News came last night (December 11) that the Senate had rejected the House-approved plan to keep the US auto industry in business while it worked out its long-term challenges. According to the Wall Street Journal, “Rescue Bid for Detroit Collapses in Senate” the culprits are the small-government advocates, mostly from the South, like Mitch McConnell. Their free-market god has failed them by creating a monster in Detroit, and they can’t see that letting nature take its course will be just as productive [NOT!].
Rescue efforts suffered a major blow when the Senate’s top Republican vowed to oppose the bill. “This proposal isn’t nearly tough enough,” said Senate Minority Leader Mitch McConnell (R., Ky.).
Calling for stronger provisions to ensure reforms at the auto companies, Mr. McConnell also said he opposed the bill on ideological grounds. “A government big enough to give us everything we want is a government big enough to take everything we have,” he said.
I don’t believe we should reward the companies, like GM, who have been short-sighted and stupid, but this isn’t just about them, it’s about the workers and about the stability of the economy, the markets, and the entire world. Mitch McConnell almost lost his re-election bid this year, but obviously didn’t hear the message. People WANT a government that will come to their rescue when they need it. The days of “drowning it in the bathtub” are SO over!
The Japanese stock market was down 5.6% today; as I write this (early afternoon in Europe), the European indexes are down nearly 5%. A comparable fall in the Dow would put it close to 8,000, and that’s without even considering the likely fallout of the Madoff arrest, which is likely to have a ripple effect, bringing down more hedge funds.
This is another complete Republican disaster in the making. January 20th can’t come soon enough! The government that isn’t big enough to rescue the jobs of hundreds of thousands of people wasn’t big enough to oversee the industry when it needed it — to enforce and enlarge mileage requirements and emissions standards. It wasn’t just Detroit that got us into this mess, it was a failure of public policy, too. We let them get away with murder in the name of the “free market” (free to fail, that is).
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p>2. If you agree that the bill would have passed if UAW had agreed to the former, and assuming they are acting in members best interest in declining, why do you think they declined?
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p>I think UAW are rational decision makers. They must believe that this failure creates political gain for them, no?
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p>a. Maybe Bush gives TARP funds without wage concessions
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p>b. Maybe they stick it out until new Congress and then make same deal, or even better (for them) deal, with fewer wage concessions
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Because if we have to wait until January, it will be too late. This failure to pass the auto makers’ loans could quite possibly be the straw that breaks the camel’s back and leads us into a depression. I hope not. Maybe Bush, for once, will do the right thing before he leaves office.
The Washington Post is reporting that the White House is considering other options. (Opps! Sorry about the typo in my other post.)
This is basically a high-stakes attempt to bust the UAW.
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p>Back in the good old days, people used to just just beat organizers up.
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p>Now, the G.O.P. wants to risk setting some new records in unemployment statistics in order to essentially destroy the UAW.
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p>Now, I’m one of those liberals with a mixed opinion of unions. I understand why they form- to protect workers against exploitative management. But I also understand how they hinder companies’ performance- the Big 3, for instance, have literally 100’s of pages of work rules. It makes it really hard to change operations for the better when you have to have a meeting to get clearance to say ‘boo.’
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p>But it’s worth noting that the UAW had already made huge concessions in the last round of negotiations- they understood that the status quo was a death sentence. It’s not like they’ve been too inflexible in recent years. It’s the legacy issues that are the biggest problem.
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p>So I think this latest development is horrible. I have no love for the Big 3 as corporate citizens, but propping them for a little while longer will cost much less in the long run than letting them fail. If GM goes bankrupt, it is going to get really, really ugly. 100’s of suppliers and Ford and Chrysler are likely to go with them- they are very interlinked. There’s a reason why the automakers claim that Chapter 11 isn’t an option- because it will be exceedingly hard not to end up in Chapter 7. Automakers are not airlines.
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p>Charley, if the Big-3 go down, guess who wins? That’s right, carmakers with non-unionized factories in southern states. The GOP is still safe in those states. They can kiss MI and OH goodbye for a generation, though.
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p>If not that, then the demand that the UAW take immediate concessions was a poison pill. Had the union called their bluff, there would probably have been some other deal-breaker, such as the debt-reduction issue mentioned later in this thread.
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p>A front-page article in Wednesday’s NY Times showed just how unreasonable it is to lay this at the feet of labor costs. Leonhardt debunked the inflated per-hour figure for UAW employees that includes legacy costs for people who are not working anymore. The analysis shows that the UAW cost is about $55/hour while workers for Japanese automakers get about $45/hour. The big difference is in benefits.
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p>But suppose that the UAW did bend and the Senate did pass the bill.
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p>Think about the process of buying a car. For me, it’s gone two ways:
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p>In either case, it’s then a process of selecting an options package that keeps me in my price range and then getting quotes from dealers. $800 has never thrown a car out of contention in my experience. Heck, the dealer always tries to add more than that with extra add-ons, extended warranty, etc.
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p>Labor costs are not why Detroit is sick.
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p>Ford is on their way to fixing this, but they’ll likely get plowed under if GM goes due to the probable collapse of the supplier network and the ensuing depression. And I read somewhere in the last few days (can’t find the reference right now, sorry!) that quietly the foreign automakers in the US are equally concerned as they tap into the same supplier network (and they obviously need customers with enough income to buy their cars too).
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p>So enough with the “it’s the union’s falt” crap…
See noternie’s post below for a link to the article you mention.
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p>I haven’t bought an American car in years. Not that I’m unpatriotic; they haven’t made a car I’ve wanted. For the past 6 years, I’ve driven Toyota hybrids (two different models of the Prius).
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p>My primary motivation was not cost and quality, although the vehicles rank very high, in my opinion, on those points, but on the idea of reducing my gas consumption and my emissions (my “carbon footprint”) — and, again, the motivation wasn’t financial, since when I bought my first Prius in 2002, gas was 99¢ a gallon.
But this is just an admission that there is a big difference in costs, no? It doesn’t matter what the labor receives, it matters what the labor costs, including benefits and legacy costs.
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p>”Labor costs” must also account for the cost of Wagner Act work rules, which cripple the industry. There should be two job positions: boss, and not boss. And the not boss should have to don whatever the not boss is required to do, even if it isn’t in the job description of a Type 1 Supervising Welding Technician.
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p>It sure seems to me that the UAW makes concessions, but always too little, too late. Even if Bush uses the TARP funds to tide them over in the short term, it will only be a temporary measure.
… as I see it are the legacy costs. I don’t know what you do about it though, because the fact is that they have a lot of retirees. What does a company do when it shrinks and all the retirees from when the company was bigger start taking advantage of the pensions they earned?
Already went through this, and either went through bankruptcy or failed outright. Not many good outcomes from the perspective of the pensioner.
Most corporate pensions, unlike public pensions, must adhere to ERISA funding requirements, so even though many are underfunded, the underfunding is known and quantified and the PBGIC is the ultimate backstop for a company that goes under leaving an underfunded pension behind.
In today’s market, funds that were “overfunded” (and GM was one of the best not all that long ago) quickly became “underfunded” as the market value of their investment portfolios plunged and the (true) present value of their liabilities skyrocketed.
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p>Of course, because of accounting/actuarial tricks (smoothing and “assumptions”), the degree of true underfunding is often (usually?) vastly understated.
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p>The PBGIC (“the pension put” as Jack Traynor named it when it was created) is itself a sop. I remember anecdotal stories of Bethlehem Steel retirees getting 40 cents on the dollar of what they had been drawing when that company went bust.
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p>Plus, of course, at some point that becomes funded by the taxpayers anyway because all the premiums it has collected over the years aren’t nearly enough to cover a full-blown meltdown like the one we’re witnessing.
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p>So, as I’ve said elsewhere, we’ve just got to suck it up and make health and retirement benefits administered/paid for by the government.
If the Big 3 had sold what they sold in 2008, but with an increase in profit of $800 per vehicle, you’re talking about an extra $5B in cash for the 3.
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p>These days, that might only buy us a couple months of solvency, but it’s not chump change.
You might want to actually look that the concessions the UAW made..they don’t apply to the current workforce – only new hires, and since all three companies are falling all over themselves to lay people off and shrink to an appropriate size for their market share, they are not going to be hiring new people for a long long while. The current workforce in essence threw the new hires under the wage bus.
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p>But the UAW has also been quick to strike – there are several in the past decade against Ford and GM – targeted strikes that shut down numerous downstream plants – that cost the companies billions.. those billions could be the dollars that would have saved these companies today.
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p>But in the end, if this is a crisis, then EVERYONE has to sacrifice. These companies are going to have to go to bondholders, to creditors, supplies, and in essence give them $.70 cents on the dollar for every dollar they owe. Benefits for salaried employees are being slashed by the month, and a lot of them are being laid off. Why does one stakeholder, the unionized workforce, get to stand aside from that? Why can’t they take even a temporary pay cut to get through this crisis – like the pilots or flight attendants did at the airlines?
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p>As for losing Michigan and Ohio for a generation, a lot of the transplant activity is in southern Ohio…. its only northern Ohio, the Rust Belt, that is strongly UAW, and that’s been lost to the GOP for a while, even since the failures of the steel industry (another strongly unionized workforce that seemed genuinley surprised when the Japanese and Germans started making high quality steel in the 70’s).
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p>But if we look at the stellar success of Michigan as a state and Detroit as a city under Democratic governance, perhaps the voter might not write off the GOP there quite so quickly.
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p>Governors:
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p> John Engler (R), 1991-2003
Jennifer Granholm (D), 2003-present
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p>and predominately Republican before that. MI seems to hang onto their governors for a long time, at least for the last 50 years.
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p>Current Senate: 21 Republicans, 17 Democrats
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p>Current House: 58 Democrats, 52 Republicans
Nice numbers.. I notice you didn’t mention Detroit at all. Perhaps the truth might be a bit too glaring with that one?
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p>And Jennifer, once mentioned as destined for higher office but for her Canadian birthright, has raised business taxes quite a bit… and Michigan spins further down the death spiral.. thank god they have those casinos to save them.
The American people wee against the banking bailout but the Congress knew better and passed a rotten pork filled bill which people now critique openly.
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p>Now we have a Detroit bailout and Americans once again are NOT in favor of it. But appaerently our Congress (and many BMGers here) are saying they possess far more brains than the American people and are pooh-poohing the wishes of the majoroity. I’m sure supporters of the bailout will say the typical American just can’t comprehend the fallout should GM go into Chap 11 but we trust those same Americans to vote for POTUS without question.
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p>I have also heard reports of the UAW has made concessions, big fucking deal! The union gets outrageous benefits and when they (hyperbole) agree to cut their benefit from 2 free massages a week to one/week they call it a concession.
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p>This is what unions do behind the scenes to create an unfeasible workforce…
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p>Voluntary basis? When was the last time that happened in private industry? And $53,000/year to take a buck from a passing car (and occasionally return change from a $10). Does anyone know the going rate to buy a job as a toll collector? I know many people who have tried to work there but the pike uses the Blagojevich method “…valuable thing. You just don’t give it away”.
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p>Isn’t that a nice feature. So not only do we pay for accrued vacation (something private industry knows is counter-productive. You get vacation to take a break, not skip it and save it for years. Plus you could accrue vacation from when you were making $20/hour but get paid 20 years later when you are making $50/hour. AND they pay out 4 times your total. No wonder they want to praise tolls on the Pike, look at what we pay employees!!!
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p>No, the UAW has to go a lot further with “concessions” before I would support giving them a nickel.
This is not really about “bailing out” the automakers; it is about saving the economy. We are on the verge of a complete meltdown. It does not make sense to let a major industry fail, put thousands of people out of work, and then try to do job creation to get the economy moving again. And we will have to do job creation, big time. Would I feel diferently if we had a vibrant economy? Probably. But we do not. The shape of the economy calls for extraordinary measures. (And in the whold scheme of things, the amount of the loan package proposed was peanuts.) Unfortunately, the Republicans in Congress either do not care or they are completely ignorant.
Is it possible that they disagree on the plan? Do you have to take the position that disagreeing equates to stupidity?
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p>Maybe they want a few changes and the UAW didn’t bend? Do you know all the details? And there were Dems who voted against the bill too… are they stupid as well? If we give them the money are we also going to be forced to bu Hummers and Tahoes and other gas guzzling vehicles for the economy’s sake?
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p>According to what I read, the Republicans were ready to say YES if the UAW would agree to implement the wage changes in 2009 instead of 2010 but the UAW said NO so I’ll blame the unions for being either “not caring or they are completely ignorant.”
…meaning that they would have had to get unanimous agreement from their vendors and creditors to take 1/3 of what they were owed in a short period. It was a joke as the creditors would probably have had to force them into bankruptcy anyway.
Being ignorant or not caring does not mean someone is stupid. I stand by what I said.
…who have been making concessions and givebacks for over 30 years to Detroit? Just another anti-working person rant.
Saying the UAW has been giving concessions for 30 years is delusional. The jobs bank was a gift to the union in the 80’s.. the contract cycles of the 90’s were fat for the UAW because the big 3 were making money from light trucks. the UAW demanded and got the right to sit in early product development meetings, to insure their components were included. They got the big 3 to support unionization drives at supplies by refusing to accept parts made by replacement works. The UAW hasn’t given a concession until this most recent cost cycle, when they realized that their companies might cease to exist if they didn’t give back something. They are complicit in slaying the golden goose..
Is the key to the success of American automakers really reducing their costs? Or is the “brand” just too far gone in terms of quality, safety and efficiency in relation to “imports.” It’s easy to say cost, but this makes me wonder.
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The “Big 3” aren’t so big anymore. They manufacture only about half the vehicles made in this country. GM makes more profits in China than it does in the US. Just to throw out a couple of random factoids.
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p>Your essential point about quality is on the mark. GM was eager to produce Hummers because they were so profitable to sell. What they didn’t create was a fall-back line of high-quality, fuel-efficient cars that they could rush into production if demand shifted. Lack of long-range planning/vision. I have no sympathy for their current plight, though it’s not all their fault, either. Anyway, as others have pointed out, the rescue is about more than the car companies. Especially at this juncture in our financial/economic meltdown.
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p>The key quote, in my mind, from the NYT piece you linked to is “The third category is the cost of benefits for retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix – dividing those costs by the total hours of the current work force, to get a figure of $15 or so – and end up at roughly $70 an hour.
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p>The crucial point, though, is this $15 isn’t mainly a reflection of how generous the retiree benefits are. It’s a reflection of how many retirees there are. The Big Three built up a huge pool of retirees long before Honda and Toyota opened plants in this country. You’d never know this by looking at the graphic behind Wolf Blitzer on CNN last week, contrasting the “$73/hour” pay of Detroit’s workers with the “up to $48/hour” pay of workers at the Japanese companies.
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p>This is what drove Bethlehem steel (and many other American manufacturing companies) out of business: these so-called “legacy costs.” Ironically, when Harry Truman tried to implement universal, government-run healthcare in this country, the auto industry fought him tooth and nail, and out of that came the health-insurance mess we now have (I know I’m oversimplifying…). The solution to reviving American manufacturing? Remove these costs from employers and shift them to the government. All healthcare and retirement payments should come from the government. This would make us competitive on the world stage. Again, an oversimplification, but let’s start having this discussion in earnest before it’s too late (maybe it already is!).
The best conservative response I’ve seen to this argument is that the Japanese can afford to pack more car into the car, i.e., for equivalent vehicles in the same price range, theirs can be better.
How far do they have to go? Should we expect folks to work for minimum wage, for nothing?
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p>It’s interesting your propping up of how great “private industry” is. Private industry has managed to ensure declining real wages since the 70’s, it’s managed to ensure health care is only available to a select few, it’s managed to pollute our water, air and land. It’s managed to perpetuate or be complicit in wars and genocide in the name of shareholder rights and profits.
Dhammer, you might want to back up your rant with some facts..
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p>Health care from a corporate perspective was a reaction to government wage controls in the 40’s and 50’s – it was a loophole that allowed companies to sweeten benefits packages without adjusting wages upward, which they were banned from doing. Incentives created by the government further supported that model – the tax-free status of company-provided healthcare, etc. Your public sector is complicit in how we got into the mess we have today.
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p>As for pollution, even the most free-market economist supports governments role in regulating pollution. And companies have abused it (although so has your public sector, if you look at Dept of Energy nuclear sites, for example). What government is so inept at doing is convincing us to bear the cost of it.. if we don’t like carbon, tax the crap out of it – high energy prices, higher gas prices.. raise the price, people will adjust their behavior – smaller cars, homes, living closer to work, etc. But no – we create this nice sounding constructs like CAFE and Renewable-Energy requirement to mask from the public that costs do have to go up..
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p>And yes, perhaps corporations like Ford were complicit in WW2 atrocities, but again, your public sector hasn’t done so well either… China is a totally public-sector company, and its not taking a very impressive stand on Darfur. Vichy France in WWII was complicit in handing Jewish citizens over to the Nazi’s. Not to mention its usually government support that allows those genocides to occur in the first place (should a Ukrainian peasant fear Stalin or McDonalds more??)..
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p>But no, we shouldn’t expect folks to work for nothing.. when their salary isn’t appropriate for their work, they should quit. But I don’t think its appropriate to ask that Barista at Starbucks (or my children, through govt. debt) to subsidize the wages of a group of people that spend the summer powerboating around Lake Michigan.
that you know what Americans wants and can speak for us as a nation. By all means, I’d love to see scientific polling that gauges nationwide reactions to the proposed auto bailout.
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p>Oh, wait a minute. There’s that pesky google, showing that in fact, Americans are pretty evenly divided on the auto bailout. 46% support, 42% oppose.
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p>You’re right though that by and large people aren’t happy with the wall st. bailout. Currently 50% disapprove and only 27% support it. Of course your partisans in Washington seemed to have had no problem getting behind that one. Although public opinion has shifted pretty wildly since the wall st. bailout was first passed, possibly because the Bush Administration has reneged on their promises of transparency and oversight. The American People you speak so passionately of don’t really like it when they’re mislead.
Don’t try to blame Republicans for the bailout eury13. All your Democrats, including the President-elect were all for it and implored the American people get behind it. Wasn’t it the Democratically controlled Congress that added another $150 Billion in pork to the already giant $700 Billion bailout. I was against it from the start and continue to be against it.
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p>CNN says 61% of Americans oppose the Detroit bailout.
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p>ABC NEWS/WASHINGTON POST POLL has it at 57% against and 37% in favor.
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p>But, why quibble. I think it is fair to say American are not in favor of it and if they were then the politicians would have passed it by now. But you can the Reggie Lewis thing and keep looking for a poll that supports your theory, but look what happened to him.
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p>As for the Bush admin, after Jan 20th you won’t be able to blame him anymore. Congress passed the bill and included any safeguards they wished to. If they skipped safeguards then BLAME THEM (Democratically controlled I might add).
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p>Let’s hope Mr Obama doesn’t mislead us not Harry and Nancy. Let’s hope they will soon announce the exact size of the Federal Deficit for 2009. Let’s hope for transparency on how much we are increasing the National Debt because Americans don’t like to be misled.
I suspect it’s easy for many to think of this as a matter of individual morality. For example, bailout money should go to the “deserving”. But the purpose of the bailout is not to act as a reward and it will fail any kind of equity test you give it, i.e., it will cheat those baristas at Starbucks.*
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p>The purpose of the bailout is keep the economy from cratering. We need to think about this from a systemic point of view. And yes, having executives skim off a lot of bailout money is not bad because it’s unfair; it’s bad because it keeps money out of circulation and out of investing in more economic activity.
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p>We are at a very crucial point where we risk a major Depression. Even if polling showed Americans 70% against doing the right thing, the misery that will be caused by doing the wrong thing should be avoided — at all costs.
The free market fails such equity tests too: otherwise we’d pay social workers more. Only under some kind of planned economy could one have any hope of making everything “fair”. Socialism anyone?
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p>Rinse. Repeat.
As I often disagree with you, I could easily put a 3 on 75% of your comments. Would you prefer that?
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p>If not, could you please not hand out downratings with such, er, generosity. They generate more heat than light, more bad feeling than useful discussion.
Statements today by Ron Gettelfinger today (source: Detroit Free Press) do lend credence to the union-busting theory.
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p>Why is it that we are only hearing about the comparisons between the unionized auto workers and the workers at the Japanese plants that do the same work? Why isn’t anyone making noise to compare the white collar worker salaries, the management salaries, the dealer arrangements, etc.? All of these contribute to the cost of a vehicle, also.
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p>To summarize:
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p>1) Detroit’s not in trouble because of their costs. They are in trouble because of their products.
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p>2) The reason to lend them money is to prevent a catastrophic economic situation.
1) Detroit is in trouble because of both.. where do you think “costs” come from – or do you think at all about it? GM is capacitized – plants, people – for around 28-30% of the market.. their current market share is in the low 20’s – THAT is the costs.. underutilized plants, people – overhead that has to be covered. That means closing plants and firing people. They also are in trouble because of legacy retiree costs, which add even more problems, as the transplants don’t have the retirees or the same committments. In the end, they are in trouble because of a simple phrase: operating cash flow. They can’t pay the bills – sales don’t cover overhead and cost of goods sold. But being that there are lines out the doors to buy electic vehicles, and hundreds of thousands of charging stations just waiting idle for those electic cars to show up, a quick change to the product line should solve ALL their problems.
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p>2) Catastrophic? How so? GM goes bankrupt tomorrow, the market share shifts to Toyota/Ford/Honda/Nissan/Kia/Hyundai/Renault/BMW/VW etc. etc. (yes, there are a LOT of other companies doing okay right now), which then builds more plants, hires a bunch of new workers, and contracts with the supply base to build the new cars. You’ve got to do better than panicked suppositions absent of any evidence or insight.. and if GM is going to go bankrupt, I’d rather them do it now, than in 2 years after they’ve flush 30 billion down the toilet..
You are right that Detroit is in trouble because of both. I should have phrased that better, along the lines of, “The underlying problem leading to the demise of the Detroit automakers, GM in particular, is their product line.” If they were selling vehicles, they could work out the cost problems. If they solve all the cost problems and still build cars no one wants, they’re done.
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p>That’s why I have a lot more sympathy for Ford at this point. They had the foresight to take out a credit line and start the process of updating their plants to build the smaller European cars here. What’s GM’s plan?
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p>Regarding the economic consequences of GM going belly-up, I grew up in the Detroit area, have friends and family there, and still visit. With few exceptions, the jobs there can all be traced to the auto industry, either directly or by the fact that they rely on the stable income of auto workers to stay in business. Nothing is going to turn on a dime and the Michigan economy, which is already in the gutter, will tank. I really do not like the idea of keeping GM afloat with tax dollars, but even if it’s only until a safety net is in place to at least catch some of the laid off workers, I think it’s a necessary evil. If they can get their products in order and become competitive, even better.
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p>I’m not in the habit of agreeing with Dick Cheney, but even he said that the Republicans will once again be thought of as the party of Herbert Hoover if the loan package was voted down.
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p>Finally, getting back to the original point of Michael’s post, the LA Times and others outlets have reported on an email circulated before the vote:
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p>Hmmm. How about, “Republican senators have put their interests ahead of the people they claim to represent.”