If G.M. Were a Canadian Company It Wouldn't Be Asking for Help
The Detroit automakers have made many mistaken business decisions that have been important factors contributing to their current crisis. However, they are not responsible for some of the factors that have brought them to the brink of bankruptcy.
Most obviously, they are not responsible for the collapse of the housing bubble and the subsequent loss of more than $15 trillion in housing and stock wealth. This falloff in wealth has sent consumption plummeting. The auto industry has been especially hard hit, with sales falling by more than 30 percent year over year in the last two months.
The Big Three are also not responsible for the broken U.S. health care system. If we paid the same amount for health care as Canada, G.M. would have accumulated an additional $22 billion in profits over the last decade.
That would be the savings if we assumed that General Motor's health care expenditures were reduced by roughly 48 percent to be in line with expenses in Canada. Of course, not all the savings in this counterfactual would have gone to profits. Some of it would have gone to workers in the form of higher wages or to consumers in the form of lower car prices.
On the other hand, G.M. is also picking up the tab for many spouses and dependent children. It would not have to pay these health care expenses in a Canadian type system. So the $22 billion figure is probably not a bad first approximation of the additional money that G.M. might have today if the United States had a more efficient health care system.
Even with these additional profits G.M. and the other domestic manufacturers would still face serious problems. They have made some bad choices in betting their future on SUVs and other low-mileage vehicles. They also have lagged foreign manufacturers in producing high quality, reliable cars.
But the real reason that Big Three are on their deathbeds right now is the economic crisis created by the Wall Street crew and their friends in Washington. It will be tragic if the people of the Michigan, Indiana, and Ohio are made to suffer through a depression because of the failed financial dealings of the Wall Street crew.
This situation is made even worse by virtue of the fact that most of the Wall Street executives who are directly responsible for this disaster are still quite wealthy, in large part because of the generosity of Congress and the Bush administration. While they demanded that the auto manufacturers produce plans for returning to profitability in exchange for providing loans, no similar conditions were imposed on Citigroup and the rest of the Wall Street gang.
As the autoworkers at the Big Three look at their last paychecks before an indeterminate period of unemployment, they should think about the portion deducted for income taxes. With this money, they have helped to ensure that Robert Rubin and other Wall Street types continue to enjoy pay packages in the millions or even tens of millions of dollars.
Happy Holidays!
Dean: FYI, the Big Three HAVE asked the feds in Ottawa and the province of Ontario for around $6bn (US) in loans and loan guarantees.
December 11, 2008 5:05 PM | Reply | Permalink
Do we know why Congressional Dems were negotiating with the White House instead of Congressional republicans? Bush's treatment during the general election campaign should have been a clue that he was a pariah in repub politics for the foreseeable future and would not have the power to push the bailout.
December 11, 2008 6:04 PM | Reply | Permalink
There is no doubt that Detroit is being made the whipping boy for Wall Street and for the largesse of the Bush administration and of congress.
Wall Street rolled the dice on a high risk investment strategy and auto company management stuck with their high margin vehicles. Both strategies were about the easy road to profits with both being characterized by tunnel vision. Wall Street knew the dangers of having all their eggs in one basket, housing, just as Detroit knew they had to address fuel efficiency and quality.
This is a failure of the people at the top. All are still there and still screwing up. Just as Bush screwed up big time and is still there and is still screwing up.
This will never be fixed and will just get worse until those at the top are held accountable. And it's looking like the only way that is ever going to happen is going to be very unpleasant.
December 11, 2008 6:45 PM | Reply | Permalink
As a Michigander I can't for the life of me figure out why the Big Three and other heavily unionized industries aren't on the front lines fighting for a national single-payer health system.
Are the manufacturing corps really that scared of the insurance companies and big pharma?
December 11, 2008 6:46 PM | Reply | Permalink
In fact, around 20 years ago Lee Iaccoca did come out for national health insurance, but he got no support from Ford or GM, and his successors at Chrysler did nothing. One more instance of their failure to look ahead.
But--does anyone know whether the UAW was on board for such a plan at that time? That would be a big factor in how management might view it.
December 12, 2008 1:04 PM | Reply | Permalink
Too many people in this country have a perception of manufacturing that has been skewed over time as being filthy, noisy and dangerous. Few have any idea of what a modern manufacturing facility looks like or what it does. People see news pictures of old Detroit with abandoned factories and the like and think in the context is suggests.
Let's face it, heavy manufacturing isn't very glamorous. I suspect if people were to see a modern automotive engine plant or other such facility they would be very surprised. This is very much about image. A tour through a Caterpillar, GM, Ford, Boeing, Pratt & Whitney or any of a thousand other major manufacturing facilities would help change the perception. I spent a lifetime going all over the world installing very large factory automation systems in all kinds of manufacturing environments making every kind of product you can imagine and I can say for sure that the life blood of our economy is intimately tied to our factories.
It doesn't help that the suits on Wall Stret and in Washington have never had occasion to get their hands dirty by actually working for a living. They have no idea what they've done by sending it all to China. Nor do they have any idea how hard those jobs are or how complex a modern manufacturing environment is. And for sure they have no idea of how smart and how innovative the people working in those factories are. The workers of America are smart in a way Wall Streeters and our politicians just don't understand and certainly don't respect.
December 11, 2008 7:37 PM | Reply | Permalink
. . . domestic manufacturers . . . have made some bad choices in betting their future on SUVs* and other low-mileage vehicles. Dean Baker
November Auto Sales Down 37%
Toyota, down 34%; Honda, down 32%; Nissan, down 42%. Ford was down 31%, less than the three Japanese manufacturers. I suspect GM's larger drop (41%) was due to lower fleet sales resulting from rental companies' expecting a reduction in business travel as a result of the recession.
The problem is industry overcapacity and reduced auto sales -- worldwide. Car companies build what the public wants, and right now, it doesn't want cars.
* "At Toyota, only the new Sequoia and Lexus LX SUVs recorded sales gains . . . ." So much for the SUV criticism.
December 11, 2008 8:15 PM | Reply | Permalink
C'mon Dean. If the Big 3 weren't in such a mess BEFORE the credit crunch (their fault, not the banks) then they wouldn't have been pushed over the ledge during this credit crunch.
You can't be typing with a straight face when you try to pin this on the economic crisis created by "Wall Street and Washington".
December 11, 2008 9:09 PM | Reply | Permalink
The "economic conservatives" do have a point when they point to union contracts as the biggest cost increase when it comes to the operations of American companies. However, because they hate unions, they stop there. The fact is that every main union/employer conflict that's occurred in the last ten years has been caused by the rapid inflation in health care costs.
The increase in the cost of health care affects most folks more fluidly - you can get less coverage or lose it. But union contracts have a specific level of health care specified in them, and those costs get passed on to the industry and thus on to the consumer, hurting the industry in return.
All of this, of course, sets aside the highly cogent point that the "big three" automakers have been continuously making bigger and bigger gas-guzzlers for the last seven years, despite reports that the increasing cost of gas will make them obsolete and unwanted in a much rapider time frame. They then claim that they're going to make smaller cars any day now, but have to get rid of their last year's stock, it takes time to readjust, wah, etc. Then next year they come out with even bigger trucks and SUV's, and so forth, because what the American consumer really wants today is trucks that can jump through flaming buildings and drag airplanes around. But I digress.
It should be simple to make the case to economic conservatives (who presumably are pro-business) that business should not be the ones to bear the burden of subsidizing health care. In fact, employer-based health care is an annoyance across the board: even for companies who are doing OK with it financially, it still takes a majority of their H.R. operations merely to manage their health care plans. There's simply no good reason why they should have to be the ones to do this, as opposed to someone else.
Nationalized health care therefore takes the burden of health care off of the back of business. That's good for business. Therefore opposing nationalized health care is anti-business.
No, it's not what the "economic conservatives" ultimately want. If they really had their way, you could either buy your own damn health care personally or go die in the streets like the filthy liberal scum you are. But it's better than burdening business with the costs and management of health care in America. And that's good enough to get it passed.
December 11, 2008 10:16 PM | Reply | Permalink
Dean says: "It will be tragic if the people of the Michigan, Indiana, and Ohio are made to suffer through a depression because of the failed financial dealings of the Wall Street crew."
What? Isn't it also tragic that tons of people in New York City have lost jobs either at investment banks or because they provided services to investment banks? The government doesn't seem to care much about lower Manhattan restaurant workers or design firms or dry cleaners or... well.. or anyone.
Of course, it would be tragic if workers in Michigan, Indiana and Ohio are made to suffer. But no more tragic than the sufferings of workers anywhere else. I'm also no longer convinced that the sufferings of blue collar workers are somehow more tragic than the sufferings of white collar workers. There's a definite shortage of good white collar jobs in America that needs to be addressed.
December 12, 2008 8:39 AM | Reply | Permalink
There is a certain prejudice against Manhattanites floating around lately.
However, if the criteria for who should get how much bailout money was how many jobs it would impact - which seems like the only reasonable non-arbitrary comparison I've heard of - then the financial sector wouldn't be receiving 20 to 40 times what the auto industry is in assistance.
December 12, 2008 10:05 AM | Reply | Permalink
Given the disparity in income between white and blue collars, it should be obvious that the blue collar worker doesn't have as far to fall in the first place - quality of life(measured in consumables) was lower to begin with.
Couple that with less ability to build a savings cushion, and it's pretty clear to me that my fellow white-collar types will not suffer as much, or as quickly. We also have more assets to sell to stay afloat, even if market value of those assets has declined.
Us white-collar types are also more likely to have children who've achieved higher levels of education and won't get stuck washing cars to subsist. And there is that whole being able to afford COBRA thing, too. White collar kids are less likely to die from things like dental neglect.
I'm not saying that there's no tragedy when a person like me(only one with a family to care for) loses their job, with zero real potential to find another equivalent job.
I'm saying that someone like me isn't already living as close to the bone as my buddy the custodian.
December 12, 2008 10:03 AM | Reply | Permalink