This is the option that's always seemed to make the most sense to me. The "Car Czar" didn't really seem to be much different from a bankruptcy judge, except perhaps in allowing all three to collude to beat up on either consumers or suppliers. We have a very, very good system for taking distressed companies back to profitability--to be sure, it doesn't always work, but it works better than anything else anyone's ever tried.
The biggest concerns about bankruptcy are two:
- How will the Big Three obtain Debtor-in-Possession financing in a credit crunch?
- How will they convince people to buy their cars if there's a risk that the warranties will be no good, or Detroit will fail and hence stop making parts?
Yes, this option makes the most sense and, as such, is guaranteed not to be chosen.
I think the Bush Administration would definitely choose this option, but since Democrats will be in complete control come January 21, I expect all the parties to simply delay until then so that the automakers and the UAW can get the money without any real conditions.
Hell, let the gov't be the DIP. Then at least there'll be a decent likelihood of getting paid back. Wiping out the common would be nice too.
What's to prevent the UAW from fleecing them in bankruptcy court? At this point, I have to believe that they are more interested in taking whatever they can grab rather than constructively working with the autos to preserve their members' jobs.
After all, unions are better advocates for former workers than current ones.
I hope this comes to pass. It strikes me as the least-worst option of those realistically on the table.
How is that not a bailout?
After all, unions are better advocates for former workers than current ones.
The problem with this conversation around here, of course, is that for most people, destroying the unions is the first priority, and doing whats best for the country a distant second.
See, now how was that helpful?
The problem with Freddie and the unions, is that propping up the unions is the first priority, and doing what's best for the country a distant second.
The statement immediately above is no more valid than yours, but it is in the same spirit.
How is that not a bailout?
It is a bailout, but it's better than the current "plan" because:
1) the creditors and judge will have to be convinced the plan is viable before it gets approved, and
2) DIP financing is close to first in line for repayment, so the notion that this is a loan rather than a bonfire of Benjamins is somewhat less insane.
What - you couldn't have entitled this post "nanny nanny boo boo unions!"?
Orderly bankruptcy of the Big 3 - the new "clean coal" ladies and gentlemen. Enjoy your circle jerk...
It is a bailout
Glad to know the deep principles we've been arguing about this whole time were mere semantics.
I don't know where you live, but I don't think there are too many deep principles at work on Planet Bailout here.
Freddie:
More like wanting the money to be somewhat useful. Just handing them money without a bankruptcy is like giving a crack addict a 20 and expecting them to use it to take a cab to the rehab center.
It’s only “doing what’s best for the country” if one really believes “what’s good for General Motors is what’s good for America.” As far as “destroying the unions” goes, it really comes down to which side wants to take tens of billions of federal taxpayer dollars out of our collective pockets to prop up their constituents with an unearned, unpaid for subsidy and which side does not.
Since there seems to be a pretty strong consensus building for the federal government to provide support for warranties if the Big 3 go into Chapter 11, the only reason for them not to go seems to be in order to preserve the power of the UAW and that frankly is not a compelling reason.
I just find it bizarre that Megan has been arguing against a bailout forcefully for ages and then says "this bailout in everything but name is a good way to go." I don't get it. Of course, there's one little difference....
As far as “destroying the unions” goes, it really comes down to which side wants to take tens of billions of federal taxpayer dollars out of our collective pockets to prop up their constituents with an unearned, unpaid for subsidy and which side does not.
Unearned? What are you talking about? Are you saying the union members didn't earn their pensions?
Of course, there's one little difference....
That being that doing things this way might actually work. :)
How will they convince people to buy their cars if there's a risk that the warranties will be no good, or Detroit will fail and hence stop making parts?
I don't see the concern here. Regarding warranties, wouldn't greater risk simply push the price down? Second, most parts aren't made by the auto companies. Suppliers will certainly take a hit, but they will still make parts. Even if these manufacturers were to shut down, there would exist the opportunity for new businesses to fill the void (the beauty of a capitalist system). There are also aftermarket parts manufactures (AC Delco, etc.) to fill that need.
Perhaps I'm missing something.
Unearned? What are you talking about? Are you saying the union members didn't earn their pensions?
Not from me, they didn't. GM might owe them money, but that's between them and GM.
Not from the federal taxpayers who would be funding their bailout.
"The "Car Czar" didn't really seem to be much different from a bankruptcy judge..."
The main difference would seem to be that a 'car czar' would lack a bankruptcy judge's independence from political interference.
There are also aftermarket parts manufactures (AC Delco, etc.) to fill that need.
I wondered about this every time it comes up. I've worked in auto parts both retail and commercial, and you rarely seen OEM parts. It's all reman or aftermarket. Now, I suppose the same company could be doing the OEM and the reman, but presumably if they lost part of their business they'd lay off or go into bankruptcy themselves trying to preserve the secondary market rather than just sort of giving up.
Oh, and Dan's got your number, Freddie.
Not from the federal taxpayers who would be funding their bailout.
Yet I didn't see the same outrage for the bank bailout. I wonder why. At any rate, if they don't get their pensions, you'll pay anyway. In the form of food stamps, welfare, unemployment and other associated costs.
Are you saying the union members didn't earn their pensions?
Union pensions are not at risk here. For one thing, the pension funds are in relatively good shape. For another, the pensions are guaranteed anyway (by the PBGC). What are not guaranteed (and what taxpayers have no obligation to subsidize) are the costly better-than-medicare retiree health benefits.
The problem with Freddie and the unions, is that propping up the unions is the first priority, and doing what's best for the country a distant second.
Actually, as is typical, the UAW is fighting for short-term gains that will doom their employers and themselves eventually. And, at this point, 'eventually' is measured in months not years. If the D3 don't get cost competitive wages and slimmed down dealer networks, they'll blow through the bailout money in no time and go belly up anyway. The UAW needs chap 11 to save itself from its own retirees and its own shortsightedness.
Yet I didn't see the same outrage for the bank bailout. I wonder why. At any rate, if they don't get their pensions, you'll pay anyway. In the form of food stamps, welfare, unemployment and other associated costs.
I wasn't aware that the bank bailout went towards lush pensions. I think the tens of thousands of finance employees who've been laid off as that industry restructures and adapts to fiscal reality would agree with me.
"At any rate, if they don't get their pensions, you'll pay anyway. In the form of food stamps, welfare, unemployment and other associated costs."
They'd get their pensions, up to the maximum insured by the PBGC, like every other group of retirees whose employer defaults on its defined benefit pension. The government may have to eventually bailout the PBGC, but this would be less because of the the collapse of the automakers and more because employer premiums charged by the PBGC have never been set at a high enough rate to insure against the risk of default (the reason is that advocates of defined benefit pensions were worried that too-high premiums would discourage companies from maintaining their DB plans).
The D3 retirees who aren’t drawing pensions but at the retirement age for Social Security and Medicare are undoubtedly drawing from those programs already so there are no additional savings in also having the taxpayers fund the pensions and health benefits they might have thought they would get from the D3. So for that group of people, it isn’t costing me any more money than it already is.
AS for the D3 retirees who aren’t yet on Social Security and Medicare, the costs of the public assistance programs you mention are probably less than the pensions and health benefits particularly as at least part of the cost is paid for by Michigan taxpayers (e.g. Medicaid, unemployment benefits) rather than federal taxpayers. So for those people again it would cost me as a taxpayer in another State less to do nothing.
And that’s making the worst case assumption that none of these people ever work again which is unlikely and the best case assumption that a bailout would prevent this system from collapsing rather than just delaying it for a few years or leading to future bailouts.
Actually, the difference I meant is just that one's called a bailout, which seems helpful, and one's called a bankruptcy, which seems punitive. Which makes a big difference for our emotions, I guess, but not much in terms of economic effects.
Which makes a big difference for our emotions, I guess, but not much in terms of economic effects.
When you think about it, even straight bankruptcy with no government guarantees is a form of government-sponsored bailout.
Why prefer bankruptcy to bailout? How about the fact bankruptcy is the way these issues are dealt with while the bailout is one-off solution crafted only for the car companies. We've a lot to dislike about our nation's bankruptcy laws, but those laws were NOT crafted for this one instance. They represent long established public policy and are the rules everyone should expect to apply.
Wouldn't 'Freddie and the Unions' make a great name for a band?
/Dave Barry
Joe Klein's Conscience wrote:
Really, which orifice of your body, or of someone else's body do you have your head inserted into? I can't see any other explanation for why you would make this statement. Additionally Joe did your mommy ever teach you about a concept called "two wrongs don't make a right". The only argument that you're able to give in favor of the bailout seems to be "Well the bankers got a big chunk of taxpayer money that they didn't deserve. Why shouldn't the big three?" Sorry JKC, but I've already been anally raped by Wall Street, so I'm not that enthusiastic about letting Detroit have its filthy way with me, even with your assurances that it won't hurt as much this time if I just lie back and enjoy it.
Yet I didn't see the same outrage for the bank bailout. I wonder why.
Banks provide a service that is useful to everyone in America. The UAW provides a service that is useful to UAW members and costly to everyone else.
That's why.
Actually, the difference I meant is just that one's called a bailout, which seems helpful, and one's called a bankruptcy, which seems punitive. Which makes a big difference for our emotions, I guess, but not much in terms of economic effects.
In a bankruptcy, the difference between the company's financial obligations and its ability to pay is made up by making the creditors pay the cost, e.g. by writing off bad loans or accepting smaller payouts. In a bailout, the difference between the company's financial obligations and its ability to pay is made up by taxing people who never did business with the company at all and making THEM provide the money, so that the credtiors can recoup the money owed them at little or no personal cost. In other words, in a bankruptcy the bad times are paid for by the same people who benefited when times were good, e.g. the UAW and the folks holding GM/Chrysler debt. In a bailout, the bad times are paid for by people who never saw a dime from the good times, while the people who actually benefited from the good times get to keep their gains.
And that, Frankie, is the "little difference" between a bailout and a bankruptcy. Bankruptcy puts the risk and the reward on the same people; bailouts privatize rewards while socializing the risks.
Of course, there's one little difference....
Actually, there are a lot of important differences. For example...
1. It wipes out the shareholders.
2. It is not an extraordinary, ex-post-facto, politically driven re-write of the contractual agreements between the stakeholders, but simply the exercise of a pre-existing legal framework of which they were all aware when they signed their contracts.
3. It does not create a nationalized or quasi-nationalized firm, but simply a new business that will seek profit like any other.
4. It does not tax lower-earning workers in order to subsizize the wages of higher-earning workers.
I would think that, from a progressive or any other standpoint, those would all count as advantages.
1. Almost no one who opposes the auto bailout supported the financial bailout. A pattern keeps emerging in comments section. UAW supporters keep saying "what about the bailout of banks?" The reply by bailout opponants is usually "yeah, I opposed that too!" But those who support an auto bailout intentionally ignore it because it undermines their emotional rhetoric: most of us did not support the financial bailout! Most of us did not want either bailout. But you know this. You just want to be able to deploy your class warfare rhetoric "sure, help the white collar bourgeoisie and let the blue collar proletariat worker suffer! Its all about class! You don't mind bailing out middle and upper management but refuse to help the 'working' man!" If stopped falsely attributing to us a defense of the financial bailout, you would have to stop making this particular class warfare point, so you simple ignore what we say and project whatever view on to us that is convenient for your rhetoric at the moment.
2. Many banks have closed. Tens of thousands of bank employees have lost their jobs. Banks that received a bailout have been forced to restructure. If banks can close, layoff employees, and be forced to restructure, why can't auto makers? In other words, do you really want the Big Three to get the same treatment as the banks? Okay then, get ready to let some of the car makers fail, get ready for tens of thousands of layoffs, and get ready for government required restructuring. Be careful what you ask for, you might just get it. (Of course we all know you don't to be treated the same way the banks were. Its just a rhetorical talking point).
Grow up.
3. It does not create a nationalized or quasi-nationalized firm, but simply a new business that will seek profit like any other.
I don't think this one counts as an advantage from a progressive standpoint.
I have a Chrysler vehicle, and the notion that I might suddenly become unable to find parts is just ludicrous. If there's demand for the parts, I can't believe I won't be able to find them. Hell, if the market is so rich with desperate Jeep-headlight-bezel needers, I'll scrap mine for parts, retire, and buy a Subaru.
Freddie, the difference is that bankruptcy courts are specialists in re-organizing failed companies. They're very good at what they do, by and large. I have zero confidence in Congress' ability to manage a re-organization of a major company. Everything would be politicized, and that would be a disaster. Something of this magnitude and importance needs to be handled by the experts, not the pols.
@Paul Dubuc 8:08 pm
Agreed. The aftermarket for car parts is already huge, as you point out. Taking away (a portion of) the Big 2.5's manufacturing base certainly won't cause cars to be abandoned in the ditch. It would raise some interesting questions about the application of federal warranty laws, however...
I wasn't aware that the bank bailout went towards lush pensions.
Nope, just billions of dollars in "retention bonuses" Sure, they've laid some grunts off but the people at the top are stilling raking in millions of dollars. They'll take a $1 salary, while quietly giving themselves a $5M bonus.
Almost no one who opposes the auto bailout supported the financial bailout.
Except for our host Ms. McArdle, which is why the argument ends up on these comment threads so often. I personally am against both bailouts, including all of the governments efforts to artificially prop up home prices. However, if you want to know why the argument above is made you only need to look to our host.
Banks provide a service that is useful to everyone in America. The UAW provides a service that is useful to UAW members and costly to everyone else.
Goldman Sachs provides a service to whom exactly? Rich people? Citigroup provides a service to whom exactly? And especially Citigroup, their services could be done just as well by local banks. Are they going to provide useful services when they are taking the TARP money and buying treasuries with it? Or paying the executives "retention bonuses"? I wonder what a lot of people would get paid if it wasn't for unions. Probably a lot lower than you get now. Obviously, you know nothing about unions and their benefits. You just have the Republican hate for people beneath your status.
The financial sector provides a "service". Is that what we're calling earning outsized bonuses by pushing junk paper around the globe? A service?
I'm increasingly convinced that the glibertarian's only defense of turning a blind eye to the outsized financial sector bailout is that they don't understand for a minute what these people do. Its much easier to rail against blue collar union workers. That's a boogie man we can get our arms around.
Re: the creditors and judge will have to be convinced the plan is viable before it gets approved
If both the outgoing and incoming administrations are behind this plan and have all their heavy guns loaded and ready to fire, no judge will dare reject it, and no creditor will dare to complain. Recall too, that many of the really big creditors are themselves sucking at the federal teat these days. I doubt we will hear a peep out of them if someone quietly mentions that their access to their own bailout resources might be imperiled by failing to sign on to the plan, and even to act happy about it.
Re: What are not guaranteed (and what taxpayers have no obligation to subsidize) are the costly better-than-medicare retiree health benefits.
The retiree healthcare priogram is due to be taken over by the union.
Re: It does not tax lower-earning workers in order to subsizize the wages of higher-earning workers.
If the plan features the federal government as DIP lender (and I suspect it necessarily will) then it will indeed involve using public money to support these companies. Now, that money may well be paid back, with interest, but that's true in principle of any bailout loans too.
I've seen many of the Southern Republicans protest government involvement in private enterprise, but did any of them protest all the tax incentives given to set up the foreign auto plants in their states? You can argue on the quality and quantity of the investment but it isn't intellectually honest.
Awareness, are you in the thread?
J.K.C.,
Until recently the starting salary of a UAW member waas $28.12/hr - or $58,489.60 a year, in salary alone.
I work with one of the worlds most succesful software companies and they pay computer science grads fresh of of MIT and Stanford $55k.
How do you propose that Big Three compete burdened with starting salaries that Apple, Google, and Microsoft can't jutify?
"You just have the Republican hate for people beneath your status."
Nah, you see the union guys make more money than most people, so its actually the union workers who are the upper class, Freddie. In fact, they are the bourgeoisie.
If they weren't "workers" you'd hate them as much as bankers or small business owners.
And the most mind boggling post goes to...the guy who thinks those making $58K a year are "upper class". I want to live in THAT world.
Oh yeah - and extra bonus points for assuming that those who handle heavy machinery where they risk severe industry aren't "worth" nearly as much as an affluent graduate of our top schools with a fresh diploma and zero experience. Classism has barely been so naked as this.
Trust me Mike, you don't want to live in Michigan.
And the most mind boggling post goes to...the guy who thinks those making $58K a year are "upper class". I want to live in THAT world.
$58K/year is 120% of Michigan's 2007 median household income. If someone making an individual, starting salary that is over the state's median HHI isn't upper class, who the hell is?
And the most mind boggling post goes to...the guy who thinks those making $58K a year are "upper class".
$58K is well above the average, but it's not just the $58K nominal wages, it's the double-time overtime that many have earned over the years, it's the near iron-clad job security (jobs bank) and the gold plated fringe benefits and defined pension plans that very few non-government employees have (nearly all of us make do with 401Ks, deductibles, co-pays, and Medicare when we hit retirement). I know professionals with degrees and years of experience who make no more than $60K, get no overtime pay, and have nothing like the UAW level of benefits.
Oh yeah - and extra bonus points for assuming that those who handle heavy machinery where they risk severe industry...
Have you seen a modern auto assembly line?!? Workers don't handle heavy machinery and risk severe injury--it's boring work and they're on their feet all day, but the work is not particularly strenuous or risky.
Mike M,
That was a bit of hyperbole, maybe upper middle class works for you? or just middle class? In any case, they are NOT lower class proles. Agree?
Maybe you should have noticed the reply was to someone who claimed "Republicans hate..." so a little snark may be okay in a reply, huh?
Also, note the 58k number tossed out by someone else is STARTING salary.
Working with heavy machinery should get you some extra pay, for sure. Same for white collar jobs that require 60 hours a week and travel every week- all without overtime.
p.s. I work in manufacturing so excuse me if I don't think running a drill press is any more noble than selling a mortgage, or vice versa.
Why give money to GM and Chrysler? Let them go into bankruptcy. Give Ford the money and let them buy up what ought to be saved. Dollars to donuts Ford knows the industry better than any Car Czar.
Union members elect officials from their ranks to negotiate contracts with corporate officials. These contracts state agreements on compensation, working conditions, and retirement benefits. How does it happen that both groups of officials can abrogate these contracts at will, with no consequences from their constituents? It especially gravels me that union officials - whose greatest fear is having to return to the labor force - will stick a knife in the back of retirees who no longer have the vote in union elections to buy the votes of active members. If you want your union officials to represent you, give them term limits.
"I've seen many of the Southern Republicans protest government involvement in private enterprise, but did any of them protest all the tax incentives given to set up the foreign auto plants in their states? You can argue on the quality and quantity of the investment but it isn't intellectually honest"
Get real and quit drinking Gettelfingers kool aid, how much money has Michigan thrown at the Big 3 in tax incentives to build plants there. Like it or not, every state offers incentives worth millions to business to build or locate in their state.
"Michigan on Tuesday approved $132.5 million in tax incentives for the automaker to spend $838 million on the new plant and to upgrade four other facilities, including the Detroit-Hamtramck assembly plant where the Volt will be built."
http://www.usatoday.com/money/autos/2008-09-25-gm-plant_N.htm
Nobody in their right mind will buy a big-three vehicle any time soon - and so they're probably finished already.
If the union will slink away in shame I'll be happy to buy a car like a Chevy or maybe a Ford even though I'd prefer they make a new brand without all the losery baggage. Buying American is my preference but it doesn't feel very patriotic to support these people. It feels wrong.
"Obviously, you know nothing about unions and their benefits. You just have the Republican hate for people beneath your status."
I have worked in manufacturing shops that were unionized.
The union guys in said shop treated me (a college kid earning tuition money) like absolute s@#$, did no work, and acted like spoiled kids whenever someone asked them to do their job. Oh, and I got to pay union dues, even though my pay sucked and I got the hardest, most dangerous job there...without getting union pay. Solidarity forever, eh buddy? So yeah, *I* have some sense about unions from personal experience. None of it good. Management treated me much better.
Moving away from anectodal stuff, I also took economics classes in college, including a class in labor economics. Look up how unions get those benefits, mi amigo. In particular look up the concept of "consumer surplus" and how unions capture that for their benefit, causing consumers to pay more for goods than they otherwise would have to.
That "republican hate" thing is pathetic. You ought to take it back.
For once, I agree with George W. Bush. We don't need to "reinvent bankruptcy". And if there was ever a group of companies for whom bankruptcy was designed, it's the big 3 domestic carmakers.
After Bush shoveled tons of money into Iraq, I hope Obama doesn't shovel tons of money into a boondoggle like the Chevy Volt. If you think about it, the government could easily spend over a trillion dollars trying to get Americans to buy fuel-efficient Detroit cars. Like Bush with Iraq, all that government money won't actually WORK, but that didn't discourage Bush. Let's hope Obama doesn't go down a similar path.
Bailout for banks resulting in bonuses? How do you think the top management at Bear Stearns is planning to spend their bonus this Christmas? Or Lehman? Willing to apply this standard to the automakers? I am.
The reason everyone wants a bailout and no one wants bankruptcy is because the bailout can be almost completely controlled by politicians, who don't really care about anything other than getting reelected and looking sincere on the news. Once in bankruptcy, the law and the judge take over and its not so easy. Chances for a soft landing decrease dramatically.
Only David Wright has mentioned the stockholders. Remember how well they did in the KMart bankruptcy. I'm sure management and UAW would much prefer dealing with elected people than lawyers, judges and a couple hundred years of bankruptcy law.
I keep hearing people asking why, if we can bailout the financial institutions, we can't bail out the automakers.
What it comes down to is utility. We can have an economy without automakers; but we can't have one without financial institutions.
That's why it made sense to bail out the financial institutions (at least as originally proposed) but not the automakers.
Yet I didn't see the same outrage for the bank bailout.
You did from me. I wrote my congressman and senators several times. Fortunately, save for the one idiot who already lost in the primaries, my state's congressional delegation voted against BOTH bailouts.
Even weirder though, is that TARP has been a complete failure! On top of that, it's distorted the marketplace and will end up causing damage for much longer than if we'd done nothing. History shows that government intervention extends financial crises, it doesn't shorten them. Now, how are we going to get the government back out of the marketplace? How are we going to force the government to sell off the shares they purchased? Above all, how are we going to get the government to fix the oh so corrupt Fannie Mae and Freddie Mac?
We as a country just blew $350 billion dollars on a boondoggle. Let's learn from that.
America freely chose essentially a one-party rule government that happens to be controlled by leaders that are as far-left on the poitical spectrum as America has ever had in it's history. There is no chance whatsoever that these leftists are going to require measures that the UAW dislikes.
So, sit back, try not to make yourself sick as you watch the outrages to come, and accept it. Because we, as a nation, chose this course. It's time to stock up on antacids and sleep in the bed we made.
DIP financing? From the government, or at least with govt guarantees. It would be cheaper than the bailout and if the govt really wants them to succeed, they won't let this become a sticking point.
I don't see why the warranty situation is such an issue either. Several years ago I bought a BMW lease return. There was no mfg's warranty left so I purchased a service contract for about $1200 for 3 years from GE Capital. I took my car to any garage and paid a $50 co-pay, they paid the rest. Over the 3 years I had the car, it worked out great. The point is, that even if the company that made your car went belly up, somebody would offer something similar to take the place of the mfg's warranty. It is not an unsolvable problem.
I thought this was the stupidest quote on the board:
Obviously, you know nothing about unions and their benefits. You just have the Republican hate for people beneath your status.
The self-righteousness is just incredible.
But then a different(?) Joe got in under the wire:
TARP has been a complete failure!
The rest of your points/questions make a lot of sense, but on what POSSIBLE evidence could you make that statement (in bold type, no less), as of Dec. 19, 2008?
Paul Dubuc wrote "I have a Chrysler vehicle, and the notion that I might suddenly become unable to find parts is just ludicrous."
Agreed. One of my cars is a 1985 Mercedes (last year of the model). It is ridiculously easy to find parts for it (surprisingly cheap too).
Just drop CAFE and let the automakers build what they think customers will buy. It is a simple and free way to help all the automakers.
First of all, TARP hasn't done what it was designed to do--it hasn't purchased troubled assets. Second, banks are just sitting on the money. $350 billion has just vanished down a rabbit hole. I call that failure.
FORGET BANKRUPTCY
CLEAR THE DECKS IN THE EXECUTIVE OFFICES, AND THE UAW, BUT DON’T KILL THE HEARTLAND
BAILOUTS are complex, but Try something outside the box like this to save the U.S. Auto Industry - - -
http://pacificgatepost.blogspot.com/2008/11/solution-for-detroit-gm-friends.html
Toyota and Honda also depend on the same suppliers who feed GM and FORD. No need to let “Detroit” disappear.
There is much creative talent hidden inside the U.S. Big 3 that has been smothered by mismanagement and the UAW. ... and they actually "make" something, .... unlike Wall Street.
What are you talking about? Doctors don't "make" anything. Police don't "make" anything. School teachers don't "make" anything. Why do blue collar folks have to put down the valuable contributions by people who don;t work in factories. Why the hell would anyone think that "making" something is more important security services provided by police or medical services provided by doctors or educational services provided by teachers? Try getting along without basic security like in Somalia or Iraq circa 2004. What matters is whether people produce a product or service that is economically valuable.
GM's inventory of unsold vehicles is such that if they held a 50% sale on every car they would raise far more cash than the "bail out" being contemplated.
Turn the inventory to cash and file for chapter 11.
Then negotiate with the unions. If the unions finally get the message, great. If not shut down the worst of the plants and start importing from their foreign (and profitable) subsidiaries the small cars they haven't a prayer of making profitably here and use the remaining domestic plants for the more limited higher end products that can command the larger markups needed to cover domestic costs.
Actually, it is American consumers, who are destroying the unions. The car companies produce fine cars that Americans buy in huge numbers. The only problem is that at the price the car companies have to sell their cars, they don't make any money, while Toyota makes $17 billion selling the same number of cars.
Of course, this situation isn't sustainable and you hit the brick wall. They're tasting masonry right now.
The choice for bankruptcy is a corporate decision, but the question is what can the Federal Government do to aid the automakers? So far, no one is discussing the standard way that governments have always used to aid businesses: buying products and services for government use. U.S. automakers would benefit greatly from a temporary federal plan, perhaps as part of the upcoming economic stimulus package, to provide matching funds to state and local government entities to replace their vehicles with new cars and trucks, and to provide funds to replace federally owned vehicles as well. This would directly address declining sales volume among the Big Three and could be enough to get them over the hump of the recession. We should get something tangible for the money government spends, rather than lending it or giving it away. To get results, make the matching level 90 percent, and exempt such vehicles purchased under the program from CAFE standards.
Freddie said, "The problem with this conversation around here, of course, is that for most people, destroying the unions is the first priority, and doing whats best for the country a distant second."
Actually, making the unions finally pull their own weight IS what's best, not only for the Big Three, but all of America.
For those commenters going on and on about tax breaks for Japanese manufacturers, I have one word:
Poletown
Wiki link in my sig.
Don't worry. The UAW retirees can vote for local union officers (except stewards or committeepeople) and can vote for delegates to the UAW Constitutional Convention.
Ron Gettelfinger is not kicking himself.
I second Psittakos... Gettelfinger just rolled the White House, Paulson, the whole gang.
They got the Pelosi bill through the White House. Disgusting if you're a fan of democracy. What happened to bi-cameral legislation???
"Republicans hate..etc."
I did an operational audit in our company's Texas and Oklahoma facilities just before the election.
In discussing the presidential election, it was interesting to observe that the higher the educational level, and as one moved from blue collar to white collar, the MORE LIKELY it was that the employee was supporting Sen. Obama.
For much of the country, it is a myth that a typical Republican is some snooty country club member and only Democrats are salt of the earth physical laborers.
Well Bush, just kicked the can down the road(LOL). It'll be interested to see how the Obama administration deals with this as undoubtedly the car companies will be back for more and more and more....
---just that one's called a bailout, which seems helpful, and one's called a bankruptcy, which seems punitive. --
Typical liberal speak It seems..It seems..It seems.. Its punitive..
All intuition and emotion.
If Fredddie actually were to logic instead of intuition he would perceive that bankruptcy is not punitive but a logical approach to putting a company back on an economically sound footing which is in everybody's interests. Conversely, bailouts - like welfare - may look helpful, but in the long term can be destructive because bad practices are not signaled as such and thus are continued.
Why do emotional liberals read analytical websites?
Why doesn't the government just make it official and nationalize the auto industry already? They'll never again be self sufficient and they're apparantly considered 'too big to fail'.
> If not shut down the worst of the plants and start importing from their foreign (and profitable) subsidiaries the small cars they haven't a prayer of making profitably here and use the remaining domestic plants for the more limited higher end products that can command the larger markups needed to cover domestic costs.
Thanks to CAFE, the domestic car companies can't do that because their imports don't count towards their CAFE numbers.
The domestics would love to stop making the small cars (on which they lose money) and just make big cars and trucks (on which they make lots of money), but they need the small cars that they make in North America to satisfy CAFE.
Why do glibertarians believe that this is an analytical website?
Yes, this option makes the most sense and, as such, is guaranteed not to be chosen.
And the first post was correct...
You guessed wrong
Folks keep talking about UAW wages and pensions. Its the antiquated work rules and labor restrictions imposed by union contracts that stifle efficiency and productivity. The foreign plants are not burdened by them, and can thus use their labor resources more efficiently. They can reorganize and regroup to address each unique production goal, and they do it with input from the workers on how best to go about the job.
I'm a bit surprised that no one's managed to get past the typical useless "I'm for taxpayers!"/"No, I'm for unions!" back-and-forth.
First, UAW workers make up just over a quarter of GM's workforce, and I'd guess the figures are similar for Ford and Chrysler. You can be quite sure GM's other employees are making excellent wages as well, because the pay structure for their positions had to take into account competition from the union pay scale as well as jobs at other car companies. Then there are the various management levels, whose pay must of course outstrip the entry-level positions by lesser or greater (in some cases much greater) degrees.
It's understandable that the immediate visceral reaction is to look at those we feel are no better than ourselves and think they ought to be taken down a peg. But this race to the bottom does no one any good. I'm bemused when I see people arguing that because their own 401k plans have cratered (mine lost a third of its value in a two-month period this year), it's unfair that others have pensions, or because we have to pay for our own healthcare in retirement, it's unfair that others should have coverage for what can be very sizable gaps in Medicare. Why not argue the reverse, that we all ought to have healthcare that doesn't leave us potentially owing thousands, that we all ought to have secure incomes in retirement instead of being utterly dependent on the erratic direction of the financial markets? How odd that instead of arguing for the betterment of all, or even for taking benefits away from those whose compensation will allow them to replace those benefits privately, the cry most frequently heard is for stripping benefits from precisely those for whom the loss will be quite permanent and most harmful. (By the way, the maximum that the federal PBGC pays is 65% of contractual pension liability, and of course that money comes from taxes. So if, rather than giving the auto companies a chance to make good on pensions and repay the taxpayers, the cry is "Bankrupt 'em and screw the unions," by doing so you immediately ensure that 2/3 of the auto companies' pension liabilities come out of your pocket.)
Of course the harm won't be limited to the unions or the auto companies' other employees. If there weren't hundreds of thousands or even millions of jobs at stake in the businesses that service auto companies and their workers and the businesses that service them, in the towns in which the businesses are located, etc., etc., no one - particularly no one in the Bush Administration - would have the slightest concern regarding what to do about this. Wake up, folks: To paraphrase Harry Truman, the recession is here (as in, other folks are losing their jobs) and depression (as in you losing your job) lurks close behind. I seriously doubt the best first step in preventing recession from sliding into depression involves throwing hundreds of thousands out of work, then following that up by permanently depriving hundreds of thousands more of pensions and medical benefits.
"I'm bemused when I see people arguing that because their own 401k plans have cratered (mine lost a third of its value in a two-month period this year), it's unfair that others have pensions, or because we have to pay for our own healthcare in retirement, it's unfair that others should have coverage for what can be very sizable gaps in Medicare. "
Who is arguing this? No one is saying that the benfits and wages should be mandated at the lowest common denominator, that workers should be stripped of their pensions and above average health plans just because not everyone has access to it.
We're saying that they are not ENTITLED to taxpayer welfare just because their benefits and wages are set up at an untenable level. If the D3 were financially sound, hey, more power to yah. But don't come to me when the market won't support it.
No one has mentioned who has to pay for the billions of dollars going to these companies. I have two college educations to pay for, a mortgage, a car note, and a retirement I have to fund. Explain to me why I need to pay for a UAW worker's early retirement. Where does it end?
And, no, I don't believe that the downstream effects will be insurmountable. Yes, there will be some pain, but people aren't going to stop buying automobiles. They'll just buy them from more efficient companies. There are enough domestic cars in use right now to keep a secondary parts market thriving for some time. There will be consolidation, yes, but a more efficient and sustainable environment once we get past this moment.
Re my writing that
Tommer responded:
Hmm, have you looked further up the thread? There are several examples, but I'll choose this from Slocum:
Tommer writes further,
Well, speaking of propositions for which no one is arguing, union worker entitlement to "taxpayer welfare" (tell me, do you call it that when it helps pay for your parents' hospital or nursing home bills or your children's schooling?) is precisely one of these.
Nope, I'm arguing that whether union workers, other auto company employees, or auto company management is "entitled" to anything, or whether we taxpayers are "entitled" to have lower taxes (or lower federal deficits, if, as is almost certain, taxpayers aren't asked to make up the deficit anytime soon) are the wrong questions. The right question is, what appears to be the best way out of this mess?
"This mess" includes rising unemployment, so it strikes me that throwing huge numbers of people out of work is a strange way to begin to resolve it. It includes a tremendous slowdown in consumer demand, so it seems odd to call for taking discretionary income out of the hands of hundreds of thousands of retirees as a solution. I could go on, but I think you get my drift.
Tommer advocates that short term pain will lead to long term gain, and that's an appealing position, particularly after the lack of business and fiscal discipline that helped get us stuck in this ditch. Yet it doesn't seem to be the way recessions historically have gotten turned around, in this country or in others.
There are several examples, but I'll choose this from Slocum
But you're misunderstanding (intentionally, I believe). UAW workers have better salaries, pensions, and medical benefits than the average American. No, it's not inherently 'unfair' that they have these things. What's unfair is to demand the rest of us to kick in billions to pay for these rich wages and benefits now that the companies the UAW extracted these benefits from have been driven to the verge of bankruptcy.
Bottom line -- the UAW forces such wages, benefits and work rules on the D3 that the bang-for-the-buck isn't there in the products? Fine. As long as I can say, thanks-but-no-thanks and go buy a Toyota, I really don't care what joint idiocy the D3 and UAW engage in.
But when they have to come to taxpayers for a $17 billion bailout (and that's obviously just a first installment), sorry -- party's over. Those union contracts were signed with the D3 automakers, not the U.S. treasury.
Jud:
"This mess" includes rising unemployment, so it strikes me that throwing huge numbers of people out of work is a strange way to begin to resolve it."
----And Jud probably doesn't understand his contracdiction.
If there is a slowdown in demand---gasp---people shouldn't be working MAKING CRAP PEOPLE DON'T WANT.
It's called supply and demand. They work for a bum company. Keeping people employed in a position with no merit precisely causes a stagnant economy--you're essentially sending money down a bottomless pit--taxpayer to worker who doesn't contribute anything.
Thankfully to idiots like Jud, we'll all be sitting around passing each other money for moving a pile of sand from one side of the street to the other, without any incentive to create our own companies or get better jobs.
And then we'll wonder why some young, hungry nation will pass us by and we'll be left a poor backwater.
Jud wants to be all touchy-feely with people because unemployment sucks. Well, it does suck. It sucks so badly that people will do anyting--move to a different state, take out an education loan, take a lower paying but productive menial job, or even start a business from scratch---to get out of it. In other words, they'll improve the economy instead of sitting around waiting for a hand out.
Jud's clearly a whiny little hippie who loves hugging trees and children and thinks the hardest day of his life is when his parents cut off his allowance.
Yes Jud, a union employee who contributes nothing valuable gets the same entitlement as a taxpayer who contributes for his schools and hospitals and then uses them.
Liberal logic. Gotta love it.
Jud: "Yet it doesn't seem to be the way recessions historically have gotten turned around, in this country or in others."
---You're right, Jud. Government intervention to keep people employed in useless or redundant projects is exactly the way to avoid prolonging an economic crisis.
Because that worked during the Great Depression. OH WAIT.
EPIC FAIL.
"Because that worked during the Great Depression. OH WAIT.
EPIC FAIL."
Tell that to those who were employed by the New Deal and those who were helped by the spending of those employed by the New Deal.
Tell that to those who were employed by the New Deal and those who were helped by the spending of those employed by the New Deal
I'm sure it made them happy, but it came at the expense of every other worker doing productive and wanted work and it thus it retarded the growth of this nation.
Economic success is achieved by making more things people want for less cost. You don't get there by paying workers to make things people don't want at higher cost.
"Economic success is achieved by making more things people want for less cost. You don't get there by paying workers to make things people don't want at higher cost."
And what happens when aggregate demand collapses because people don't have income to spend? Those who are unemployed (~25% at peak) can't really "want" something regardless of how cheap someone can make it, can they?
And what happens when aggregate demand collapses because people don't have income to spend? Those who are unemployed (~25% at peak) can't really "want" something regardless of how cheap someone can make it, can they?
So we pay a bunch of people and watch that unemployment average around the high teens anyway? What's the point?
"So we pay a bunch of people and watch that unemployment average around the high teens anyway? What's the point?"
Or they could remain unemployed, spending less, leading to other companies retrenching due to slack demand, causing more layoffs, etc. Even if you believe the New Deal lengthened the depression, most would say WWII pulled us out of it. Who provided the demand for products (guns, tanks, ammo, planes, etc.)? The U.S. gov't.
This is the crux of the problem in the comparisons of the financial bailouts/capital injections versus the auto bailout: An orderly Chapter 11 bankruptcy reorganization of the auto makers, with the federal government providing debtor-in-possession financing, would have been in the best interests of the country, because it would have kept the automakers in business during the reorganization while giving us the best chance of them emerging as viable companies. An orderly bankruptcy of a too-big-to-fail bank such as Citigroup would have been impossible under recent or current conditions (look at the global meltdown that followed the collapse of the much smaller Lehman Brothers). Hence, the capital injections to keep Citi afloat were necessary.
To avoid having to do this in the future, after the dust settles on the current crisis, either a new bankruptcy procedure will have to be created to handle too-big-to-fail institutions, or TBTF institutions will have to be broken up into smaller sizes.
The problem with the sort of bailout Bush signed today is that no 'car czar' will have the same freedom from political influence that a bankruptcy judge would have in making the tough but necessary decisions to make the auto companies viable.
Thanks, that made me smile. (Seriously.)
Never got an allowance.
BTW, back on topic: Of course no one's going to buy from the D3 if they make crap no one wants. (We should remember that a few years ago it was hard to keep minivans, SUVs and Hummers on the lot, so it's hard to blame Detroit for making more of those.) There are two ways out of this - cut workers until you make so little crap it meets the low demand, or make better cars. The latter sounds preferable to me, if it's possible to do. Some people say it is possible, some say it isn't. I don't pretend to know who's right, so until someone makes a persuasive argument that it's impossible for Detroit to make better cars, that will continue to seem the preferable alternative to me.
Slocum - Nope, I didn't "deliberately misunderstand." Now, regarding the following:
D3 labor costs are pretty rapidly approaching the point where nearly the entire difference in cost between them and Japan goes for health coverage for workers and retirees. So again, we have two alternatives: Get rid of health benefits, or take the payment obligation away from Detroit. Again, I prefer the latter (in general, I favor the sorts of universal access reforms that states are beginning to implement and that are being discussed at the federal level).
Re: Because that worked during the Great Depression. OH WAIT.
The Great Depression featured 25% unemployment, bread lines, massive business failures, and Hoovervilles. It doesn't sound like very many people were being kept in their jobs. But maybe the poster comes from an alternate reality where things were different in the 30s?
D3 labor costs are pretty rapidly approaching the point where nearly the entire difference in cost between them and Japan goes for health coverage for workers and retirees. So again, we have two alternatives: Get rid of health benefits, or take the payment obligation away from Detroit. Again, I prefer the latter (in general, I favor the sorts of universal access reforms that states are beginning to implement and that are being discussed at the federal level).
But there is already a universal health care for retirees you may have heard of -- it's called 'Medicare'. Why on earth should tax-payers be required to kick in billions so UAW retirees can keep their better-than-medicare plans rather than rely on Medicare like the rest of us?
Similarly for existing workers, the D3 should now be providing health benefits at the level and cost that the transplants provide, not the current UAW 'gold plated' plan. Same for retirement plans -- 401Ks, not defined pension plans.
Or they could remain unemployed, spending less, leading to other companies retrenching due to slack demand, causing more layoffs, etc. Even if you believe the New Deal lengthened the depression, most would say WWII pulled us out of it. Who provided the demand for products (guns, tanks, ammo, planes, etc.)? The U.S. gov't.
I don't see how you can justify a program that didn't have any real results by claiming that, hypothetically, things would have been worse without it.
That's silly. I can equally claim that, hypothetically, things would have been better with FDR's meddling. I have a fairly obvious mod
End result is that your claim that these programs helped our society isn't reflected in any actual evidence.
All you're doing now is aping the arguments of hucksters who try and defend their ineffective snake oils.
And what happens when aggregate demand collapses because people don't have income to spend?
The same thing that happens when taxes are extracted from workers in productive jobs to prop up non-competitive businesses that are wasting resources on products for which there is little demand. The difference is that by letting insolvent companies fail, resources are freed up to be put to more efficient uses, which will ultimately benefit everybody.
I'm all for helping people who lose their jobs. I'm opposed to paying them to dig and refill ditches, and then thinking we've accomplished something.
Jud,
No, I don't call it welfare when my parents paid into Medicare and now benefit from it. Nor do I call it welfare when I pay property taxes and my kids go to school. There's a direct payment-benefit transaction involved in those two examples.
But, yes, I do call if welfare when I have to foot the tab for two parties who entered a pact that ultimately has resulted in their joint failure. Do you not see the distinction?
Furthermore, now that the government has gotten involved, it's only a matter of time before political perversions start interfering with the natural evolution of the business cycle and hinder the competitive maturation of the D3 (or their successors).
Liberals (progressives) state the cure all is to get the quality up, build cars 'people want to buy', and 'go green'. (i.e., Thomas Friedman's swooning over a mythical iCar, or any given hour of discussion on the Ed Schultz radio show this week.) Well, the market has not yet given a verdict on how quickly it wants to go green with gas prices having reached the high and low portions of the price spectrum within the last six months. What happens if people aren't forced to green products for another ten years? Also, what if the 'green' cars can't garner the price premiums needed to bolster current union labor costs? The smaller cars don't earn the high profit margins like bigger vehicles, if they earn any at all.
There's also a brand image issue that will take decades and generations to fix, even if the trade magazines say the quality gap has been eliminated. It's like the awkward kid at school who pleads his case to his popular classmates why he should be included in their group. If you have to explain it, you've already lost your case.
I just don't see a plausible end game where the unions retain much of anything special above their labor competitors to the south and still remain competitive in the marketplace. Perhaps you can describe such a plausible scenario.
A remark I saw written elsewhere, but which is well worth repeating: the UAW = France. Somehow, they still think they're important. Just as Muslims are burning France from within, the UAW has put the Big 3 in an financial tipping point from which they (collectively) cannot recover.
Where was a government bailout for the airline industry after 9-11? We had to gut it out losing wages, jobs and benefits. Another thing that bothers me is that the UAW and the Big 3 want to use my taxpayer buck for relief yet they don't want to give any concessions. Sounds pretty arrogant to me.
By the way if your pension goes to PBGCA, plan on giving up one fourth of what you should get ( I did).
To hell with the UAW! It is corrupt and out of control. It's demands are obscene and it OWNS Barac Obama and the Democratic Party lock, stock, and barrel. Inept corporate management has mismanaged the industry, surrendered to Union demands - however unreasonable and provided bloated benefits to union workers that have wrecked the American automobile industry. We all saw this coming, but nobody did a damn thing. It is time to start all over again and re-build from scratch!
Jud;
"D3 labor costs are pretty rapidly approaching the point where nearly the entire difference in cost between them and Japan goes for health coverage for workers and retirees. So again, we have two alternatives: Get rid of health benefits, or take the payment obligation away from Detroit."
There are more than two alternatives... For instance, wages and salaries could be further reduced. Anyone who didn't like it could get something better elsewhere,right?
Or Detroit could turn loose a world beater which would command a price premium.
Or something else - there's lots of smart people in the D3.
Just please falsely don't narrow the argument.
Face it!
Michigans future is in subsistence farming. No Company can survive in the present circumstances.
The foreign manufacturers will also abandon the US without tax relief.
Tommer writes:
Except that your parents (well, not your parents in particular, but all Medicare recipients on average) pay far less into Medicare or other pay-as-you-go programs like Social Security than they receive in benefits. And not only childless local property owners but federal taxpayers help subsidize the education your children receive, which is one reason why your property taxes are substantially less than the average annual private school tuition for children in your locale.
Sure, and like I said earlier, no one's arguing that these folks should be bailed out because they somehow deserve it. What I'm arguing is that the economy as a whole, and thus the folks commenting in this thread (at least on average), may well be worse off if the D3 were allowed to collapse. In short, I'm saying a D3 rescue should be favored because (or to the extent) it is in our self-interest.
"What I'm arguing is that the economy as a whole, and thus the folks commenting in this thread (at least on average), may well be worse off if the D3 were allowed to collapse. In short, I'm saying a D3 rescue should be favored because (or to the extent) it is in our self-interest."
That's respectable enough. We'll agree to disagree.