the things or deal with the servicing of products down the line.
Answer: You felt worthless because you pretty much were at that point - now you blog. Society thanks you.
EXACTLY "I felt so uncomfortable at that date to Avenue Q when my date was probably thinking I might embarrass them at parties..."
Did you pay? Did you have clothes? Did you have time?
That rings of "Let them eat cake in Detroit." This country is blinded by its affluence. What the F&^$ are you worth with an MBA if you can't step in and make a difference. "Geez, I don't know how to fix a business other than cut, cut, cut." Yeah, THIS problem isn't your job, but you are making a buck by sitting in NY posting gibberish just before you run out to this new place in Chelsea with the best _______!
MBA's, particularly aspiring consultants, seem to be some of the most pampered, spoiled, worthless shites to be created since... well used car dealers. How many MBA's does it take to let banks run off a cliff followed by any company of any significant size?
When all we do here (US) is provide "services" who's going to pay a premium so that we can keep all this affluence? I can just hear the Chinese complaining... "Every time I call, I just get forwarded to one of those call centers in the US where they say their names are Qi Fong, but it's probably Bob or Jane or something. They are horrible. They got so dumb and lazy."
Then again, they are even better at union busting in a sense, so maybe we need to just kill anybody who would dare stand in the way of "business" mob rule mentality.