Car Talk
As loyal partisans of Spartakusbund, we have nothing in principle against government ownership of industry, nor against government subsidies to for-profit companies. Today's quandary: are the Big-3 auto companies for-profit companies?
I'm no auto aficionado. I've owned three cars in the past 20 years, so feel free to correct what follows. I know you will.
The problem cannot be that these companies operate in the U.S.A. Honda, Isuzu, BMW, Mercedes, Mazda, Mitsubishi, Nissan, Subaru, and Toyota are making cars in the U.S. that people are buying. And they're not buying them, by and large, because they are "green," because they are not. There is already a Federal program to help the U.S. auto companies transition to green cars, but this approach while well intentioned looks to be a day late and a dollar short. The companies need cash now to simply tread water, let alone develop and sell new models. And the president-elect has heard their voices and feels their pain.
Wages paid by foreign car corporations operating in the U.S., largely with non-unionized workforces, are said to be roughly comparable to American-owned firms. It should be understood that this is in part due to the competitive labor market pressure of union-supported wages and benefits in the other plants. Notwithstanding the above-average wages (compared to overall U.S. pay), the foreign companies are making cars that people are buying.
Another point to keep in mind is the bugaboo about the legacy of retiree health benefits. These benefits are burdensome but they do not affect the marginal cost of making new cars. Only insofar as the companies try to defray the legacy costs with new sales revenue, which of course they must do to get profitable, are the prices of new cars inflated. The legacy cost can be offloaded with a health insurance reform that provides insurance to all retired workers, auto included. The 1994 Hillary plan for all its deficiencies would have done that. U.S. manufacturing's competitiveness is hampered by other nations' more effective health care systems.
The bottom line is that U.S. workers and the plant and equipment with which they work can produce cars at a profit. The question is whether another 1980s-style bailout plus health care reform will be adequate. I don't know. Do you?
Alternatively, maybe we just need to gently usher the management and their lackeys into tumbrels and ride them away. The holders of equity and bonds get the maximum haircut. The Gov works out deals with foreign companies to buy up the plant and equipment, employ the workers, and negotiate with the unions.
The pending alternative, throwing a rope to a drowning man (and letting your end go) will quiet people down but may not look so great in a year or two. If the companies are doomed, that should be mercy-killed. Maybe not immediately, but before much money gets flushed.
As Rachel says, talk me down!
Bring on the tumbrels! Detroit's problems of their own making. For 35 years they have made consistently brain dead stupid decisions and have refused to adapt to changing conditions. The consequence is that they have consistently lost market share here over this period. The most egregious problem was making truly shitty cars that could not compete with their rivals for more than two decades, starting in the late 70s. Even though they are starting to catch up in quality, they still refuse to adapt to changing conditions, putting all their eggs in the SUV-full-sized truck basket. For a variety of reasons I think we should do something to save the jobs and manufacturing capacity here. Management, however, needs to go straight to the guillotines. Those who created the mess should in no way benefit from it and should bear a disproportionate share of the costs.
November 16, 2008 1:49 PM | Reply | Permalink
http://online.wsj.com/mdc/public/page/2_3022-autosales.html
If by "not buying" the Big Three's vehicles because they're "not green", you meant the top two selling vehicles in the USA just last month were big gas-guzzling Big Three vehicles. Even after the decades long slide, the Big Three are still pretty darn big. It will take another ten years or so of high gas prices to really finish them off. And with gas getting down below $2.00 per gallon soon, and this being the United States of Amnesia, I am not sure that "green" is gonna win unless we legislate in the true costs.
November 16, 2008 2:05 PM | Reply | Permalink
While it is popular (and has been for nigh on 40 years) to blame the autorworkers for Detroit's problems whenever they arise, the fact is, the difference between the US auto-making giants and their foreign competitors over tha tperiod of time is that the American companies are routinely and consistently mismanaged and not a little bit but in a very big way.
As you point out Rotwang, the wages and benefits of the workers of foreign companies here in the US are comparable, but even if they weren't it isn't as though members of the UAW set their own wages and benefits and dictate the management policies of GM and Ford. They don't. The wages and benefits of autoworkers have to be agreed to by management. Autoworkers have been "giving back" in terms of benefits for 25 years and fighting rear guard actions to preserve the benefits of retirees who earned the benefits they receive unlike the executives who clearly di not earn the inflated salaries and benefits they recieved over all those years. It is not the UAW retirees fault when management, in irresponsible fashion, spends the funds they agreed to set aside for such purposes or fails to set aside the funds to pay for the obligations they have agreed to.
In the past 10 years or so as Detroit was racking up spectacular profits for shareholders, producing ever larger gas guzzling SUV's, and killing the electric car out in California, they utterly failed to prepare for the future. Instead, they blithely continued their wasteful, shortsighted, blundering ways as though gas would forever remain cheap and abundant. This modus operandi is rampant throughout US business and industry: "maximize profits for this quarter and worry about the consequences of doing so later. What could go wrong?" This approach brought us Enron and no one in a position of responsibility did anything to curb it. This approach brought us Worldcom and many other spectacular failures of business up to and including the ongoing financial industry catastrophe that threatens the entire economic house of cards the captains of industry have built in the name of short term gain. It was very easy to see these disasters on the horizon, but no one in a position of responsibility did anything to stop the train wreck.
The foreign auto companies suffer milder forms of this same disease, but while they are infected, they have managed their disease better in that they have always kept an eye on the future and never let the disease progress to the life-threatening point as GM and Ford have done. Of course, we always hear the same excuses from those who bear responsibilty for these and other collosal failures of the past 10 years which are along the lines of "no one could have foreseen what happened". Sound familiar? The strangest thing about this is how rare it is for the people who are literally responsible for the catastrophes ever to pay a price in financial or legal terms. Our prisons should be brimming with ex-businessmen who caused all these disasters.
It's a shame to see the desire of so many liberals who have never seen a factory shop floor to punish the autoworkers for making a livable wage by advocating no help for the autoindustry when such a move would be economic suicide for the US, the executives responsible for the mess would suffer not at all and the ripple effect would cause the virtual collapse of our national economy. The auto industry is one of the last real industries in the nation and much of the reest of the economy depends upon the continued operation of it. The executives of these companies, however, who made the decisions and who engineered the disaster should indeed be punished if not prosecuted for malfeasance and for failing to carry out their fiduciary duty to shareholders. But is that under discussion anywhere? Not that I'm aware of.
Uncle Sam (aka: us) needs to step in and rescue Detroit because we really have no choice since the alternatives are far more expensive, but it should only do so on the basis that the financial industry bailout should have occured on (but didn't) and that is "we" being the taxpayers now own a share of the company proportionate to the aid we provide and we therefore get a voice in the future direction of the companies we assist and now will own shares in. That's a deal taxpayers can live with because it will literally pay dividends in the future and it is a position the government should adopt toward each and every industry we provide such aid to in the coming months. Yes, it's socialism and it's about friggin time too! We have provided the opportunity for the wealthy to make money out the ass for decades in return for responsible management and ongoing prosperity for the workers who make their wealth possible. They have utterly failed across the board, they have broken the social contract we, the people had with them and so in return for rescuing their greedy asses we want ownership: finally!
Public ownership is the right thing to do, it is equitable, and it will ensure decisions far more likely to benefit the comman man and woman of the United States than the bullshit we've seen the past 40 plus years from that failed class who didn't deserve the riches they rewarded themselves with in the first place. It is time for the little people to see some of the benefits of their labor and to get a real return on the taxes they pay. It is long overdue.
November 16, 2008 2:14 PM | Reply | Permalink
I don't know oleeb -- you want to put the same people running Social Security and Medicare in the ground in charge of autos too? Yikes.
November 16, 2008 2:34 PM | Reply | Permalink
Social Security and Medicare actually work pretty well.
November 16, 2008 4:03 PM | Reply | Permalink
Yes, if it wasn't for the fact they're going broke.
November 16, 2008 4:26 PM | Reply | Permalink
But they really aren't going broke--at least not anytime soon. And there's still plenty of time to make adjustments for projected future shortfalls. If the auto companies had been as proactive during the 1980s in adjusting their business model as congress was in shoring up Social Security, maybe the auto companies would still have some cushion to work with.
November 16, 2008 4:58 PM | Reply | Permalink
They most definitely are NOT going broke! Not even close. You've got the mainstream mantra down real good, but what you don't have is the facts on SS or Medicare.
November 17, 2008 1:34 AM | Reply | Permalink
I get my facts from the GAO -- a government office. Check their website. They clearly state that Social Security and Medicare will assume 100% of the Federal budget within 20 years. Where are you getting your facts?
November 17, 2008 1:17 PM | Reply | Permalink
A problem that will arise in 20 years if nobody does anything and the government doesn't fulfill it's promise of using the additional SS/Medicare funds most of us have paid since 1982 for the purpose collected is hardly, as you put it: "going broke."
That's simply untrue.
With very minor adjustments, the system can be easily fixed well in advance of the bogey man you cite 20 years from now. The GAO report and everything else coming out of Bush's government is essentially skewed propaganda provided to bolster his right wing wet dream of dismantling SS and medicare. The assumption behind all of it is that nothing will be done at all between now and then and that none of the additional tax paid by we boomers will be used for the purpose it was collected. That's a pretty poor assumption and one that necessarily misleads. The system is most certainly not "going broke" as you claimed.
November 17, 2008 5:09 PM | Reply | Permalink
Again, I ask -- where are you getting your facts? It is well known the Social Security "lock box" has been open for decades, and general revenue funded with Social Security funds. That means all the money you are counting on being in the fund -- ISN'T THERE!!!
If I'm wrong, you're going to have to come up with something besides an opinion and Bush bashing. The GAO has been saying this long before Bush took office, and so has the Federal Reserve.
November 17, 2008 10:28 PM | Reply | Permalink
Brook, you do understand how Social Security works don't you? SS taxes received in excess of benefits paid are, and always have been, loaned to the government for general use. Essentially, SS funds not used to pay benefits are invested in Treasury securities and become part of the national debt. They don't really increase the national debt, because if SS funds weren't available, the government would be borrowing the money from some other source (or raising taxes). As long as the government can pay its debt, SS is solvent. It is true that government spending is a problem and the national debt is growing too fast, but there are lots of ways to reduce that debt other than throwing SS overboard. Over the next 20 years we'll need to make choices about our spending priorities. While the right wing would like to make us think somehow that SS is unaffordable and must be abandoned, there are other things we could dispense with first if we choose.
November 18, 2008 7:22 AM | Reply | Permalink
In fairness, I should point out that it is possible for SS to be underfunded. This happens if the amount owed to SS by the government from past SS taxes and the current taxes raised for SS are not sufficient to pay the promised benefits. This can be prevented, however, by raising taxes or reducing benefits. We probably will have to do one or both of these over the next 20 years to ensure SS remains sufficiently funded. Again, though, it's a matter of choosing our spending priorities.
November 18, 2008 7:35 AM | Reply | Permalink
we are going to have to partially privatize and the sooner the better. Even Sweden partially privatized their nat'l pension fund in the 90's. Every country is facing the same demographic issue.
If you compare our SS plan with nat'l pension funds all over the world -- it comes in dead last. It's not designed for the 21st Century lifespan and has to be changed. However, I don't see anything happening. There is a growing consensus that Washington doesn't work anymore. There are too many people other than the voters with far too much power. As our fiscal position gets weaker, we will become like Rome that slowly dwindled away, because nobody believed in it anymore.
November 18, 2008 3:10 PM | Reply | Permalink
Brook I agree with you about Washington and the Rome analogy--though I have modest hope that Obama may change things. It's too early to know, of course, but he's showing promise, I think. We need a transformative leader--someone like a Lincoln or an FDR--who can pull us out of our very deep rut.
As far as privatizing Social Security, I'm not sure that's the answer. One of the traditional strengths of our retirement system is its diversity. Traditional company-funded defined benefit pensions, private accounts like those permitted under Section 401(k) of the IRC, and Social Security provided what actuaries used to call a "three-legged stool" of retirement security. Each of those plans was funded in a very different way, protecting people against the possible collapse of any one of the plans. Now, most companies have abandoned traditional pensions, leaving employees only with individual 401(k) accounts. If SS went the same way, people would have a "one-legged stool"--with all their money invested in individual accounts. This is far more risky and presents significant social problems in periods of prolonged market dips (like now, possibly). It's off topic, so I'm not going to get too deep in the weeds here about retirement security, but if you're interested in a fuller discussion, I'd be glad to start a different thread in my blog.
November 19, 2008 6:46 AM | Reply | Permalink
I could not agree more. I have no issue with a reasonably regulated, fair market, capitalist system, but such a system is not incompatible with publicly (or worker) owned enterprises. Industries that are critical to national security (both physically and economically) should be the ones that are of primary concern. If a business fails due to the mis-management of its executive leadership then its assets are sold and the government becomes the buyer. Profits become the public's money.
Doesn't seem all that difficult.
November 16, 2008 3:08 PM | Reply | Permalink
Great comment! All I would add is that it would do a lot of good if the big 3 auto makers were forced into bankruptcy court. Then the referee could force the current management to depart, minus any severance pay of any kind, and minus any stock options of any value. Nothing would help those corporations more. I include as "current management" the complete boards of directors of those corporations. There is where the real misfeasance lies.
November 16, 2008 5:15 PM | Reply | Permalink
A neighbor that was a factory manager for GE knew some folks at GM. He remembered a guy who was chief engineer for rear brakes. Asked how he worked with the front-brake department, the engineer looked mystified and said he didn't.
November 16, 2008 2:20 PM | Reply | Permalink
Health care would not have helped the auto manufacturers at all. They keep all their retired workers off Medicare. Go figure.
These companies can't come back now without selling off big chunks. They're going to lose 1000 dealerships next year. How do you turn around without a sales force pushing your product? The damage done to consumer sentiment is a downward spiral. Does anyone want to buy a GM car not knowing if they'll be in business 12 months from now?
We should all become more aware of how serious this crisis is, folks. The auto companies are the canary in the coal mine. 2009 is going to be the worst year we've ever seen, and our economy is in danger of collapse. This doesn't mean it will happen -- it means there is a chance.
All people who believe in prayer -- we need to be praying for our country very hard right now. We are in trouble.
November 16, 2008 2:32 PM | Reply | Permalink
As mentioned elsewhere, the airlines were in a similar pickle and reorganized under bankruptcy. The scare tactics of those declaring Armageddon for 10% of the entire American workforce are just that, scare tactics.
November 16, 2008 3:15 PM | Reply | Permalink
Airlines are in trouble again. UAL will not survive. We've never had the government burning through hundreds of billions a month to keep companies, citizens, states, and cities from going broke. There is a growing line with their hand out. Wake up!
November 16, 2008 4:29 PM | Reply | Permalink
The difference between the airlines and the auto industry is people will still buy tickets from an airline in trouble.
People don't buy cars from a company going under. They don't expect warranty's to be around, parts availability will not be high, etc.
I have to agree with Krugman, if you think the economy could take the hit of millions of workers being laid off, cut them loose.
November 17, 2008 11:55 AM | Reply | Permalink
Retiree health and pension benefits add $1700 to the cost of every vehicle?
Is this not material?
Everybody praises Toyota, yet they make some of the largest gas guzzlers around, dwarfing the sales of Prius. GM, for example, has probably 10 models getting exceptional mileage and a host of cars running on E85 fuel, but alas, the ethanol fuel industry is in collapse with one bankruptcy after another and no distribution of the product in the east.
If the public's and politician's ignorance about the auto industry was monetized, we'd be a rich nation.
November 16, 2008 4:06 PM | Reply | Permalink
Retiree health and pension benefits add $1700 to the cost of every vehicle?
Is this not material?
Probably not that significant, given that American cars are still typically cheaper than the cars of their more profitable foreign competitors. I think quality is the problem. People just don't like American cars as much as they like foreign cars and therefore aren't willing to pay as much for them. If the quality was high, the $1,700 extra charge (about 6% of the cost of an average car) would easily be absorbed by consumers.
November 16, 2008 4:24 PM | Reply | Permalink
I recently rented a Chevy Monte Carlo. This thing is smooth as silk on the road and got i estimated around 30 mpg driving 70 mph on the highway. We are making good cars that get good mileage, but the perception is otherwise.
November 16, 2008 4:25 PM | Reply | Permalink
We are making good cars that get good mileage, but the perception is otherwise.
One cannot imagine how that "mis" perception came to be.
November 16, 2008 7:12 PM | Reply | Permalink
Isn't this also a national security issue? Don't we have to be able to make some big stuff? What do you do with industrial engineers if you don't have any industry, export them to Japan? Oh, I know all our best and brightest can keep growing up to become investment bankers and dermatologists.
As to scare tactics, there are plenty of rust belt ghost towns already for anybody who wants a tour of what happens when industries shut down. And I find air travel plenty scary and it's not terrorists that scare me. What's the joke that if you want to get to heaven you have to change planes in Atlanta. Well, Delta just ate Northwest so you probably can't even get to hell without changing planes in Atlanta.
November 16, 2008 4:10 PM | Reply | Permalink
Rotwang claims that "people are buying" cars made by foreign owned auto companies. But is that claim true?
All the major car companies, domestic and foreign suffered sales declines of more than 25% in October. Toyota's sales were down 26%, better than Ford's 30% but that may be attributable to the car/truck sales mix. Even Mercedes Benz was down 35%.
Time to cease the America-bashing methinks.
Note: GM was down 45%, but that was a one time occurrence due to the company pulling all incentives in October. "We did not see this big a decline coming for October," Mike DiGiovanni, GM executive director of market analysis, said. Cynics might say GM was setting Congress up for the bailout it knew it would be asking for; I never would.
November 16, 2008 4:59 PM | Reply | Permalink
Granted October was industry-wide, and GM may have manipulated the exact figures, where does that leave us?
What are the balance sheets etc. of the other players? What is special about GM except that Detroit is a real hell-hole of a city these days (Tavis Smiley made a good point re Tom Brokaw)?
November 16, 2008 8:37 PM | Reply | Permalink
Regardless of the franchise issues US manufacturers have, or the burdensome legacy costs associated with each vehicle, or the defense that the tide is out and the entire industry is hurting, or the lackluster designs that seldom spark imagintion, bailing the industry out is not an option. The payrolls of 2 million depend on it, and by extension the tax revenues needed to provide stimulus, and the good faith the markets need to keep the stock from delisting. Chapter 11 would only be an option if the credit markets were not so impaired. As it is today, without cheap reliable credit, the suppliers will not survive a Chapter 11 haircut.
The other issues, enumerated above, but hardly a complete list of problems, are secondary to the big three making their payrolls and employer obligations. They'll need address soon enough. The target for today is a bridge loan. What's good for Germany and Japan will be good for America.
November 17, 2008 12:18 PM | Reply | Permalink
Obama hasn't done anything for the left yet. How about appointing Michael Moore to head up Transportation? At least he has the guts to face down auto executives.
November 16, 2008 5:04 PM | Reply | Permalink
Obama hasn't done anything for anyone yet....because he is not yet the President.
November 16, 2008 5:23 PM | Reply | Permalink
Obama hasn't done anything for the left yet
You need to read
this article. Just by saying that, it very much seems you are not going to like the Obama "program," it's not the way he is interested in operating.
November 17, 2008 12:37 PM | Reply | Permalink
Could the employees buy out the companies? Then they can adjust their personal income needs to match the survival and even the profitablity requirements of their company.
Screw the executives, it would be instant Karma. And the uniuons could help organize the buyout.
Seriously, with tens (hundreds?) of thousands of employees' jobs at stake, why can't they pool their collective experience and reesources and CREDIT and buy out the assets, then continue making cars, along with the green changes those executives seemed so wont to ignore.
Just food for thought.
November 16, 2008 5:09 PM | Reply | Permalink
Just like what happened at United Airlines in the 1990s? The employees just got stuck holding the bag when the company's stock plummeted . . .
November 16, 2008 5:18 PM | Reply | Permalink
But the buyout I'm suggesting would have the taxpayers to help, and ideally, all the stock would be bought up by the employees, so the shareholders would also be the wage earners, and there would be an immediate conection between their wages and their company surviving.
And no sleazy CEO's to pull an Enron, selling out their stake before the company collapses. If the employees owned the company, their executives would be hard pressed to boardroom-bully their way into golden parachutes.
Again, if you had the choice of unemployment and retraining, or taking a chance at buying out your own job and keeping it, where would you stand?
November 16, 2008 5:39 PM | Reply | Permalink
they'll be stuck holding the bag again. UAL will be sold or bankrupt by April.
November 17, 2008 1:26 PM | Reply | Permalink
Funny, isn't it, how management is all for employee ownership when companies are about to go bankrupt? I'd be all for employee ownership of healthy companies, but somehow the idea seems to gain currency only when companies are about to collapse. CEOs get their golden parachutes and employees get a pile of crap.
November 18, 2008 7:27 AM | Reply | Permalink
United Airlines employees fell for that scam several years ago. They bought the company, agreed to big pay and retirement cuts, and watched as the new management team was no more competent than the old one. Of course 9/11 and the disastrous, silly new regulations that followed had a huge role in doing in United, as well as most of the rest of that industry.
But, getting serious for a minute: Petroleum costs are bound to continue to rise as oil production declines or, at best, remains constant, but demand increases strongly. This has to drive air fares up drastically. There cannot be the same demand for air travel at the much higher fares as there has been during the past 30 years. In fact, air travel is likely to revert to a pastime for the wealthy in the near future. So, the airline industry we are familiar with is doomed no matter what anyone does.
The domestic auto manufacturing industry doesn't have to be doomed. But, if nothing is done to move that industry from oil dependency it will follow the airline industry.
November 16, 2008 5:24 PM | Reply | Permalink
Hey, Hoppy, how's Sacramento these days?
Your new mayor making any changes?
See response to Purple State above...
The United Airlines fiasco didn't have taxpayer bailout strings attached to it, which this would.
At the very least, if there IS a bailout, let the employees hire the new board of directors and executive officers. Then if they go belly-up, they have no one to blame but themselves. As it stands right now, considering the productivity explosion we've had in this country, you can't blame the employees for what their Wall Street faction has done.
November 16, 2008 5:51 PM | Reply | Permalink
Our new mayor hasn't taken office yet, so it is difficult to fault him too much. I do try though.
November 16, 2008 6:43 PM | Reply | Permalink
How about the oil companies bail out the auto industry, after the way they gouged the American People for the last 6 months, they can afford to.
November 16, 2008 5:16 PM | Reply | Permalink
As Suze Orman says: "People First, Then Money, Then Things." The fat cats aren't the only ones who are going to hurt from not getting any help. These companies, even the ones on Wall Street, employ people. People just like you and me. I think the automakers should get a bailout, but with restrictions. And from now on the government needs to make it very difficult and "uncomfortable" for any industry to ask for money. I know I am simplifying things compared to the long ass answers given by others but this is the way I see it. How eager would these companies be next time in asking for money if it requires going over their books with a fine tooth comb or how about bringing in the SEC? How eager would they be if they knew that the gov't would be standing over their shoulder approving/disapproving every penny that we gave them? We need to provide solid ideas about how to make sure this does not happen again and what oversight is needed with these bailouts.
November 16, 2008 5:36 PM | Reply | Permalink
I don't see this as doing anything at all. Companies that ask for bailouts are in such bad shape now, that it is either a bailout or going bankrupt, with little or no chance to recover. The one thing that has been avoided so far, and it shouldn't be, is making the executives of bailed out corporations become jobless. Boards of Directors have obviously failed at their jobs too or the corporation wouldn't be in such serious trouble, so they must also become jobless. We will see this implemented at about the same time the San Francisco Giants win a world series.
November 16, 2008 6:42 PM | Reply | Permalink
Well the way they'd do this in Europe (gasp!) is that the government would buy an equity stake in the companies in question, and in exchange the government would get representation on the board of directors, where it could use its ownership leverage to get rid of the incompetent management.
e.g. from France Telecom's info:
http://www.francetelecom.com/en_EN/finance/gm/080527gm/att00004544/Board_of_Directors.pdf
November 16, 2008 6:56 PM | Reply | Permalink
I'm in a mood to suggest something even crazier than usual. How about paying people not to work? Shut down production, and for the next few months, any GM employee (but not upper management) who wants to retrain, look for a job in a new field, or do a different job in certain fields, can get 75-95% of his or her salary to do it. Thinking of taking a computer class? Want to start your own "green" business? Excellent! Want to take care of those house projects and build a new deck? Fantastic! Missionary work in the Congo for a couple of months--ok, we'll consider it!
The point would be to keep people gainfully employed or at least materially occupied while we figure out what the hell to do with their bosses.
I suggest this only because it seems that we all understand that the big 3 and especially GM are dinosuar companies and the main reason to bail them out is to keep the employees in place and earning money. Oh dear, we say, what if those people lose their jobs?
Seems to me that if we pay the employees we have some breathing room in which to replace management and force the companies to rethink things. Not to mention that it solves the problem of high management salaries. No cars=no bonuses.
Feel free to pour criticism on this idea--I'm not that attached to it anyway.
November 16, 2008 6:46 PM | Reply | Permalink
Isn't that just a glorified unemployment insurance notion?
I think that any bailout for Detroit should have major strings attached at all levels. It should happen at rock bottom price (to the taxpayer) with maximized returns in short and medium turn and minimized risk. Let GM go almost over the brink, then when it's almost free but still functioning, buy in.
I also think Tavis Smiley raised a good point about larger social issues in and around Detroit.
November 16, 2008 9:01 PM | Reply | Permalink
Retrain for what exactly?
The auto industry is the lynchpin of the US economy. If it fails, the rest of the economy comes tumbling down.
November 17, 2008 1:41 AM | Reply | Permalink
Oh I don't know--some kind of green job thingy.
As eds pointed out, this idea is pretty much an unemployment insurance program. My point was that there's not much benefit in continuing to flood the market with product nobody wants just to keep people employed. Some sort of job holiday would provide an opportunity for the manufacturers to reorganize without the panic or stigma of an actual layoff.
November 17, 2008 3:01 PM | Reply | Permalink
I suspect the auto companies are pulling their version of the sub prime scam.
The car companies wanted to to sell the public the high profit gas guzzling SUVs, large vans and trucks rather than the cheaper cars with better mileage and less maintenance costs, but wages for most of the public were stagnating making purchase of these behemoths impossible.
The actuaries put together a leasing plan for Joe Six Pack and good old Joe bit, so now he feels he can afford to ride around in a Ford Excursion, Lincoln Navigator, Hummer, or 6 wheel pick up that he really can't afford. Trouble is, at the end of the lease Joe has nothing to show for all those payments and he must then pay for those excess miles he's driven, plus a few hundred more to detail the car, plus whatever else is in the fine print of the lease.
'Hey Joe, let me show you how we can put you behind the wheel of a Cadillac Escalante, you sure would look grand tooling down the highway in that baby.'
November 16, 2008 7:11 PM | Reply | Permalink
By posting here, I demonstrate that I have joined the crowd that hasn't a clue. So, pay no attention to what I say.
America has worshiped the autoworker as the sum total of the industrial base for 60 years, maybe longer. I am not sure why. As far as I can tell, the auto industry has never represented more than a relatively small portion of our entire industrial base. GM was once America's largest corporation, but to achieve that it had diversified far beyond autos. And still, largest meant what? 1%? Less?
Americans should treat the auto industry the way they would treat the farming of corn. Certainly worthwhile, but not the heart and soul of the country. The disappearance of the big 3 auto corps or at least one of them would not be unfortunate, but not a disaster.
What is a disaster is the unnecessary linkage of the employee's health care to the employer's survival. It is now time to shift the cost not merely the cost of retirees to the public, but *everyone* to the public. Slim down the corporate costs not just of the auto industry, but every industry and undo the expense bias that favors the small company that choses to ignore the wellbeing of its employees.
We can pay for this, we are already paying for it, but we call it insurance premiums. Government managed health finance charges a smaller management cost than for profit insurance, about 1/3 and that would be more than enough to cover the needs of the uninsured.
Making this change now may be too late for GM, but it should be the top priority for the public during this economic crisis.
November 16, 2008 8:02 PM | Reply | Permalink
As I posted in my blog of last weekend, executives for the Big Three have already testified about the business benefits of national health insurance -- in Canada.
I quote:
November 16, 2008 8:27 PM | Reply | Permalink
Curious how "competition" doesn't seem to drive costs down, when it comes to health care.
November 16, 2008 9:04 PM | Reply | Permalink
What are they "competing" over, precisely? The way you make the most money in health insurance is by insuring people who will never get sick or need any routine care of any kind. Every doctor visit is lost profits.
Health care doesn't work like purchasing peanut butter. That's one of the nutty ideas of the Austrian school type fruitcakes, that every square peg fits into this single round hole of "the market". As an insurer, I cannot make the price of chemotherapy go down by providing you 42-ounce plastic bladder buster sized cups with Spiderman III scenes on them. I cannot make you want more kidney transplants by sponsoring tee-vee commercials during the Super Bowl featuring Swedish models in bikinis. You don't go comparison shopping for a treatment for hepatoma based on who has the biggest President's Day Sale. You likely won't get a second chance to make a "more-informed" "consumer choice" if you happen to be one of the unfortunates who gets pancreatic cancer. It should be self-evident that the same forces of human behavior that control which Ipod you pick or which GI Joe with Kung Fu grip you get for your kids do not necessarily apply to how you're going to feel when the doctor comes back with your biopsy results. And we should stop pretending otherwise.
November 16, 2008 10:41 PM | Reply | Permalink
Most of that didn't make sense to me, but the notion of "competition" keeping prices low is not antithetical to service industries in general, and health care is a service industry, insurance or not.
November 17, 2008 1:08 AM | Reply | Permalink
In the health industries, insurance companies are an overhead item. They add no value. If you want competition, increase the supply of providers, not the supply of people bleeding the system.
November 17, 2008 10:52 AM | Reply | Permalink
As I posted in my blog of last weekend, executives for the Big Three have already testified about the business benefits of national health insurance -- in Canada.
Perhaps they are sincere that it is beneficial, or perhaps they jsut think it will be beneficial for them to have Uncle Sam pick up the tab for their obligations.
November 16, 2008 9:41 PM | Reply | Permalink
They have to be sincere about the benefits because they didn't in fact submit any testimony on behalf of National Health Insurance in the United States, and their executives here don't generally do much for achieving that.
November 16, 2008 10:31 PM | Reply | Permalink
I have never been a promoter of large corporations, but it is foolish to think that corporations have a health financing obligation. Health financing is a public good and should be paid for by the public. When employees find they have no job mobility because they are locked into their health insurance plan, that isn't a corporation problem, it is a human problem. When people who have contributed 30 years and would like to take their last 10 years of employment as their own creative endeavor, but cannot due to the constraints of health insurance, they lose, their employers lose (because they have disaffected employees), and America loses. We have a screwed up model for health financing. This crisis is the perfect opportunity for changing it.
November 17, 2008 12:09 AM | Reply | Permalink
the Detroit car companies have been plagued for years with crappy leadership and greedy unions, the combination of which resulted in crappy cars that nobody wanted to buy. they've had since at least the Carter years to fix these problems, and they haven't.
however...speaking as someone who lives in southeast Michigan--which has been in a recession for about a year now--if the car companies were to go out of business it would be the death of my state.
it's not only the autoworkers themselves who are affected. shutting down the Big Three would have a tragic impact on the restaurants who serve them food, the realtors who sell them houses, the grocery stores and barbershops and video stores who employ the rest of the population.
that being said, tho, I would strongly support any plan that would include a nice tumbrel ride for the top management of GM and the German overlords at Daimler/Chrysler...and especially for Alan Mullaly, the clown who "runs" Ford. he got a $10 million bonus last year. for what?
November 16, 2008 8:18 PM | Reply | Permalink
Gretz, Daimler no longer owns Chrysler and hasn't for years.
I've long felt that there was a disconnect between "white collar" (whether in education, law, government or whatever) and blue collar progressives, but some of the discussion here is astounding.
First, the people hurt by a collapse of the auto industry will not be the top management who will either get other jobs or will have enough saved to retirement, but instead will be the hundreds of thousands/millions of middle class people whose fortunes are tied to this industry. Most of these folks supported Obama and other progressive politicians believing that a Democratic leadership would look out for their interests. If the big 3 go under a huge number of these people will fall into the working poor (or unemployed poor) category. In addition, the UAW which is historically one of America's most progressive unions (the first to support civil rights) would be gone, and one more nail would be put into the union movements coffin.
Second, the idea that we can just extend unemployment benefits and provide training and all will be well is absurd. I know people with college degrees and 15 years in IT struggling to find jobs. Are we really going to give 45 year old auto workers a 6-12 computer course, and assume that a job will be waiting for them at the end?
Finally, the idea that the big 3 have made mistakes and therefore they deserve their fate is overstated. They had already (before this crisis) begun putting huge investments into hybrid and fuel-free technology. While I would agree that Honda and Toyota have the best quality overall, objective sources (Consumer Report etc.) agree that Ford and GM easily beat the Nissan as well as the German and Korean carmakers in quality, and no one is suggesting that they die.
November 16, 2008 9:14 PM | Reply | Permalink
gretz,
unless you get the sharks out of the board rooms and out of Wall Street, and by sharks I mean the Gordon Geckos of the world, we won't fix a goddamned thing. The only way I know of is to try to find a way to put a lid or some kind of restrictions on the compensation they grab. Right now the sky is the limit for them, look at Lee Raymond and his $440 million golden parachute after making tens of millions running EXXON, or the hedge fund managers who appeared before Congress last week where it was made known, unless I misunderstood the Chairman's comment, they each made a Billion last year. Others grab tens to hundreds of millions a year, and in some cases they do this when the company is losing money.
These snakes will make business decisions that are good for them personally but horrid for the rest of the company or this Nation and that is what you have to try to stop.
November 16, 2008 9:43 PM | Reply | Permalink
There is an idea, let GM sell itself to Toyota et al at fire sale prices. Somehow I don't think that would work well.
Federal investment should be limited to that which gives national benefits at cheap costs.
November 16, 2008 9:15 PM | Reply | Permalink
Isn't that the logical next step. GM with 22% market share pf the domestic auto market sells to Toyota. Politicians will scream about anti-trust. What will they do?
Frankly, after watching the oil price spike, the financial crisis et al, they (Senators and Congress)are all morons.Well, I should say mostly. Sure they're intelligent, but they know little of which they speak or regulate!
November 17, 2008 7:47 AM | Reply | Permalink
The big three have been reinventing themselves for the past decade. They are still at it. The problem is that they haven't gotten to the point where this is reflected in their new product lines yet.
In the meantime they are caught in a cash flow problem caused by the slowdown in car sales and the sudden sharp rise in the cost of oil.
What they are asking for is to be given enough working capital so that they can ride through this downturn while continuing to work on their new plans. This is the same thing the banks asked for, except that they are not rebuilding their plants, just covering bets gone bad.
Those who want to bash the auto companies for past performance or who resent the fact that auto workers were making a good living are just being spiteful. This won't do anything to solve the problems that are now before the nation.
Doesn't it seem odd that AIG gets $150 billion without a peep and everyone is getting into high dudgeon over a $25 billion loan?
Part of this dual standard is because those doling out the money come from the financial industry and they are helping their friends (and themselves in the case of Paulson's $100 million option portfolio). Another part can be seen in the new theme being floated that the UAW will have to take a big hit (again) if any funds are to be released.
I don't see any push by conservatives to demand that the rank and file employees of the financial firms take pay or benefit cuts. Focusing on a handful of topic executives is just a sideshow.
Notice that the government has been "bailing out" the aerospace industry (Lockheed and Boeing) for decades by giving them contracts for military equipment that was unneeded while they used the income stream as a bridge to develop new commercial products.
Apparently the big three and the UAW don't have powerful enough friends in Washington.
November 16, 2008 11:15 PM | Reply | Permalink
"Doesn't it seem odd that AIG gets $150 billion without a peep and everyone is getting into high dudgeon over a $25 billion loan?"
Not without a peep. And it's yet-another-loan, Detroit already got one deal. But hey, if money is cheap, let's borrow some so we can lend it to GM et al, only with excellent terms in our favor.
November 17, 2008 1:14 AM | Reply | Permalink
The narrative on this problem really does seem to be shaping up to national security and national protectionism of a vital industry....see today's New York Times for If Detroit Falls, Foreign Makers Could Be Buffer and General Wesley Clark's Sunday op-ed. Looks to me like that may be the main theme you're going to be hearing in Congress this week, including where to draw the line at metaphorical and real "outsourcing."
November 17, 2008 10:34 AM | Reply | Permalink
Rotwang writes: "Wages paid by foreign car corporations operating in the U.S., largely with non-unionized workforces, are said to be roughly comparable to American-owned firms."
For what it's worth Samuelson today says that Toyota was paying its folks $47 an hour...wages and benefits...compared to $71 for GM. Not sure how accurate this is, but, if true, this is more than a third more.
November 17, 2008 12:18 PM | Reply | Permalink
Eventually you'll see the break up of the UAW, another victim of Reagonomics and Bush anti unionism.
November 17, 2008 1:28 PM | Reply | Permalink
Uh, conservatives don't have to agitate for the rank and file at the financial firms to take a pay cut; the top execs will do it themselves to preserve their salaries and perks. See for examplethe 75K in layoffs just announced at Citicorp.
November 17, 2008 1:49 PM | Reply | Permalink