By on December 12, 2008

And there you have it: Senate republicans have scuppered the Detroit bailout. Automotive News [AN, sub] reports that democratic Senator Harry Reid has thrown in the towel at the the eleventh hour (literally). “”We have not been able to get this over the finish line,” Senate Majority Leader Harry Reid said after 10 p.m., following daylong negotiations to broker a deal among lawmakers, automakers, auto workers and other interest groups.” AN clearly identifies the United Auto Workers as the gordian knot that could not be unpicked. “But few could have predicted the final stumbling block: A dispute over when UAW workers would consent to have their wages reduced to match those paid to nonunion workers in U.S. import-brand factories. ‘We are three words away’ from an agreement, said Sen. Bob Corker, R-Tenn. He said workers wouldn’t accept a 2009 deadline for the parity demand.” And why would they? They’ll get less of a “haircut,” and more power, in bankruptcy court. Meanwhile, GM released a statement on the bill’s failure…

“We are so screwed.” Just kidding. (Not.) “We are deeply disappointed that agreement could not be reached tonight in the Senate despite the best bipartisan efforts,” GM said in its official uh-oh. “We will assess all of our options to continue our restructuring and to obtain the means to weather the current economic crisis.” Chrysler mega-dittoed. So, what now?

There is hope amongst bailout boosters that The White House will relent and tap into the Troubled Asset Relief Program (TARP) program. Others believe that the Fed can act independently.

Meanwhile, Senator Reid moved to distance himself from the debacle. “Reid said he dreads what will happen on Wall Street on Friday. ‘It’s not going to be a pleasant sight,’ he said. He also said the failure of negotiations will mean a ‘a very, very bad Christmas’ for many Americans.”

[NB: The text of the original blog was amended several times to keep pace with events.]

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96 Comments on “Bailout Watch 283: UAW Balks; $14b Bailout Bill D.O.A....”


  • avatar
    craiggbear

    I hope this doesn’t turn out to be one of those, “be careful what you wish for…” moments. But I still think this is the right thing to do.

  • avatar
    John R

    A dispute over when UAW workers would consent to have their wages reduced to match those paid to nonunion workers…He said workers wouldn’t accept a 2009 deadline for the parity demand.

    Is this what you call shooting yourself in the foot? It would appear that they have nobody to blame but themselves.

    So, what now?

    Ni Hao! Just kidding…maybe?

    In all seriousness, I still feel that Detroit is going to get their money, from TARP, perhaps, is what I’m hearing. I still feel as though we’re getting a ‘good show’ and tax payers are doubtless going to be subsidizing these knuckleheads.

  • avatar
    rochskier

    Based on the early market reactions I think that this is absolutely a “be careful what you wish for” moment.

    I don’t think anyone following, or even involved in, this situation has an accurate concept of exactly how large this financial crater will get.

    It appears we will soon find out.

    Happy Holidays!

  • avatar
    Eric_Stepans

    I still don’t get it.

    In what bizzaro world do we live where the notion that “American workers MUST cut their wages” is a unifying principle for a political party, over which they are willing to risk the next Great Depression?

    The fact that people who make $15/hr have been convinced to aim their class jealousies at people making $30/hr, instead of the Alan Fishmans and Bernard Madoffs of the world….
    .
    http://en.wikipedia.org/wiki/Alan_Fishman
    .
    http://news.yahoo.com/s/nm/20081212/bs_nm/us_madoff_arrest_9
    .
    …must be considered one of the great propaganda coups of all time.

  • avatar
    luscious

    I agree…no one should be “forced” by Big Bro to have their wages cut. BUT, when you are a dog on all fours begging for a teat, sometimes the teat holder asks for ridiculous things.

    It all comes down to: How much do you want the milk?

    But in these most-uncertain times, with global greenhouse gases causing polar caps to recede on Mars, this is probably all for the best.

    A soap opera with the 3 blow-hard Jet Setters coming to town (Oh, BOY!!), a repeat in which they play the “humble” card and drive the actual junk they produce…and all the revolting questioning on C-SPAN….and the Congress who stuffs a bill with, among all things, pay raises for Federal Judges…

    …I am so HAPPY this “Bill” was rightfully flushed down the toilet where it belongs.

    GM, Ford, and Chrysler…best of luck, Buds! This Bud’s for YOU!!!

    Have I told you…lately…that I love you?
    Have I told you…there’s no one else above you?
    You fill my heart with gladness, …take away all my sadness.
    …Ease my troubles and my blown head-gaskets…that’s what you do.

  • avatar
    improvement_needed

    direct foreign investment…

    how much is the RMB worth these days??

    ;)

  • avatar

    Well, now that the writing’s no longer on the wall, but the wall has been knocked down …

    Which of GM’s plants and assets are worthy of salvage, and how?

    Should it be broken into independent satellites? Does one resuscitate the broken giant? Or create a cluster of model/function focused operations, acting independently, serving different functions.

    In other words, cross-platform synergies be damned. Let each brand be the best at what we need, not what GM wants to sell.

    2009+ will be glorious* years for automotion. It will be reborn, and we will no longer have to tap our fingers while forced to watch the slow-motion self destruction of GM.

    Hmmm. I’m suddenly optimistic again.

    *not often one gets a chance to use the word glorious!

  • avatar
    jolo

    “GM and Chrysler will fall apart today, as credit agencies (default) and the stock market (delisting for GM) exact the necessary penalties.”

    Why delist GM at this time? I’ve apparently missed a news story or two. Some background, please.

  • avatar
    psarhjinian

    The fact that people who make $15/hr have been convinced to aim their class jealousies at people making $30/hr, instead of the Alan Fishmans and Bernard Madoffs of the world.

    Very good question. The lower class has been suckered into rooting for the disenfranchisement of the middle class, while the upper class just keeps going up and up.

    Don’t believe me? Have a look at the income levels of the 50th and 98th percentile now, and about forty years ago.

  • avatar
    Eric_Stepans

    Truth: Everyone is losing sales and money, but only the U.S. companies don’t have a cash cushion. One big reason: Foreign-based companies don’t have U.S.-size legacy costs,

    Another reason: When US companies build up a cash cushion, Wall Street sees it as “their” money and immediately demands that the company buy back stock or pay larger dividends.

    I remember that Chrysler (pre-Daimler) had built up a multi-billion dollar “rainy day fund” with the explicit thought that they would need a “cash cushion” for the next downturn in the market. Some corporate raider (Kirk Kirkorian?) saw that cash as a cow to be milked and threatened to use it as collateral for a leveraged buyout.

    As I recall, there was a significant proxy fight and Chrysler ended up paying some form of “greenmail” to make the raider go away.

  • avatar
    MattVA

    I think the most appalling thing about this is that a better deal (one that was more palatable to both sides) could be reached because Congress has to go on break…

    Just out of curiosity, has anyone else’s job already gone on holiday?

  • avatar
    montgomery burns

    Mmmm. No mention of pay cuts for management? What about replacing the lousy management that got GM into this mess?

    Just say’n…

  • avatar
    psarhjinian

    GM has won numerous awards for its current crop of cars, including two straight North American Car of the Year awards and top accolades from Motor Trend, Consumer Reports, and, most important, Car and Driver.

    What a puff piece. A single GM platform has won reliability awards: the W-Body, which as well as being reliable as a rock, is a retrograde fleet-queen in terms of performance. Everything else is solidly average, or slightly worse than.

    COTY is a marketing award and means nothing as the criteria to win it applies only to cars that are “new”, not necessarily “good”. So is C&D’s 10Best, which has everything to do with what C&D likes and/or receives ad revenue for and nothing do with actual performance. Note that there’s several “10Best” cars that are earning third or fourth place in C&D comparos despite winning that shill of an award.

    Ford, maybe. But Ford doesn’t spend nearly the ad dollars that GM does, do they?

    Truth: Everyone is losing sales and money, but only the U.S. companies don’t have a cash cushion. One big reason: Foreign-based companies don’t have U.S.-size legacy costs, which include things like retirees’ pensions and health care, because of things such as nationalized health care.

    Oh, so bleeding marketshare and failing to develop a strategy and viable business model for the past twenty-five years have nothing to do with it then? Or continuing to fail to better consumer confidence, when even Hyundai (the Pony/Stellar/Excel company) has turned their image around? Or that those foreign companies, because of nationalized health care, also pay a higher level of corporate and personal income tax?

    Oh no, it can’t be GM’s management. Of course not. After all, they must be the smartest guys in the room–after all, we’re only paying them more than an order of magnitude more than their equivalents at Toyota.

    Truth: Really? Really? Of course they do. The Detroit Three currently offer, among others, the Ford Focus, the Chevrolet Aveo and Cobalt, and the Dodge Caliber, and for decades before that, consumers were offered everything from the Ford Falcon to the Plymouth Valiant.

    So, only three or four cars, all of which are solidly mediocre. Real incentive, there. Detroit has always treated the economy car as something they’d rather not make, designed from scraps to meet a minimum margin; the Japanese, Koreans and Europeans treat them as a weapon in their arsenal, one that they use to hook buyers early.

    After your first Aveo, are you really going to go back to Chevy? Because you can bet Honda Fit, Toyota Yaris and Nissan Versa buyers are going back.

    My message to Steve Smith and others: stop supporting GM’s management. Stop coddling their bad decisions and giving them excuses for not competing. And most of all, stop writing puff pieces on their behalf as it does nothing for them and makes you look like a paid shill.

  • avatar
    PeteMoran

    It was all a nonsense anyway. GM’s “worst case” and Chrysler’s near “worst case” were based on a 2009 of 11.5 to 12m unit year.

    GM’s “worst case” had them $40b underwater at the end of 2009 with their current market share of 12m units, with >$30b (???) of bailout.

    Toyota’s further 2009 production forecast downgrade of yesterday would seem to be a 10-10.5m year, blowing an Atlantic iceberg size hole in Titanic GM’s bailed out turnaround “plan”.

    My personal opinion is, that a few days of volatility to shake out the gamblers, a realization that the US dollar has weakened (more expensive car imports favoring Ford & Chapter 11 GM), and FINALLY some certainty in this matter might see people considering cars again.

    (Obama’s Jan 20 stimulus will be needed as well).

  • avatar
    200k-min

    Remember that Ford does have credit available and will not be going Ch. 11 anytime soon. If all of GM & Chrysler’s market share stays “American” and buys Ford we will still have a very strong American automobile manufacturer. Business is business. The weak companies fail and the strong survive. This is not the end of the US Auto Company, just an evolution.

  • avatar
    George B

    Looks like GM and Chrysler are finally headed to bankruptsy court. Hope they’ve already stopped production of horrible models like the Chrysler Sebring. It’s a shame to waste any space in the automotive market on total crap with so much extra production capacity available to make reasonably good cars.

  • avatar
    jckirlan11

    More attack on the middle class by the government. Why are we trying to commit societal suicide. Does the government hate this country that much?

  • avatar
    KalapanaBlack

    MattVA :
    December 12th, 2008 at 8:08 am

    I think the most appalling thing about this is that a better deal (one that was more palatable to both sides) could be reached because Congress has to go on break…

    Just out of curiosity, has anyone else’s job already gone on holiday?

    The only ones I can think of are auto workers working in plants that produce cars nobody wants. Think Mitsubishi’s Normal, IL, plant, amongst others.

  • avatar
    Orian

    You know what chaps my ass? The UAW is unwilling to take wage cuts to keep their jobs when the economy is swirling the bowl yet they still want a handout for Ford, GM, Chrysler, and themselves. The latest pegs most of the UAW workers getting (with benefits) around $70/hour.

    I’m a skilled worker without the UAW (or the auto industry) and I’d damn sure take a pay cut if that is what it took to keep my job or stay employed. Hell, a pay cut for the UAW rank and file would probably still end up being more than my salary+benefits. I’ll be frank and say shortly after the bubble burst in 2000 I had to take a 8k a year pay cut to get back into the workforce in a timely manner. I wasn’t going to sit around and mope and pray for uncle sam or anyone else to bail me out. I’m finally slightly above that level now, but I worked for it, not begged for it when the times were tough.

    Count me in for giving a standing ovation to the Republicans on capital hill for putting a stop to this nonsense.

  • avatar
    1998S90

    200k-min: Well put. Ford should be in pretty good shape if they maintain quality controls.

  • avatar
    bluecon

    The Big 3 are the canary in the coal mine.

    Just a reflection of the US economy which is going into a downward spiral. Doesn’t really matter if they payoff the UAW.

  • avatar
    Ed S.

    The context for this fulcrum upon which the bailout bill hinged is this: The UAW was not seen as having enough skin in the game. They simply had not cut in the ways that the D2.8 had with regard to spending.

    So how does this change the symbiotic relationship GM has with the UAW? I mean, symbiosis only works if both organisms benefit…UAW is now seen as the reason GM [might] have to declare bankruptcy. Intersting times.

  • avatar
    psarhjinian

    More attack on the middle class by the government. Why are we trying to commit societal suicide. Does the government hate this country that much?

    Yes.

    Well, it depends. An empowered middle class is one of the very few defenses people have against government going runny. If you look at countries where things have gone truly sour, you’ve a split between rich people, who have the ear of the government, and the poor, who are too busy trying to survive. A middle class makes this kind of plutocracy difficult to pull off.

    Not that the UAW doesn’t deserve scorn, but there’s a distinct lack of similar concessions or even questions asked about why management and oversight have been so terribly bad. Seeing government advocate it is really telling: instead of asking “Why shouldn’t everyone be making UAW wages?” it “Gotta keep the serfs in-line!”

    The UAW hasn’t been the ones responsible for failing to develop viable business plans, or devise products that people will want to buy, or work to acknowledge and shed the “perception gap”. Pinning it on them is perverse mix of luddite jealousy and class warfare.

  • avatar
    Stu Sidoti

    Maybe it’s time to start a ‘White House Watch’ because from now until at least January 20th, the White House is the last hope for the Big-3 to get any money this year by releasing some TARP funds.

    Over the last few months I have watched the White House Press releases go from ‘ well, the Big-3 have to get more competitive‘ to ‘ we can’t let this industry go down’….once again Americans only seem to react to crisis, never planning…although you got to admit, the Big-3 have been asking for help with health care, pensions and wages for over a year and no one in the White House or on Capitol Hill listened. So here we are today.

  • avatar
    Eric_Stepans

    Orian wrote:

    You know what chaps my ass? The UAW is unwilling to take wage cuts to keep their jobs when the economy is swirling the bowl yet they still want a handout for Ford, GM, Chrysler, and themselves. The latest pegs most of the UAW workers getting (with benefits) around $70/hour.

    First of all, you know that $70/hr figure is bogus.

    http://www.factcheck.org/askfactcheck/do_auto_workers_really_make_more_than.html

    Second, why does it particularly “chap your a$$” that UAW is refusing to give away any more than they already have?

    Why are you not focusing your outrage on the Wall Street fat cats who were given, not loaned (as the Detroit 2.8 are asking) and are using that money for executive bonuses, shareholder dividends, and luxury retreats?

    http://www.bloggingstocks.com/2008/10/09/aig-takes-122-8-billion-of-taxpayer-money-enjoys-luxury-resorts/

    Can someone explain to me why blue-collar greed is evil and rotten and needs to be stamped out, but white-collar greed is just dismissed as “that’s the way things go”?

  • avatar
    Richard Chen

    @Ed S.: how about mutually parasitic? If one party gorges (or slacks off) they both suffer.

    I smell a setup: would the UAW capitulate to Republican Senate demands? Uh, no. Said Senators didn’t want a bailout, and set demands they knew wouldn’t be met.

  • avatar
    RickCanadian

    Flashpoint :
    December 12th, 2008 at 7:53 am

    Lie 6: People aren’t buying domestic-brand vehicles because they are of inferior quality.

    Truth: That perception lingers, but it’s no longer the case. They aren’t buying domestic-brand vehicles because people aren’t buying anything. According to major independent research, GM and Ford cars are virtually identical in quality to Japanese cars. GM has won numerous awards for its current crop of cars, including two straight North American Car of the Year awards and top accolades from Motor Trend, Consumer Reports, and, most important, Car and Driver.

    Even if you were right (and I still have my serious doubts about it), the important thing here is the PERCEPTION of the public, and perception is sometimes as important as the product (ever wondered why your cereal comes in a colourful package and not in a plain brown nasty box?). For decades, the Big 3 built a reputation for lousy product quality. Now, they (might) have improved their products, and you want everybody to jump and buy them right away? It would be tantamount to a serial rapist that after his conviction spends 3 months working for the local church and then asks you to date your daughter. What would you say?

  • avatar
    Slare

    C: “We don’t think you UAW guys have dedicated to cutting your wages enough, but we don’t really have the time at the moment to talk about it again. We’re going on vacation.”

    This entire situation is nothing short of disgraceful. It’s the most ashamed I’ve ever been of our government, media, and popular opinion. First we make everyone hate us, now we’re just giving them a clown show to make fun of.

    Obama had better hire Tom Cruise or something, because good old fashioned hard work just isn’t going to cut it.

  • avatar
    Pch101

    There will be a bailout. This is interim political maneuvering.

    The Republicans want to look like anti-labor hardasses so that their constituents won’t give them the boot. Republican voters do not like the bailout, and the red state Senators need to like as if they are putting up a good fight.

    The UAW leadership is looking at the wrath of its membership if it just rolls over and agrees to the deal, when they just signed a contract that goes through 2011. Having a bit of an implosion in the markets will give Gettelfinger something that he can point to, so that he can support the cuts while saving face with his members.

    Corker hinted last night that they were close. That was a chess move, too — he is using these hearings to gain clout for himself. As it turns out, he was a lead negotiator for the Republicans and clearly wants a deal, but he has to hold the party line on the union assault.

    We’ll see how it goes down, but something will go down. Either the White House will fly in for the rescue or they’ll sort out a new compromise. This ain’t over yet.

  • avatar
    TexN

    Chrysler is toast. GM will (continue to) withhold payments to suppliers in order to stretch their cash into early January when the new Congress is sworn in. GM production will be drastically disrupted due to pissing contests with their supply base, but with dropping sales and the mountains of inventory sitting in parking lots around the country it won’t matter. I’d also look for a potential TARP infustion of cash within the next few weeks.

  • avatar
    Orian

    Eric,

    Go back and RE-READ my comment. I stated that figure was salary PLUS benefits.

    My comment was this: The latest pegs most of the UAW workers getting (with benefits) around $70/hour.

    That’s where I got that figure and that is still higher than what I presently make with my benefits combined with my salary.

    I don’t agree with the white collar greed either, however the UAW has fully operated as a hostile parasite on the Detroit 3 and now that their backs are against the wall they refuse to work to save their employer (or host if you will). It’s very poor to go ask for a handout without making concessions yourself. There’s a reason most manufacturing has fled the US for other countries – labor cost.

    And for what it is worth I certainly hope a very large number of Wall Street and Detroit 3 executives find themselves with jail terms for the damage they have done.

  • avatar
    63CorvairSpyder

    Luscious-

    “Have I told you Lately”

    I love that Rod Stewart song. It’s a real tear-jerker. My daughter played it for “her song” at her wedding.

  • avatar
    RetardedSparks

    http://www.cnbc.com/id/28193063

    US Treas apparently ready now with the cash – and maybe no strings attached!

    Hmmm… anybody else see a well orchestrated conspiracy here?

  • avatar
    PeteMoran

    @Pch101 and @RF:

    Serious question, can Bush direct the Fed to spend money? I thought it was independent?

    Then second question, can Bush personally direct taxpayer money be spent? Does the TARP bill give him that power, and/or does a President have the right to spend treasury money in ANY manner without Congressional or Senate approval? Could he just go and BUY Cuba for example? How could he just “send” money to private corporations with an enabling Bill?

    Might be my Australian misunderstanding.

  • avatar
    nonce

    Finally, Chapter 11. Give the UAW full ownership.

  • avatar
    dgduris

    You know, capitalism is pretty simple.

    Make products at quality and price levels that are competitive and profitable. American manufacturers do some great design and, sometimes, the quality is acceptable. But the cost they pay for labor – the overall COST, not just the wage – precludes them from competing profitably. So they need to reduce their costs of labor.

    Pretty straight forward.

    I haven’t read any reports of workers in foreign-owned American assembly plants complaining about slave labor or poor working conditions. The manufacturers (Toyota, Subaru, M-B…) know that poor working conditions and overworked (non-management) employees increase benefit cost so they want safe, happy and healthy workers.

    I doubt there is an American who wants any of these companies to fail (save Cerberus board waiting to liquidate Chrysler for cash). That said, Americans always vote with their wallet. Few of us, I expect, will pay more for similar quality…unless the brand we’re buying is of massively gland-growing cachet.

    And which of the Big 2.8 brands has ANY cachet after being dragged through this mud?

  • avatar
    200k-min

    Can someone explain to me why blue-collar greed is evil and rotten and needs to be stamped out, but white-collar greed is just dismissed as “that’s the way things go”?

    Remember that the public was also against the Wall Street bailout. Quite frankly, the American people have been the one group that is consistent through this whole financial/economic mess.

    I hate how this is somehow being turned into a class warfare argument. It has nothing to do with that. This is about propping up failed business. It doesn’t matter if it’s an insurance company, major bank or automobile manufacturer….corportate welfare is corporate welfare. Wall Street was in DC crying that they must have a bailout, well, they got theirs and the DOW proceeded to keep falling off a cliff. I expect nothing different if the 2.8 get their bailout ~ their mkt share will keep sliding into oblivion and will require countless more bailouts.

    The irony is that the UAW is responsible for killing this bill, when they’re the ones with the most to lose. I’m with Orian, if my employer was facing bankruptcy I’d shure as shit take a pay cut over unemployment.

  • avatar
    Pch101

    Serious question, can Bush direct the Fed to spend money?

    It’s not the Federal Reserve, which is semi-autonomous, but the Treasury’s TARP funds, which Congress gave to the Treasury to use as it sees fit.

    The Federal Reserve and Treasury are separate. “Feds” is a slang term for the federal government; the Fed is the Federal Reserve, which technically isn’t part of the government. The Treasury is a department of the government, and is governed by a member of the President’s cabinet.

    As I type this, Gettelfinger is giving a press conference. He’s playing the role of defender of his people, which is what he gets paid for. This bailout is SO going to happen…

  • avatar
    geeber

    Eric_Stepans: In what bizzaro world do we live where the notion that “American workers MUST cut their wages” is a unifying principle for a political party, over which they are willing to risk the next Great Depression?

    One in which elected officials do what they are supposed to do – listen to their constituents. In case you’ve forgotten, the Republican base was actually AGAINST the Wall Street bailout, which is why it failed to pass the first time. They are against this one, too (and still steamed that the Wall Street bailout passed despite their opposition).

    And please note that the failure of Chrysler and/or GM will not bring on another Great Depression. The first one wasn’t caused by the failure of numerous automobile companies, and the failure of one or more will not bring on another one.

  • avatar
    dgduris

    The Dems know that a $14bil loan will get GM – about – to inauguration day +1. Then Obama could swoop in with a massive package of socialist relief and it would be more highly applauded than the hostages being released the day RWR came into office.

    But, while the Dems, would then guarantee themselves union bloc votes for generations, Americans would have to pay the burden of supporting a non-competitive industrial base.

    Better to take the pain for a short-bit, then carry it through the next generation.

  • avatar
    Eric_Stepans

    Is the UAW *really* at the heart of the Detroit 2.8 problems.

    For the time being, lets accept the $70 labor cost figure vs. the transplant average of $50.

    According to the Harbor Report, the Detroit 2.8 and the Japanese transplant all average about 30 person-hours per vehicle assembled.

    So, Detroit labor costs = $2100/vehicle

    Transplant labor costs = $1500/vehicle

    Are you telling me that a difference of $600 per vehicle (on an average transaction price of $25k, or about 2.5%) is what is making or breaking the Detroit 2.8?

    I call B.S.!

  • avatar
    Geotpf

    Orian :
    December 12th, 2008 at 9:49 am

    Eric,

    Go back and RE-READ my comment. I stated that figure was salary PLUS benefits.

    It’s still false. The $70 an hour is not just salary+bennies. It’s salary+bennies+retiree costs for other people. No UAW worker get “stuff” worth $70 an hour.

  • avatar
    KalapanaBlack

    The irony is that the UAW is responsible for killing this bill, when they’re the ones with the most to lose. I’m with Orian, if my employer was facing bankruptcy I’d shure as shit take a pay cut over unemployment.

    This is what doesn’t match up for me. I’m thinking, (a) something very fishy is up, or (b) the UAW leadership is so out of touch with reality and the rank-and-file that they’re sacrificing the entire organization in a possibly-futile, very desperate attempt to hang onto their bargaining power.

  • avatar
    dwford

    Weren’t the Big 3 and the UAW telling Congress that the new contract reduced wage expense to very close to the transplant level? If that was so, why would the UAW have a problem exactly matching that level? Me thinks there are a shitload of perks in that contract they don’t want to give up..

  • avatar
    no_slushbox

    PeteMoran:

    Buying Cuba would be a much better investment than putting the big-3 on life support. That’s some prime tropical land.

    As an Australian you have more understanding than misunderstanding. Compared to America your country is more politically close to Britain, which participated in the failed British Leyland experiment. And your country is more geographically close to India and China, where the remnants of British Leyland ended after years of government support killed the companies.

    Using the TARP funds or any Treasury money to give welfare to the big-3 is blatantly illegal, which is par for the course for our current administration.

    rochskier:

    The S&P 500 touched 8400 from around 8800 when the bailout failed, before any presidential intervention was announced. It has been down below 7500. The overall market barely cared. Outside of the auto stocks there really wasn’t much reaction.

  • avatar
    John Horner

    “A dispute over when UAW workers would consent to have their wages reduced to match those paid to nonunion workers in U.S. import-brand factories.”

    Wouldn’t this end up in a vicious circle? One reason the transplant factories pay as well as they do is that they need to come fairly close to UAW wages in order to avoid being organized. If the UAW agrees to match the non-union factory pay scales then the non-union factories are likely to start ratcheting pay down, which the UAW would be obliged to follow. Lather, rinse, repeat.

    Also, where is the provision prohibiting state and local governments from taxpayer giveaways to lure automotive manufacturing plants?

    Perhaps the biggest labor cost savings the transplants have is that they have very few retirees because they haven’t been in the US for very long.

  • avatar
    Pch101

    Using the TARP funds or any Treasury money to give welfare is blatantly illegal

    The Congress gave Treasury a lot of autonomy under TARP.

    You may not like it and you don’t have to. But to claim that it is illegal is overreaching.

    Outside of the auto stocks there really wasn’t much reaction.

    You are wrong about this, too. The markets have been assuming that there would be a bailout.

    When word came out last night US time that the Senate had reached an impasse, Asian markets dived. When European markets opened a few hours later, those markets also tanked.

    The US market overnight index futures also fell, in anticipation of a big hit to the US markets. Those lifted with the announcement this morning that Treasury would throw TARP money at it. If the Treasury announcement had not been made, the market would have likely fallen more than it did, which is why they made a point of making the announcement before the US open at 9:30 am ET.

    Regardless of what you may want, the markets definitely want this. And why wouldn’t they? Everybody wants free money, and investors don’t want companies to collapse, regardless of whether they deserve it.

    Don’t confuse what you want with what others want. The apocalypse talk may be going a bit far, but common market consensus is that their collapse would have negative repercussions.

  • avatar
    1996MEdition

    For once, I am glad to see the UAW holding ground on this one. Legacy costs, not current wages, are the difference in labor between the D3 and transplants. Gettelfinger should not give on this, especially when there is pork in this bill for federal judge salary increases. Get the management of the D3 turned around (booted), salaries/bonuses brought in line first at the top, then ask the little guys.

  • avatar
    Eric_Stepans

    @200k-min and Orian:

    If you are so concerned about your employer’s viability, why don’t you volunteer for a wage cut?

    Why don’t you work for $5.00/hr or $3.00/hr or $1.00/hr?

    After all, if they cut their labor costs, they’ll be more profitable and more likely to stay in business. Is that the point of our economy, to make sure that corporations can minimize their labor costs?

    @geeber – Normally, I would agree that one or more of the Detroit 2.8 going bankrupt wouldn’t destroy the economy. But we don’t live in normal times. I believe that the ‘chain reaction’ if (most likely) GM topples will send us into a Great Depression-like event (which probably will happen anyway, but why encourage it?)

    @200k-min – Re: the class warfare argument

    Given the hugely disproportionate government, media and public scrutiny that has been given to a proposed $25 billion loan compared to a $700 billion giveaway, I don’t see any plausible explanation EXCEPT ‘class warfare’.

    If we are worried about ‘labor costs’, why are we not going after where the ‘costs’ really are?

    http://www.lcurve.org/images/LCurveFlier2003.pdf

  • avatar
    psarhjinian

    But, while the Dems, would then guarantee themselves union bloc votes for generations,

    This is a common misconception. The Democrats don’t need to court the unions any more than the Republicans have to court the Christian Right–certainly at the Presidential level. Neither group of voters will ever vote for the other party, so Democrats and Republicans can safely chase the centre. At worst, they risk core voter apathy. In a country with a pitiful voter turnout, that’s not a big risk.

    One of the Bush administration’s failings is that he didn’t seem to clue into this and spent a lot of time pandering to the far right when he really didn’t need to.

    It’s a little different for congresscritters and senators, especially in non-swing states, but the rule more or less holds. If the US had one or two more political parties, it might be a different story.

  • avatar
    Chopper man

    My industry (aerospace / defense) suffered quite an upheval in 1998-1999. I believe it was termed the peace dividend. As a result I was laid off. I found work in a shipyard for 3/4 of my old pay and weathered the storm. In 2000 I was able to return back to my former field. In 2001 my buddies in Commercial felt the axe because of 9-11. There were no bailouts. Today my buddies in commercial are a bit worried as orders on the books may evaporate (there are rumblings in China about it). That’s the way the game is played. In a free market you are at the mercy of market forces. Unfortunately the Auto Industry (from the top down) believe that they are too good to suffer the fate that industries such as mine suffer on a cyclical basis. A “Bailout’ will just prolong the pain and keep the automotive industry from improving. Even forests burn down. That’s the cycle of life at work. The auto industry needs to change. That’s what Mullaly (from my industry) has been trying to do at Ford.

  • avatar
    jpcavanaugh

    The fact that people who make $15/hr have been convinced to aim their class jealousies at people making $30/hr, instead of the Alan Fishmans and Bernard Madoffs of the world….

    This isn’t about class envy. Or class warfare. It is about a segment of the labor force that is charging at a rate well above the going market rate. This legacy goes back to the 40s. The beginnings of unization was concerned with curbing workplace abuses. By the 40s, the emphasis had moved to compensation. Nobody wants to recognize that from the end of WWII until the mid 1960s, the US auto industry had NO serious competition from anywhere in the world. The only potential industrial competitors were bombed into oblivion during the war, and were trying to rebuild thereafter. Their home markets were much poorer than ours, and their products (other than the niche for small, economical cars filled by VW) were not competitive here.
    By the 70s, european and japaneese competition was starting to fill the low end of the US market, and there was some upper end european competitors, but there was still no competition for the vast middle of the car and truck market. Even in the 80s, a modern US design like the Taurus could be successful because there was no japaneese or european alternative. This is how US manufacturers could still pay labor rates WAY above the rates paid for most other kinds of manufacturing. This was even true for trucks, vans and larger SUVs through the 90s.
    By the 90s, foreign makers were selling products more competitive with larger and larger shares of the US market. Many of these were built with domestic labor, with wage and benefit levels closer to prevailing market rates.
    You cannot stay competitive when you are paying 50% higher labor costs than your competition. Just cannot be done. I do not begrudge union members for their paychecks. As the old saying goes, nice work if you can get it. But when the choice for a company is to go out of business or to cut labor rates, I know what I would choose if I were one of the employees.
    We have seen this in industry after industry since the 70s. Railroads. Steel. Shoes. Airlines. These old, heavily unionized industries have been battered by competition, and have either disappeared or gone through massive restructurings (generally with lots of bankruptcies) The only growth area for union labor in the last 20 years has been government employees. This is one area where there is no possible competition. There can be no alternative to a government, so there is no market check on pay levels (other than the taxpayer anger that we are seeing more and more.)
    So, its all about economics. A gas station cannot stay in business if it has to sell gas at $1.89 while all the rest sell it for $1.49. Likewise, going forward, workers selling their labor for $70/hr (including benefits) will have a hard time finding willing buyers (employers) with a country full of people who would gladly take those jobs for substantially less. So long as the employers could afford to pay, it worked. The US auto industry can no longer afford to pay. In this circumstance, there is nothing wrong with expecting labor to give up the premium rates that they have enjoyed for so long. Nobody is suggesting that they take minimum wage, just an amount that is reasonable (even very good) everywhere else in the industry.
    And Yes, I was an economics major.

  • avatar
    jmo

    Are you telling me that a difference of $600 per vehicle (on an average transaction price of $25k, or about 2.5%) is what is making or breaking the Detroit 2.8?

    Yes, that’s what I’m saying. Toyota’s total profit margin is only 4.98%. If Toyota could just cut the cost of a car by $600 its profits would increase 50%! Do you think a 50% increase in profits doesn’t matter?

    Do you still think $600 doesn’t matter? These are not high margin busineses.

  • avatar
    Blobinski

    You all can talk about cost per hour, but it is the breakdown of the labor per vehicle. COGS (Cost of Goods Sold) is the true measurement. It may well be that Toyota workers make more $$ per hour, however what does the UAW cost the Big 3 per car, with everything included? It is $72 per hour at the UAW and $44 per hour at Toyota, including ALL costs. This number has been announced and is proven.

    SO, with the UAW costing the BIG 3 63% more labor per vehicle and with the perception of low quality yielding crappy sales, its no wonder.
    The Big 3 should take a page out of the Hyundai playbook. Hyundai made horrible cars 15 years ago, so did the Big 3. Hyundai re-invented itself, hired away Honda engineers, benchmarked the best vehicles and now is doing really well in the market. The Big 3 has not. E.g what Program Management would continue to sit in every design meeting for the Dodge Caliber or the Chevy SSR truck and sign-off on that junk. It is amazing to me that the Big 3 still struggle where others succeed.

  • avatar
    jmo

    Just to reiterate how low the profit margins in the car industry are – BMW’s profit margin is only 5.3%. A $45k 335i actually costs $42,435!

  • avatar
    Pch101

    Do you still think $600 doesn’t matter?

    In this case, it’s not a critical difference, because labor is a relatively small proportion of the cost of producing a car.

    You can be pro- or anti-union, but based upon the numbers, the cost argument doesn’t pencil.

    GM’s greatest problem is the revenue problem. People don’t like the cars, so they need to give them away. That gap is substantially larger than $600.

  • avatar
    Kevin

    PeteMoran: Then second question, can Bush personally direct taxpayer money be spent? Does the TARP bill give him that power, and/or does a President have the right to spend treasury money in ANY manner without Congressional or Senate approval? Could he just go and BUY Cuba for example? How could he just “send” money to private corporations with an enabling Bill?

    There might be some leeway as a practical matter, but the cabinets of the Executive Branch only have the budgets allotted to them by the latest budget, as passed by congress and signed into law by president, and needs all that money for the usual things. So basically no, a president can’t just grant some company money or somehow pull billions of dollars out of a hat.

    (The Cuba thing … Thomas Jefferson famously bought the Louisiana Purchase from the French in that manner. That was probably blatantly unconstitutional but he got away with it because it was such a good deal and people felt westward expansion was destined to happen.)

    There IS debate as to whether the TARP enables the bailout from Treasury funds already. The political game is that lots of people want a bailout, but no one wants to be the one responsible for it. Hence, Treasury has (so far) been asserting TARP doesn’t give them authority to do bailout, and further law by congress is needed; meanwhile congress has been asserting Treasury could do it if they want to so no further law is needed.

  • avatar
    PeteMoran

    @jmo

    5% margin? I don’t think that’s correct. I don’t have my Toyota annual reports handy but the figure was in the high 20s.

    You could do a back of the envelope with the Net profit divided by the number of cars. Even year-to-date in this weak global economy they were heading for mid-teens % net profit.

  • avatar
    no_slushbox

    Pch101:

    “b. Who can participate [in TARP]?

    The Act’s criteria for participation are very unclear. It states that “financial institutions” will be included in TARP if they are “established and regulated” under the laws of the United States and if they have “significant operations” in the United States. The Treasury will need to define what institutions will be included under the term “financial institution” and what will constitute “significant operations.”

    Certain institutions seem to be guaranteed participation. These include: U.S. banks, U.S. branches of a foreign bank, U.S. savings banks or credit unions, U.S. broker-dealers, U.S. insurance companies, U.S. mutual funds or other U.S. registered investment companies, tax-qualified U.S. employee retirement plans, and bank holding companies.

    Whether hedge funds, as virtually unregulated institutions, will be included depends on the discretion of the Treasury, but it seems unlikely. Hedge funds (partnerships in which experienced investors pool their money to make complex, and often risky, investments using advanced investment strategies) have recently become politically unpopular in the U.S. as a result of their perceived role in creating the crisis. This perception of hedge funds makes it difficult for the Treasury to allow them to participate in a taxpayer-funded bailout program.”

    http://www.uiowa.edu/ifdebook/issues/bailouts/eesa.shtml

    TARP is unclear about financial institutions, but nowhere does it contemplate manufactures. If TARP is perverted to bailout the big-3 then maybe Circuit City and the Tribune Company are next. Or maybe some pigs (particularly the pigs in the UAW) are more equal than other pigs.

    Also, markets were slightly down, but not very much. I was actually hoping they would be down more because I wanted to pick up some SPY S&P 500 shares on the cheap. When it looked like the bailout would pass SPY shares were at about $88. The lowest I saw SPY shares go in after market trading all night after the bailout failed (and before any Presidential or Treasury announcements were made) was ~$83-84. A couple weeks ago I picked some up for $74.

    The markets cared even less about the Bailout failing to pass then I thought they would. Any failure of a big company dings the markets, but the S&P 500 only going from 8800 to 8400 hardly indicates “too big to fail”.

    To personify the markets and act like they want something is delusional; traders trading a certain way does not mean that they want their children saddled with the debt from the never ending burden of keeping failed companies on life support. I still have not seen a survey with less than 50% of Americans against the bail-out, even with all the fear mongering. The relatively small reactions that all markets had to the bailout failure show how insignificant the big-3 are.

    You are the one that tends to confuse what you want with what others want, and you have a record of being wrong. The same day you told me that desire for a prepackaged Chapter 11 only existed in TTAC, and that nobody in Congress waned it, Bob Corker (Senator, TN), among other Senators, announced their support for a prepackaged Chapter 11.

  • avatar
    geeber

    Eric_Stepans: Normally, I would agree that one or more of the Detroit 2.8 going bankrupt wouldn’t destroy the economy. But we don’t live in normal times. I believe that the ‘chain reaction’ if (most likely) GM topples will send us into a Great Depression-like event (which probably will happen anyway, but why encourage it?)

    GM and Chrysler are not viable even with this money. It only delays the inevitable. Both companies will be back for more within 12-18 months.

  • avatar
    Pch101

    The Act’s criteria for participation are very unclear. It states that “financial institutions” will be included in TARP if they are “established and regulated” under the laws of the United States and if they have “significant operations” in the United States. The Treasury will need to define what institutions will be included under the term “financial institution” and what will constitute “significant operations.”

    You should read your own cite. That provides a lot of flexibility to Treasury. The ambiguity goes in favor of Treasury, not against them.

    Also, markets were slightly down, but not very much.

    Yes, because of the Treasury announcement this morning.

    Had you followed the futures, they predicted a lower open prior to the announcement being made. If you followed Asia and Europe, you would know that they got slammed once the Senate announcement came out last night.

    The Treasury’s announcement created a bounce. As I noted, they made that announcement before the US markets opened today, so what you are seeing right now includes the lift from the Treasury-TARP announcement.

    The index futures are generally a pretty good indicator of the market open. The fact that they rose after the Treasury news is a big hint that the market liked the news.

    Again, don’t confuse what you want with what others want. The markets want a bailout. That doesn’t mean that you need to want it, but the markets certainly do.

  • avatar
    jmo

    Pete,

    http://finance.yahoo.com/q/ks?s=TM

    Toyota Motor Co. Profit Margin – 4.98%.

  • avatar
    PeteMoran

    @jmo

    Thanks. I wasn’t making myself very clear however.

    %GP per vehicle would clearly be much higher.

  • avatar
    Geotpf

    Chopper man :
    December 12th, 2008 at 10:37 am

    In 2001 my buddies in Commercial felt the axe because of 9-11. There were no bailouts.

    False.

    Airline bailout criticized
    Libertarians: ‘It was a $15 billion mistake’

    Posted: September 27, 2001
    1:00 am Eastern

    By Jon Dougherty

    Last Friday, the House and Senate passed the airline industry bailout bill, authorizing $5 billion in cash and $10 billion in loan guarantees, and President George W. Bush signed it into law on Saturday.

    http://www.worldnetdaily.com/news/article.asp?ARTICLE_ID=24684

    Granted, it was a lot easier to support that sort of bailout due to the losses being caused by what amounted to a foreign nation (Tailban/Al Queda controlled Afghanistan) basically declaring war on the United States. But there most certainly was a bailout of the airlines after 9/11.

  • avatar
    Geotpf

    geeber :
    December 12th, 2008 at 11:11 am

    GM and Chrysler are not viable even with this money. It only delays the inevitable. Both companies will be back for more within 12-18 months.

    No, both companies will be back for more in 3.5 months, after Obama and a Senate with 58 or 59 Democrats are seated. This was always a temporary bill that expires on March 31st, with a second bill that greatly expands this being passed before then. The reason they didn’t wait was because, in theory, GM and Chrysler will go bankrupt in a week or two if this isn’t passed, before Obama and the extra Senate Democrats take office.

    I can’t tell if it’s actually true that GM and Chrysler will go bankrupt immediately if they don’t get their money (or if that’s just bluster to get it passed), but it’s not unthinkable.

  • avatar
    KnightRT

    >It would be tantamount to a serial rapist that after his conviction spends 3 months working for the local church and then asks you to date your daughter.

    I wasn’t sure I was on TTAC for a moment. Now I am. Detroit, the serial rapist. Wow.

  • avatar
    Pch101

    Both companies will be back for more within 12-18 months.

    GM’s burn rate is about $2 billion/mo., and I’m guessing that it’s only going to go up. They’d need more money in a matter of weeks, not months.

  • avatar
    geeber

    Geotpf: No, both companies will be back for more in 3.5 months, after Obama and a Senate with 58 or 59 Democrats are seated. This was always a temporary bill that expires on March 31st, with a second bill that greatly expands this being passed before then.

    And they will be back 12-18 months after that, because nothing I’ve seen indicates that either company has a plan that will truly make them viable.

  • avatar
    Conslaw

    I think what we are missing here is the timing. There was an apparent “deal” for $1.4 billion between the Republican administration and the Democratic House. Lame Duck George couldn’t exercise any leadership in the Senate to get Republcian votes, and even more significant, Harry Reid couldn’t muster his own Democratic majority to pass the House bill.

    Senator Corker decided that what was needed is to have the actual restructuring plan in hand at the time of the bailout – not a bad idea, but not feasible in a single day. Still, he apparently made significant progress. Apparently Senator Corker thinks he is the “Car Czar”, and thinks he can dictate the terms of the ultimate deal.

    Ron Gettelfinger is president of an organization that is at least nominally democratic. Anything he agrees to has to be voted on by the rank and file. There is no way that Gettelfinger had authorization to agree to a unilateral and immediate restructuring of the contract, a restructuring that essentially puts the union members where the non-union members are, with the exception that the UAW members still owe dues. How could he agree to that? How could Corker or anyone else think that he could agree to that? As I understand it, the bondholders and other creditors were not even at the table. It is poor form to expect the UAW to give you their best deal when there was no commitment by the bondholders to take their Corker haircut as well.

    Finally, I’ve mentioned this before, the UAW has a conflict of interest when it comes to the retirees and the active duty workers. The UAW is under pressure to give up creditor claims of the retirees in exchange for future work for the active workers. The retirees actually need separate advocates at the table. Even if these conflicts of interest are resolvable, they will slow down any deal. The conflicts need to be recognized and addressed now.

  • avatar
    Eric_Stepans

    @geeber

    And they will be back 12-18 months after that, because nothing I’ve seen indicates that either company has a plan that will truly make them viable.

    AIG has already been ‘back for seconds’ and will probably be back for ‘thirds’ if they have any more news like this…

    http://news.yahoo.com/s/ap/20081210/ap_on_bi_ge/aig_investments_2

    I admit, the long-term future for GM, Chrylser and (to a lesser degree) Ford is not good. But I think, given the current financial climate, it makes sense to keep them on “life support” until a more orderly dissolution can occur.

  • avatar
    geeber

    Eric_Stepans: AIG has already been ‘back for seconds’ and will probably be back for ‘thirds’ if they have any more news like this…

    But did I ever say that I favored the AIG bailout…?

    Eric_Stepans: I admit, the long-term future for GM, Chrylser and (to a lesser degree) Ford is not good. But I think, given the current financial climate, it makes sense to keep them on “life support” until a more orderly dissolution can occur.

    The problem, as I see it, is that NO ONE – Republicans, Democrats, the UAW, management – is being truly honest here. The entire “cut the UAW pay to match the transplants” demand is a distraction. The actual wages aren’t the problem (and I’ll bet the heads of Honda, Toyota and Nissan are squirming right now over all this publicity – the Republicans aren’t doing them any favors here).

    The real problem is that to make GM truly viable, it needs to shrink to serve about 15 percent of the market. That means divisions, dealers and workers (both blue-collar and white-collar) have to go. And without the Jobs Bank to maintain their pay.

    There will also have to be a restructuring of debt and obligations to retirees.

    Chrysler is basically a goner at this point, and will either be sold to a foreign company, or have its viable components (Jeep, the minivans) parted out to another company. This will probably also involve significant job losses – again, without a Jobs Bank.

    Of course, neither party wants to face that prospect, especially as unemployment creeps ever-higher with each passing month. So we get a lot of hysteria over job losses because of a projected total collapse of GM and Chrysler, along with political posturing from both sides, when any plan to make these companies viable is still going to put a fair number of people on the street. No one wants to face that. But I don’t see any other way.

  • avatar

    UAW suicide watch: how can anybody refuse wage concessions in the face of bankruptcy?
    Stunning…

    Here in Silicon Valley it’s not unheard of for workers to accept big wage cuts to save jobs. I’ve personally witnessed that at a small company; the wage cuts were between 25% and 50%. Those workers were not unionized, but they were able to keep their jobs.

  • avatar
    Pch101

    The problem, as I see it, is that NO ONE – Republicans, Democrats, the UAW, management – is being truly honest here. The entire “cut the UAW pay to match the transplants” demand is a distraction. The actual wages aren’t the problem

    You have a lot of nerve, going to all of that trouble to be objective and balanced. Why are you trying to analyze the situation reasonably? It’s much more fun to shout about socialism and the rest.

  • avatar
    Robert Frankfurter

    It all burns down to the fact that people aren’t shopping 3D vehicles because they
    dont like them for the price. Point.

    They dont like the cars shoddily fitted in developing countries like Mexico e.g. or the outsourcing of R&D over the ocean.
    They buy local e.g. Toyota, Honda, BMW. because the customers learn over time what product they need and are not stupid. Prove: The retention capacity of “foreign” brands is unmatched to any D3 product.
    The shoppers buy mostly from companies which have the same market environment as the D3 beggars but are still not standing with a tin can in front of congress bcs they know to make a profit.
    Why are they profitable and the D3 not?
    And – is it the taxpayers problem to subsidize a private entity with, in case Chrysler /Cerberus, sealed deep pockets?
    To make a solid profit is the aim of every commercial activity, company in a capitalistic society.
    Forgot this?
    To be profitable is the aim in a capitalistic society, not having the highest pay for blue collar worker and or using more manpower to employ folks. That was basically Stalins market approach. Including establishing a polit commissar “industry tzar”

    As history shows, buyers prefer over D3 “foreign” brands, which are more cost effective, are more reliable, have a leaner business structure and are nearly all “proudly made in the USA”.

    The workers in that mills are not slaves and are not only happy (otherwise they would not work there) are proud of their product and company, even the pay is a little less then in the UAW destroyed 3D shacks.

    Obama got it right in his last speech:
    The only plusses he sees so far in change is the continuous skyrocketing of compensations for the big sharks at D3 climbing to astonishing levels and overboarding production costs / labour costs.
    Asking to have the same compensations as the market dictates e.g. competitors who produce in the US go along with, is unacceptable to UAW as well as to the COE’s.

    So may it be.

    To buy D3 cars is, if you think a second, not only unpatriotic but unwise.
    To hand money so such bunch of losers would be outright stupid.

    That the poorest and unqualified suffer most is no speciality here – that was, is and will be always so…

  • avatar
    nevets248

    amtrak motors, pulling into a station near you!!!

  • avatar
    Luther

    “Is the UAW *really* at the heart of the Detroit 2.8 problems.”

    The 1934 Wagner Act and most Labor Laws are the real problem…Allowing criminal ‘gangs’ called Labor Unions to ‘legally’ steal other people’s property.

  • avatar
    Eric_Stepans

    I guess where I differ from my TTAC colleagues who scream “the free market must rule” is that I recognize there is no free market and there has not been one (if there ever was) for decades.

    We have massively subsidized the automobile industry with socialized roads and government vehicle contracts.

    We have massively subsidized the oil industry by using the US military to keep friendly dictators in power in the Middle East.

    We have massively subsidized the airline industry with defense contracts (used to cover the cost overruns on commercial aircraft) and bailouts.

    The states where the “free market” Republicans who (temporarily) killed the Detroit 2.8 bailout have all massively subsidized the construction of vehicle assembly plants there.

    We have, over the past 30 or so years, bailed out Chrysler, Continental Illinois Bank, the S&L industry, the banking industry, the airlines, the banking industry again (Peso crisis), Long Term Capital Management, the banking industry again (Southeast Asia currency crisis), the airlines again (post 9/11), Halliburton (no-bid Iraq contracts), Blackwater (no-bid Iraq contracts) AIG (that cost $150 billion), and the banking industry again (CDO/credit default swap meltdown)…and I’m probably missing a few.

    So, I ask AGAIN…why, other than smash-the-UAW class warfare is the ‘line in the sand’ being drawn with the Detroit 2.8?

    What other possible explanation is there for the vast difference in public, media and political attention being paid to this bailout, as opposed to the dozens of other ‘bailouts’ that have occurred over the past 30+ years?

  • avatar
    Eric_Stepans

    Luther wrote:

    The 1934 Wagner Act and most Labor Laws are the real problem…Allowing criminal ‘gangs’ called Labor Unions to ‘legally’ steal other people’s property

    Yeah, it was the labor unions who hired ‘goons’ to hurt/kill people during labor negotiations (NOT!).

    The motive hasn’t changed, only the tactics. Instead of hiring goons, the Ownership Class hires fleets of lawyers and union-busting ‘labor consultants’ who fire anyone that starts to organize (and make it too expensive to sue).

    Or, they just drop a shekel or two in a few Senator’s pockets…and it’s suddenly ‘legal’ to steal the people’s money…
    .
    http://www.amazon.com/Perfectly-Legal-Campaign-Rich-CheatEverybody/dp/B000CDG8N8/
    .
    http://www.amazon.com/Free-Lunch-Wealthiest-Themselves-Government/dp/1591841917/

  • avatar
    dgduris

    While you guys are arguing over “class warfare” the Asian manufacturers are out competing us and laughing their asses off!

  • avatar
    geeber

    Eric_Stepans: So, I ask AGAIN…why, other than smash-the-UAW class warfare is the ‘line in the sand’ being drawn with the Detroit 2.8?

    Because:

    1. A car is a very big purchase for virtually everyone, and is a somewhat emotional purchase. Most people don’t care whether they fly Delta or USAir. They just want to get to their destination safely. They do care whether they drive a Chrysler versus a Honda, because, like it or not, the vehicle we drive announces many things to the world. Therefore, a great deal of emotionalism surrounds the debate regarding whether to bail out GM and Chrysler. If you doubt that, go to cheersandgears.com, or gminsidenews.com and read what posters have to say.

    2. Because of the nature of this product, the car companies are all household names. Who had heard of AIG before this year?

    3. The UAW is also a household name.

    4. Virtually everyone has used the products made by GM, Ford and Chrysler, or is intimately related to someone who has used their products. Unfortunately, over the past 30 or so years, that contact has been a negative experience for too many people. Given that a car is the second-most expensive purchase that most people will make, that type of bad experience tends to stick in their memory. Especially when competitors stand ready to provide a POSITIVE automobile ownership experience for the same or slightly more money.

    5. We didn’t bail out Halliburton and Blackwater. The government may have awarded both companies contracts under standards that don’t pass the smell test, but that is not the same as a bailout.

    6. When the government awards Halliburton a contract under questionable circumstances, it gets people upset. When the intake manifold gasket on a GM V-6 fails and ruins the engine, and the owner is hit with a four-digit repair bill to have a workable vehicle, it becomes personal. The money is coming directly out of the owner’s bank account. Usually said owner then bought something else to avoid giving money to GM. When GM then goes before Congress to ask for taxpayer money to survive, said owner who pays those taxes is likely to be skeptical at best, and furious at worst.

    7. Rick Wagoner gave a terrible performance before Congress, and confirmed that a big problem at GM is the lack of accountability in the executive suite.

    8. People know that Chrysler has an owner that at least looks like it has deep pockets, and rightly wonder why taxpayers should invest money to save Chrysler when Cerberus certainly appears reluctant to do so.

    9. The UAW has shown the same traces of the myopia over the past three decades that has afflicted management, and its public relations efforts (if there are any) have been absolutely terrible in this latest crisis.

    10. The Republicans are smarting over the results of the last election, and the UAW is a convenient target, given that it was quite vocal in its support of the Democrats – providing money and personnel to the campaign – during this last election.

    11. Democrats, Republicans, the UAW and company management all don’t want to face the truth – that any plan to really make GM and Chrysler viable will involve a major restructuring that will require both companies to eliminate many workers and dealers – without any Jobs Bank. This during a time of increasing unemployment. I can see the questions now – the government is giving taxpayer money to companies so that they can fire people?!

    Have I missed any…?

  • avatar
    psarhjinian

    We didn’t bail out Halliburton and Blackwater. The government may have awarded both companies contracts under standards that don’t pass the smell test, but that is not the same as a bailout.

    I agree with the rest of your post, saving this. Actions like this are worse because they’re not honest. A bail-out is deliberate, above-board payoff; a non-compete bid and contract are a deliberate attempt to disguise a bail-out as a legitimate service.

    Whether it’s noncompete bids like Halliburton, or shadow subsidies like PNGV or ethanol mandates, it’s dishonest and below-board.

  • avatar

    wall street doesn’t look too bad today

  • avatar
    Pch101

    As I have stated elsewhere here, it helps to be realistic about what we are talking about.

    I am of the opinion that anyone who believes that the “bailout” will save these companies and make them prosperous is fooling themselves. This is not like the Iacocca-era Chrysler bailout; this money will not fix them, and the changes necessary to make them profitable are so extensive that they go well beyond any of the proposals that are currently on the federal table.

    On the other hand, anyone who believes that they can just fail without broader consequences is just kidding themselves. The markets obviously perceive this alternative as a disaster, and the consequences would be rather bad. We can debate whether the consequences are or aren’t worth it, and precisely what they’ll be, but we will have them and they will hurt.

    Likewise, I think that the Chapter 11 option is unrealistic if your goal is their survival. Gettelfinger is right about this one point — Chapter 11 won’t stay 11 for long, it will go into 7 and liquidation rather quickly, and there is no time to put together a prepack that is going to actually get approved by the creditors. So if you want them to live, 11 is not the answer.

    The situation is complicated. Shouting from both extremes provides no useful information.

    And assuming that wage cuts are, by themselves, going to do the trick, is wholly unrealistic. The wage differential is not big enough to make much of a difference. If cost cutting was the solution, then everything would already be fine, because cost cutting has been underway for many years. Let’s not get caught up in that sort of rhetoric, Geeber is right to dismiss that as a distraction, because that’s exactly all it is.

  • avatar
    Eric_Stepans

    @Geeber — Excellent analysis.

    But it highlights that people’s opposition to the Detroit 3 bailout is a product of narrative-based thinking, not logical/reasonable analysis.

    For example, people want to ‘punish’ GM/the UAW for that crappy head-gasket on their [insert GM product here]. But all the UAW guy did was either put it on the engine or put the engine in the car.

    It was the engineer (who underdesigned the gasket), or the bean-counter (who specified that the gasket must be cheap), or the gasket supplier (who underbid the contract, so they made the gasket as cheap as possible), or the purchasing/quality control department (who let the faulty gaskets be purchased/installed) that are responsible (in most cases).

    Yet the media (and TTAC) focus has been on “those damn theiving UAW layabouts”.

    Personally, I favor a ‘bailout’ that would take the pension/retiree healthcare obligations away from the Detroit 2.8 (and perhaps form the core of a universal health care/pension system), take the CEOs up on their “I’ll work for $1” offer, suspend stockholder dividends, and demand across-the-board (both blue and white-collar) wage cuts.

    If GM didn’t have retiree expenses, that’s $16 of the $71 vs. $49 labor cost difference. If they have across-the-board 10% salary cuts, then the labor cost difference becomes $50 vs. $49.

    I think the Detroit 2.8 can probably compete on a cost basis at that point. No union-busting required.

  • avatar
    geeber

    Eric,

    I don’t believe that TTAC has been solely blaming the union for this.

    Some POSTERS have taken that route.

    But the editorials posted on this site have been pretty hard on management in general, and Cerberus and Wagoner in particular. Which is entirely appropriate. If anything, I think that the editorials (not the comments from the posters) have been far fairer to the UAW than the mainstream media has been.

    As for this: I think the Detroit 2.8 can probably compete on a cost basis at that point. No union-busting required.

    I think that Ford is proving that, and will prove it. People forget that not only do we have three very different companies in very different situations, but the union has a different relationship with each of those companies.

    At some point, we will have to stop talking about the Detroit 2.8. These are three very different companies.

  • avatar

    There USED to be an implicit deal. If the company made money, everyone made money.

    This meant that you could get a “good job” in a factory, or other non white collar enterprise. Everyone worked for the good of “the company”, from the floor sweeper to the CEO.

    Globalization killed this. The worker realized he was a chump in the game, no longer valued. The CEO realized he could outsource to (fill in the blank) and have a much easier time of regulation and taxation.

    I have no problem with a Union that was able to exact a fair wage (yes, when the money was huge, they were only getting their share). There appears to be a large group that thinks that since an autoworker lived better than a Mexican in a GM plant there, that they are somehow “bad” and must be “punished”. That sounds like true right wing claptrap.

    Sadly, now that the company is going down the tubes (sorry), the workers must give up some of the gains made in the fat years. Not because they are “bad”, but because of the real world.

    Really, the invective this has garnered is mostly jealous. Most “anti union” guys would sign on for that job and benefits in a heartbeat. (sorry)

  • avatar
    no_slushbox

    As I’ve said many times before, the real problem is not what the big-3 have to pay people to work, it is what they have to pay people not to work.

    Until Ford, GM and Chrysler can lay off unnecessary workers, either temporarily or permanently, without paying them their full earnings through Job Banks or buying them off with hundreds of thousands of dollars, the UAW will be one of the main reasons that the big-3 are not viable.

    Chrysler probably has no hope, but there are three, probably equal obstacles in the way of GM and Ford being viable.

    1) Billions in corporate debt that they cannot afford to pay off.

    2) Thousands of unnecessary dealers, many selling unnecessary brands, that they cannot afford to pay off.

    3) Tens of thousands of unnecessary workers that they cannot afford to pay off.

  • avatar
    Pch101

    the real problem is not what the big-3 have to pay people to work, it is what they have to pay people not to work.

    The arithmetic doesn’t support that point. It sounds nice to say that, and it’s understandably an aggravating aspect of this, but it isn’t a critical factor.

    The reason that there is a Jobs Bank in the first place is because GM is losing market share. The reason that GM is losing market share is because they are incredibly adept at making cars that people don’t want. Because they make cars that people don’t want, they have to sell them cheaply to get rid of them, and even that isn’t enough. Lather, rinse, repeat.

    Costs aren’t the issue; losing touch with the customer and creative ways to get the customer to willingly part with as much money as he would spend on a Toyota, Honda or BMW is.

    If you spend a dime to make a nickel, you’re going to lose money. Spending eight cents instead of a dime just makes you go broke more slowly.

  • avatar
    no_slushbox

    Pch101:

    You’re living in the past. The lost market share is a given, nothing can be done about it now. The key is what will make GM and Ford viable with their reduced market shares. One thing that is necessary for their future viability is laying off excess workers without paying out hundreds of thousands of dollars.

    GM and Ford finally have some competitive products, especially given lower gas prices. But they will never be viable unless they can erase their debt, get rid of a majority of their dealers, and lay off tens of thousands of workers.

    Right now, because they cannot do anything about the UAW, dealers and debt outside of bankruptcy, they are cutting costs in the only place left – engineering and development, making it certain that their future products will be substandard.

    And you are wrong about the Job Bank, it was not established to deal with declining market share (the original jobs bank agreement allowed for layoffs due to market loss). It was established to keep the domestic automakers from staying competitive by using increased automation and, when it made economic sense, foreign production.

    https://www.thetruthaboutcars.com/unraveling-the-uaw-job-bank/

  • avatar
    PeteMoran

    @Pch101:

    I think that the Chapter 11 option is unrealistic if your goal is their survival. Gettelfinger is right about this one point — Chapter 11 won’t stay 11 for long

    Not singling yourself out here, but this seems to be the single argument many of the players in the Bigish3 are using.

    I’m sure the point has been made before, but my employer has been looking at what the difference between “nearly bankrupt” and “in Chapter 11” means for the buyer. There’s nearly no significant researchable difference.

    If however, you add a third party consumer organization strongly backed with legislation and charged with oversight of warranty claims for a Ch11 automaker, the response actually improves pretty healthily.

    Consumers want certainty. Currently the situation is about as uncertain as it can get and they’re staying away regardless. My concern would be that a bailout “Bankruptcy-Lite” won’t be enough and the consumer won’t be considering that as secure either.

  • avatar
    oldyak

    This is all enlightening conversation but,until people can finance a new car..all these points are mute!
    I guarantee that the first automaker that can finance the ‘sub prime’ buyer will win!
    Until people fighting week to week paychecks can feel secure in buying a new car,80% of the auto market is going to die!!
    I realize that on this site,most of the readers are not in that category but it`s the real deal!
    A ‘less than 600 credit score’ and that’s probably 70% of the buyers,
    Want a good “new” car because they have spent more than enough time and $ keeping their old one running!
    Whatever combination of product/financing can get them in a car will win!
    And…
    That has historically been the ‘big three’

  • avatar
    Pch101

    they are cutting costs in the only place left – engineering and development, making it certain that their future products will be substandard.

    When General Motors was profitable and dominant, it brought the public such gems as the Vega and Citation.

    There is absolutely no evidence to support the belief that GM would dedicate any cost savings to better engineering. That is not part of their corporate DNA, and they have typically done the opposite of what you describe.

    The Sloan model for GM was built on the premise that branding, color choices, loud styling, gadgets and horsepower were more important to Americans than engineering or finesse. It was believed that Europeans cared about handling, subtlety and fuel economy, but Americans did not.

    That tradition of bigness continued long after it stopped being true. Being a gigantic company, they were too large and arrogant to see that it had stopped being true a long time ago, thanks to companies such as Mercedes, VW and Datsun giving more and more Americans a taste for other virtues.

    General Motors has no tradition of emphasizing engineering. One reason that GM has not built good small cars for Americans is because their heritage of size and gaudiness does not adapt well to small packages.

    When GM had profits, they pissed them away on other activities that lost them money: Saturn, Saab, Isuzu, and the rest. Every time they achieved a cost savings in one area, they squandered it somewhere else. A bad manager with an extra dime will find a way to use it so that he can lose another quarter.

    Do the math. Your theory doesn’t pencil. It may feel good to believe it, but it isn’t really the problem. If the Jobs Bank disappeared tomorrow, GM would still be toast. That doesn’t mean Jobs Bank is great for the company, but in the scheme of things, it just doesn’t make any difference.

    I’m sure the point has been made before, but my employer has been looking at what the difference between “nearly bankrupt” and “in Chapter 11″ means for the buyer. There’s nearly no significant researchable difference.

    That’s incorrect. The bankruptcy code allows for two basic options: Chapter 7 liquidation and Chapter 11 reorganization.

    A company can’t just file 11 and move on its merry way. The creditors, those who are owed money, have to approve the reorganization plan. If they don’t approve any of the plans, then the company has to either take itself out of bankruptcy or else go into Chapter 7.

    Right now, the planet is seeing its deepest credit crisis in the last seventy years. Many creditors who might have once approved an 11 plan when times were better might now be inclined to reject it, because they would rather take whatever money they can get ASAP than allow a DIP lender (or in this case, the federal government) to get in the way and take priority.

    Getting a prepackaged 11 would take the risk out of that, if you can get the creditors to agree to that. But given current market conditions, they may very well not.

    It is highly presumptuous to assume that the creditors will cooperate during times like these. More to the point, they will know that they have tremendous leverage, given the government’s involvement, and would probably find ways to raise the stakes because they have everything to gain.

    There are a lot of problems with 11 aside from these. That doesn’t mean a bailout isn’t also filled with pitfalls. But in any case, it would be useful to people who are reading this to understand that all of the options are pretty bad and all of them include considerable disadvantages. Now it is a matter of choosing the one that is the least offensive, with the understanding that none of them are good.

  • avatar
    PeteMoran

    @ Pch101

    You misunderstand, or I didn’t explain myself well.

    Our company’s research suggests, in response to claims that car consumers would not buy from a Ch11 automaker, that there is currently, nearly no difference to them being “nearly” bankrupt.

    So, for the car buyer standing in a GM showroom, the influences on their purchasing decision with “nearly Bankrupt” hanging around is just as bad.

    If, however, you were a car buyer standing in a Ch11 GM showroom (and I take your point that creditors need to approve that move), your likely purchasing decision can be brought back to about the same likelyhood as “nearly bankrupt” (right now) with the support of a further Government guarantee on warranty.

    I believe I’ve read commentary that GM creditors would accept a Ch11, because otherwise they’re gambling on a smaller return in Ch7. There certainly are no “assets” to get at for a distribution. They also have a trading entity with which to choose to continue business with. I’d take Ch11 over Ch7.

    Common stockholders are wiped out as I understand it however, but they don’t have a say in Ch11 acceptance?

  • avatar
    PeteMoran

    @ Pch101

    …branding, color choices, loud styling, gadgets and horsepower were more important…

    Case in point; GM Holden were directed to make the Commodore/G8 “more brash” and that was as recent as 2003/4.

    (Even though that car is more “European” in ability).

  • avatar
    Eric_Stepans

    It’s Official!

    The GOP-Senate opposition to the Detroit bailout is about union-busting.

    “This is the democrats first opportunity to payoff organized labor after the election. This is a precursor to card check and other items. Republicans should stand firm and take their first shot against organized labor, instead of taking their first blow from it.”

    From:

    http://thenewshole.msnbc.msn.com/archive/2008/12/12/1713569.aspx

  • avatar
    Chopper man

    Geotpf :
    December 12th, 2008 at 11:31 am

    Chopper man :
    December 12th, 2008 at 10:37 am

    In 2001 my buddies in Commercial felt the axe because of 9-11. There were no bailouts.

    False.

    Airline bailout criticized
    Libertarians: ‘It was a $15 billion mistake’

    Posted: September 27, 2001
    1:00 am Eastern

    They only bailed out the airlines butthe airlines still cancelled their orders and the manufacturers brought out the knife and slashed jobs! Perhaps I should have stressed there were no bailouts for the airplane manufacturers. We had massive layoffs which is the norm whenever my industry catches a cold. We’ll have them again soon when orders get cancelled. There are already rumblings in the aerospace press about this. My industry follows the market. If Mulally had his way at Ford he would slash jobs to preserve cash reserves, but the rules of engagement in the domestic auto industry prevent that. You can bet Toyota and Honda are sharpening their knives and will cut unnecessary jobs to survive. The Domestic auto manufacturers need to do the same. Ford has somewhat embarked on this type of house cleaning under Mulally’s watch. That’s why they are in better shape to survive the downturn. But they need to restructure their contracts to remain competitive.

    And the bailouts to the airlines are a whole seperate subject. Because of these bailouts the airlines are really messed up. Think what airline bailouts have accomplished the next time you fly. We should have let the badly managed airlines fail. Instead we encouraged the poison to fester. Now flying is a pain. Service is a joke and the customers have no recourse, as the bad airlines were allowed to continue, so the disease has infected the whole industry. Bailout the auto industry and nothing there will change either. Things will just get worse.

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