The Coming Auto Bailout

[KendallJ]

The union benefits overall seem particularly insane (not only healthcare). I herd that they were required to pay something like 90% of the salary to their laid off employees for two years.

Yup, and a very nice retiree healthcare plan. The benefits these guys get would shock most poeple.

http://mjperry.blogspot.com/2008/11/bailou...-socialism.html

[gags]

aren't these US auto makers required by law to use union labor?

That is true in the sense that various laws require the auto makers to negotiate in good faith with their unions. In practice, this puts a gun to the heads of the auto companies. Nevertheless, at some point in the past management needed to put its foot down and refuse to sign these ridiculous labor agreements.

The union benefits overall seem particularly insane (not only healthcare). I herd that they were required to pay something like 90% of the salary to their laid off employees for two years.

What you're talking about is the infamous "UAW Jobs Bank" where employees that are laid off still get much of their regular pay. Of course, this is funded by the auto companies themselves under their existing labor agreements. It's an economically unsustainable arrangement.

[IchorFigure]

Liriodendron just wrote a blog post here concerning GM requesting political action on their behalf. This seems totally obscene to me. I hope they actually do go bankrupt now after shilling shameless pandering like this.

Edited November 19, 2008 by IchorFigure

[EC]

Yup, and a very nice retiree healthcare plan. The benefits these guys get would shock most poeple.

http://mjperry.blogspot.com/2008/11/bailou...-socialism.html

Unless, of course, you come from a family with retired auto workers. If one see's the disagreements that I can get into with other Objectivists and Capitalists, imagine what a family get together can turn into with people who explicitly disagree with me and lived a lifetime actively pursuing everything I hate and know to be destroying the country can turn into.

[Mammon]

They actually might not get it.

So far, it appears unlikely the current Congress will let the industry borrow $25 billion under the bailout program. While many Democrats support the move, most Republicans and some Democrats are against it.

Rather than grant $25 billion in new loans from the bailout, the Bush administration wants to modify $25 billion in loans originally targeted for automakers to use to make more fuel-efficient vehicles.

Some think the White House proposal stands a better chance of passing Congress.

"I think the proposal that the administration has made - to basically change the qualifications of the money that we have already appropriated - is a sound way to go forward," Senate Minority Leader Mitch McConnell, R-Ky., said Tuesday.

A friend of mine said something really interesting about it, "Somewhere deep inside some lab at GM their is a Galt working on something amazing and GM f*cked it all up."

For the record I don't support this loan-program. I think blame is too go all around for this: the regulations, the unions, the Fed, the American consumer, the the management of the company.

They need to innovate their management as much as they need to innovate their products and their operations. A 21st century company can't operate like this. Nimble, reactive and adaptive is the way to go.

Edited November 19, 2008 by Capitalism Forever

[softwareNerd]

I think blame is too go all around for this: the regulations, the unions, the Fed, the American consumer, the the management of the company.

Yes, like most such situations in a mixed-economy, there's a lot of blame to go around. The primary blame has to lie with union/protectionist philosophy.

Imagine if Honeywell, Wang and Burroughs were all based in Silicon Valley, and dominated the computer industry. Imagine that some little companies like Dell, HP and Microsoft started to challenge them with growing success. Now, imagine that the employees working in those large Silicon Valley firms unionized, posting signs around their clubs saying "Dell/HP/Microsoft -- keep out". Imagine that they unionized and demanded huge retirement benefits from management. Such retirement benefits would be based on the false assumption that these past giants would continue to grow and dominate, generating increasing funds to support retirees.

Without the philosophy that drives unions and protectionism, the new Japanese companies would have been seen as the stars they are. After the 70's clarified the changing competitive scenario, it is likely that a non-unionized Detroit workforce would have voted with their feet, and started to join the winners, first slowly, and then in droves. Without the unionism and protectionism, at least some of the Jap companies would have found it more economical to establish themselves in the Detroit/Ohio area, with the good availability of experienced auto-workers. The slack from the dying US auto firms would have been picked up by the new kids on the block.

The primary blame lies with the ideas around unionism and protectionism, and the short-term viewpoint their promote.

[KendallJ]

Unless, of course, you come from a family with retired auto workers. If one see's the disagreements that I can get into with other Objectivists and Capitalists, imagine what a family get together can turn into with people who explicitly disagree with me and lived a lifetime actively pursuing everything I hate and know to be destroying the country can turn into.

Yikes! I know the mentality, but luckily I never had to live with it.

[gags]

Virtually everyone here in Detroit is whining about the bailout. Even the morning news hosts are telling people to call or write their senators and congressmen to urge the government to give the industry a handout. Now that the government has started down this road of bailing out private firms, it's a tough cycle to break and I wonder who will be next. After Christmas, the big retailers will probably be hurting....

[KendallJ]

I wonder who will be next. After Christmas, the big retailers will probably be hurting....

You know the airlines never get a break. Maybe it's their turn.

[K-Mac]

Yikes! I know the mentality, but luckily I never had to live with it.

My ex was raised in Indiana and he recalls back in the 70s (or whenever it was that the UAW was on strike), that his neighbor's house was shot at on several occasions because he was working through the strike. The poor guy's wife had breast cancer and was going through treatment, so he could not afford to strike even though he wanted to. Makes me wonder what these union jerks will do when their companies go bankrupt and have to restructure without them. (Which sounds like a wonderful idea to me!)

[Steve D'Ippolito]

Let 'em choke.

I drive Acuras (and a big gashog of a GMC pickup). Occasionally I rent a car for various reasons; it's generally a GM, butt ugly and full of gimmicks that make them a trial (don't get me started on keyless entry and the car that locked me out during an historic Boston blizzard). Which is bad enough but I once rented a Cobalt that, at 22,000 miles, already had a hole in the muffler.

Whether or not it's the unions or management or the two working in some sort of synergy that causes this nonsense is--in the end--irrelevant. The product is crap, and the purveyors of such deserve bankruptcy and unemployment. Back to square one. Maybe management can pull its collective heads out of their collective ass and figure out how to build cars.

[softwareNerd]

Mitt Romney has a pretty decent editorial about this in the New York Times (Nov 18).

[K-Mac]

Let 'em choke.

I agree. If they file for bankruptcy, they can restructure their gawd-awful labor contracts (or get rid of them altogether.)

Mitt Romney has a pretty decent editorial about this in the New York Times (Nov 18).

This article has some of the fixes right. Although some of the things he says makes me want to puke.

It is not wrong to ask for government help, but...

Ugh!

Occasionally I rent a car for various reasons; it's generally a GM...

...The product is crap...

I disagree for the most part. Granted, there are cheap cars, such as the Cobalt...and, well, you get what you pay for.

In my experience, rental cars suck because people abuse them and do not drive them as carefully as their own property, regardless of what brand I've rented.

My last three vehicles have been Ford products, a Mazda B Series pickup which I absolutely loved (same thing as a Ford Ranger, which my brother and best friend had similar and long-lasting experiences with) and two Explorers. The first Explorer was a lemon (the undercarriage had been damaged during transport, so it had nothing to do with the quality of the vehicle off the assembly line, and a settlement was reached.) My second Explorer has given me virtually no problems and has nearly 80K miles on it on 3.5 years. The interior and exterior look great, it runs good, averages about 20mpg, handles wonderfully (I can bust out a u-turn on the first try in any downtown street) and it has a very smooth, quiet ride.

In addition, customer surveys indicate that people are just as satisfied with their American cars as with foreign cars. Further research indicates that American cars are in the shop no more or less than foreign cars. (My brother works at a Ford dealership, so he's always correcting everyone on this information.)

The problem with American car companies, is their labor. The unions and all the benefits they and the retirees demand are what's killing them.

EDIT: And one more thing I noticed on the way home last night...as I looked around, there were American cars everywhere. Most of them were newer too. (People taking advantage of zero percent financing the past several years, no doubt.) If these car companies can't survive on all these cars that everyone has bought from them, to hell with them! They're doing something wrong, and it has nothing to do with the quality of the vehicles or there wouldn't be so many on the road.

Edited November 19, 2008 by K-Mac

[Steve D'Ippolito]

EDIT: And one more thing I noticed on the way home last night...as I looked around, there were American cars everywhere. Most of them were newer too. (People taking advantage of zero percent financing the past several years, no doubt.) If these car companies can't survive on all these cars that everyone has bought from them, to hell with them! They're doing something wrong, and it has nothing to do with the quality of the vehicles or there wouldn't be so many on the road.

Actually the fact that the American cars are all new could be an indication that the slightly older ones are already in a junkyard. (A historic example: I remember noticing in the late 70s that there were more mid-60s cars on the road than early 70s cars.) Although the American manufacturers have made great strides in producing better quality cars, it's going to be hard to convince someone (i.e., me) whose Integra has over 360,000 miles on it, original engine, that American car quality is comparable to those from Honda and Toyota.

But your other point is true: they are certainly popular enough. And your other other point, that they should be able to survive given all these sales, is also true.

[Mammon]

The slack from the dying US auto firms

Something stroke me about this, because it's obvious they've been on their death beds for awhile and scores of people knew this was going to happen. Even if they get the loan, they probably won't be able to pay it back because they will be in the same place in 6 months to a year and although Congress has it flaws I doubt they will give them a second chance.

Their going to die either way and anyone with a half a brain knew this was inevitable.

[K-Mac]

Although the American manufacturers have made great strides in producing better quality cars, it's going to be hard to convince someone (i.e., me) whose Integra has over 360,000 miles on it, original engine, that American car quality is comparable to those from Honda and Toyota.

But your Integra was what, 15 years (or more??) old. Back then, I would've agreed that American cars still had a way to go to compete with foreign auto makers. They've come a long way the past decade or two. So have health care costs.

[adrock3215]

I sent a short message to the following politicians that represent me:

Representative Hoyer

Senator Cardin

Senator Mikulski

President Bush

Who knows if they even read it, but it took me a minute to write, and it's really similar to the one I sent about the TARP bill:

I oppose any loan to the auto industry in any form on any terms.

Saving the auto industry is rewarding failure.

In a capitalist society, companies that produce inferior products and do

not innovate should be left free to fail because of their own short-term outlook.

We must stop unjustifiable government involvement in the economy now.

Edited November 19, 2008 by adrock3215

[gags]

Their going to die either way and anyone with a half a brain knew this was inevitable.

The Detroit 3 automakers have been restructuring and coming up with plans to fix their operations for as long as I can remember. This has been going on for at least the last 30 years, maybe longer. I distinctly remember sitting in a meeting of Detroit area investment advisors about 20 years ago and almost to a man they said that they would never put their client's money into the stock of a company in the auto industry. So you are right Mammon, most observers saw this coming for years.

As far as the quality of their products is concerned, both Ford and GM make some very nice new vehicles. Unfortunately, a lot of people have had bad experiences with US made vehicles in the past and that has tainted their image in the market.

[IchorFigure]

Can anyone help me to understand why bailing them out is apparently so unpopular among politicians? Is it just their lame-duck status renders them indifferent? It's just rather surprising given the recent bailout orgy, and also because the auto industry is supposed to be a key poster child of the left's new energy plan. I would expect them to keep them at all costs so we can all drive around our 0 emission magic powered cars by 2012.

[Mammon]

They cancelled the vote on it.

[softwareNerd]

They cancelled the vote on it.

Great news; something I did not expect. If the companies don't declare bankruptcy within the next few months, the changed number in the Senate might allow this to go through. The companies claim they cannot afford to wait until then.

[gags]

I'm willing to bet that this will be back very shortly. There is no way the Dems are going to make their union friends take pay and benefit cuts. They owe them for their loyalty in the last election. It's interesting that the Democrats must be the ones stopping this. Bush has said he'd sign a loan bill and the Republicans don't control either house of Congress, so apparently Herr Reid and Madame Pelosi can't get their stormtroopers to fall in line.

By the way, did anyone see the spectacle yesterday of the 3 Auto CEOs being questioned by these slimy politicians? As much as I think the 3 CEOs are pathetic for going to the government hats in hand, it was stomach churning to watch some of the biggest hypocrits on the planet ask the auto boys if they'd take $1 per year of salary and if they were willing to sell their private planes. Too bad that not one of the three stooges had the balls to stand up and tell the congressmen to take a friggin hike and shove the bailout up their asses. If that had happened, I'm sure US auto sales would have doubled overnight!

[softwareNerd]

..., it was stomach churning to watch some of the biggest hypocrits on the planet ask the auto boys if they'd take $1 per year of salary and if they were willing to sell their private planes.

It is quite sickening that we raise these weasels to positions of power. Shame on the American voter!

In the part of the hearing I saw, nobody asked the UAW head how much of a pay cut his members are willing to take, to induce the government to make this loan.

Keeping wage rates artificially high was one of the major causes of that prolonged the depression of the 1930's, and yet people have not learnt the lesson.

Still, I doubt a wage-cut alone can fix these companies, because they also have contractual commitments to retirees and to dealers. If these companies have any chance at all, then only bankruptcy can put these companies back on a strong footing.

GM is like a patient in intensive care, with three tubes siphoning away its life-blood: high current wages, retiree health-care commitments, and their dealer-network. Now, they want the government to stick an intravenous tube in them, and give them some more life-fluid. Of course it'll work in the short term. Of course it will allow buy the patient time. However, what good is that time if nothing is done about the three outflows? And -- height of ridiculousness -- some legislators want to stick in a fourth outflow tube in the form of enviro-crap.

And, how can those three outflows be stopped? They're all based in contractual obligations. In theory, the Union pay might be open to rollback as a condition of a bailout, but I don't know the legalities of that. What about the other two? The solution is: GM must break its contracts. The only legal way that can happen is to declare bankruptcy.

People too often think that "going bankrupt" means closing down shop. Rather, it is a legal process by which the company can abrogate its past contracts.

[brian0918]

I'm willing to bet that this will be back very shortly.

Well, that didn't take long. Get this: they would like to take the money from a previous auto industry fund devoted to high-efficiency cars, and use it to build their standard less efficient cars, with the promise of someday paying back the original fund. So they're going to fix one bailout with another.

Edited November 20, 2008 by brian0918

[gags]

Now the politicians are asking the auto companies for a "plan" that shows how they're going to become viable again.

http://www.cfo.com/article.cfm/12665039?f=alerts

Aren't these the same guys who gave away $700 billion of the taxpayers' wealth to Paulson without anything more than a slight hint at what he was going to do with the money?