Earlier today I wrote an editorial for tomorrow’s paper that warns against being too eager to give Detroit the means to keep doing what it’s been doing, as some in Congress seem to want to do.
My reading prior to writing that led to my post about cheap gas, and in responding to a comment on that, I was reminded of something Tom Friedman wrote the other day:
O.K., now that I have all that off my chest, what do we do? I am as
terrified as anyone of the domino effect on industry and workers if
G.M. were to collapse. But if we are going to use taxpayer money to
rescue Detroit, then it should be done along the lines proposed in The
Wall Street Journal on Monday by Paul Ingrassia, a former Detroit
bureau chief for that paper.“In return for any direct government
aid,” he wrote, “the board and the management [of G.M.] should go.
Shareholders should lose their paltry remaining equity. And a
government-appointed receiver — someone hard-nosed and nonpolitical —
should have broad power to revamp G.M. with a viable business plan and
return it to a private operation as soon as possible. That will mean
tearing up existing contracts with unions, dealers and suppliers,
closing some operations and selling others and downsizing the company
… Giving G.M. a blank check — which the company and the United Auto
Workers union badly want, and which Washington will be tempted to grant
— would be an enormous mistake.”
That, in turn, reminded me of something else Paul Ingrassia wrote recently, and that’s what this post is about. Basically, I wanted to recommend his primer, "How Detroit Drove Into a Ditch," which is a nice reminder of everything the Detroit Three (formerly the "Big Three") and the UAW did to mess up the auto industry in this country.
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Having worked in Detroit and most other automobile manufacturing cities in the USA, and some overseas, I am disgusted to see hucksters like Tom Friedman posing as informed pundits. He has not a clue about the situation with the US automakers, because he has never worked in that industry or any other.
The unions are wasting no time in calling in their chits from the Democrats for putting another poser, Barack Obama, into office.
The unions and their political hacks have known all along that the vehicle companies could not deliver the defined benefits promised to retirees. The union members knew it was a big lie. They have been waiting for the moment when they had the political juice to hang it all on the taxpayers.
Just like the unfunded, bloated pension promises hanging over the heads of state workers, the UAW pensions have to be reduced in order for the industry to become competitive. The average labor burden rate for a 2008 US auto worker is $73.20 an hour. For Toyota, it is $48.00 an hour. Toyota does not have the hordes of retirees to pay for that are hanging around the neck of GM.
Nissan almost went bankrupt 3 years ago, but they pulled themselves back without a government bailout. GM, Ford and Chrysler can do it, too.
US wages and benefits have to go down by at least $25.00 an hour right now.
Management has to stop getting bonuses right now.
Pensions and medical insurance have to be dropped as company benefits, and each individual needs to take over their own savings and insurance. This is the opposite of what the unions and socialists want, but they are living in the past, tied to something which was created to circumvent another socialist program, the wage controls of FDR. It is time to break with the failed socialism of the 1940s.
Government has to stop mandating silly MPG standards and air pollution controls chasing the final 3% of tailpipe emissions.
“We cannot expect the Americans to jump from capitalism to Communism, but we can assist their elected leaders in giving Americans small doses of socialism until they suddenly awake to find they have Communism.”
– Soviet Leader Nikita Khrushchev
Paul Ingrassia compares the automakers’ predicament to that of an investor who failed to diversify. He is exactly right. Detroit has been interested in only the bottom line, rather than in pursuing the broadest market possible. You can’t be one of the Detroit 3 and be a niche company. I buy cars with an eye to purpose, consumption and emissions. I don’t want most of what the US automakers have to offer. I would like a Prius, but it’s beyond my price range. We are on a waiting list for a Smart car–a waiting list! We’ve been on the list for several months, and it will be a couple of more months before we are given the opportunity to take possession of one. How is it that Detroit can’t figure out how to get an American version of such a car to the marketplace when Mercedes has an 18 month long waiting list for a $14,000 car? Americans are now beginning to clamor for an affordable hybrid or plug-in electric (I drive a Global Electric Motorcar myself–built in Fargo). Why didn’t Detroit anticipate the change in the market and begin to retool for smaller, more efficient cars? Are they blind with greed?
If it were not for the tens of thousands of jobs at stake, I would be willing to say let ’em fail. However, those jobs are held by parents trying to feed their families and send children to college, so we must figure out a way to help the automakers and hold them accountable for what they produce. I just hope Congress finds the right way to do that. I’m not holding my breath.
The surest way to kill what remains of the auto industry is for enviro-zealot government bureaucrats to use the entrée they gain into industry oversight by virtue of bailout administration in order to force auto makers to take foolish, worthless and economically lethal environmental steps.
This is exactly the wrong direction to take, and is unfortunately exactly where I think Obama and his libs in congress will go.
Dave
Honda and Toyota dropped most of their hybrid models in 2007 and 2008, because they were not selling well, even with $4.00 gasoline prices. Only the Prius and a few other models remain, and their buyers do it to feel good about themselves, because there are much more cost-effective automobiles on the market. Some even get as good or better mileage than the Prius in many traffic patterns.
Anyone who thinks GM and Ford do not offer enough diversity of product line has simply not bothered to visit a showroom. They have subcompacts which are more cost-efficient than the Prius, as well as pickup trucks and SUVs for which the foreign makers have no offerings at all.
Go buy a Chevy or Ford for much less money than the Prius. You can operate it for less money, recoup the cost faster, and it will outlast the Prius. Plus, you have no expensive maintenance ahead of you.
I have a GM truck with 239,000 miles on it and no major repairs, just interval maintenance, that gets 22 MPG on the highway. My 2008 Buick gets 32 MPG on the highway and 28 MPG overall.
oversight by virtue of bailout administration in order to force auto makers to take foolish, worthless and economically lethal environmental steps.
This is exactly the wrong direction to take… – Dave
Why are the gas guzzlers not selling? Why was a dinky Honda in 1980 so popular and why is Toyota king of the hill today?
Look at the panic this summer about gas prices. That’s a great indication of consumer preference. If they thought an 18 cent gas tax holiday was a big deal, they certainly believe higher cafe standards are a very big deal.
The Not So Big Any More Three ignored this type of demand and now WE are supposed to bail them out. Dave, the government is getting involved one way or another. I prefer prevention rather than this intervention.
I consider purpose, fuel consumption, emissions and initial cost. We need a vehicle to be used for multiple (work-related) short trips every day in the suburbs. Show me an American-made car that is rated 30+ mpg in town, has low emissions and sells for less than $15,000. The Ford Focus comes closest at 24/35 mpg and right at $15,000. The Smart For Two is rated at 33 city (40+ highway, but that’s not the purpose for this vehicle), has a base model price of $12,000, and has the lowest emissions of any non-hybrid vehicle. Why would I buy the Focus? Why can’t the American manufatcurers offer me a vehicle to compete with the Smart?
And here’s the point some of our libertarian friends miss — if they’re using MY money to keep operating, I have the right to attach strings. And if we the people, acting through our elected representatives, say we want them to build more sane, rational vehicles with the operating funds we provide, then that’s the way it should be.
Randy, I’m not denying that the big three have been astonishingly slow to recognize shifts in customer demands and respond to them. FordChryslerGM have largely been the architects of their own destruction, whether it has been through lousy product lines or lousy decisions at the bargaining table.
I too resent the idea that now it is the taxpayers’ responsibilty to bail them out…under just about any other economic circumstances I’d say let ’em fall.
But we are where we are. They must be saved, if it is possible.
Given that, I am simply saying that to burden them now with even more bureaucratic red tape and environmental strangulation is folly. And I don’t think Obama and Pelosi and Reid are going to be able to resist doing it.
David
Clearly Brad can’t. It is what libs DO. Dave
Let GM go under. Someone else can make cars for us.
I know this doesn’t fit with the topic but it has to be acknowledged. Now that the election is over McCain was expected to return to his old bi-partisan self. But NOOOOOOOO. He’s now paling around with the most disgusting senator in United States history, Saxby Chamblis. Here what McCain said about him in 2002:
“Putting pictures of Saddam Hussein and Osama bin Laden next to a picture of a man who left three limbs on the battlefield — it’s worse than disgraceful, it’s reprehensible.”
And now he’s campaigning for Chamblis in Georgia. John McCain has become a partisan hack of the worst kind. What a hypocrit. Thanks to the American people he won’t have the opportunity to serve a defacto third Bush term. That’s exactly what’s become of McCain.
It’s always a good day when I find myself agreeing, sorta, with Lee Muller. The compensation agreements the big automakers have with their unions & scores of long-lived retirees are indeed unsustainable.
BUT, isn’t it also true that the reason so many foreign automakers have lower direct labor costs is that health care and retirement benefits are heavily subsidized by their respective governments?
What I would be interested to see is how the workers at Toyota’s plants in Kentucky are doing. What kind of health care & retirement bennies do they get? I think we all need a little more information before we start hollering about socialism or putting the ax to the big automakers.
Automobiles have been a part of our nation’s culture for the past 100 years.
Toyotas racing in NASCAR is a blasphemy.
One thing to consider if Detroit goes under will be the pensions taken over by the Pension Benefit Guaranty Corporation (http://www.pbgc.gov/).
All the cars my wife and I have owned have been American made, all GMC. I owned two Fords when I was single, both Mustangs. We owned an 1984 Chevy van that had 233,000 miles when it was retired in 1999; aftermarket parts, power steering pumps, etc, were getting harder to get. The only major work it had was the camshaft replaced; which was an adventure. The replacement for the 1984, a 1999 GMC van gets little use with the higher price of gas.
Is a "hypocrit" a person who writes literary criticism that he doesn’t really mean? Or is it a critic who’s not very critical at all — that is, the opposite of a "hypercrit?" Sorry. I like to play with typos (why else would I have gone into this business?).
Back to the topic: "Let GM go under" is a counterintuitive position for bud. For the most part, the liberal Democrats (and bud usually, although not always, is allied with them) want to SAVE GM and keep it operating in the same old stupid ways. Why? Because that’s the only way the UAW keeps going.
Not that the UAW’s concerns should be ignored, because as Susan R. Helper, a professor of regional economic development at Case Western Reserve University, observed:
There is an approach some have mentioned that would involve letting G.M. go under, but providing transitional help for the workers. That may have merit.
But I think most of the "let it fail" folks seem to want it to do so in order to break the UAW. I don’t think that’s what bud would want, but maybe he would.
GM assets such as plant and equipment will not disappear if the GM “brand” does. Someone else will utilize their stuff with a more efficent labor force who is willing and able to work for a decent, yet not exhorbitant wage. As for GM management, they deserve nothing for the horrible decisions they have made. Few if any jobs will be lost in the long term and we’ll end up with a far more efficient auto industry. Maybe one that actually makes a useful electric car. I’m sure the folks at Tesla could use some of the GM assets, both human and otherwise.
Perhaps some government help to assist with the transition will be needed. This could be as simple as extending unemployment benefits for a few extra months. Given the calamity over the recent “bailout” of the big financial institutions (check out the latest AIG junket), it’s high time we end all these government handouts for bigwig corporate elitists.
Do these people have no shame. From ABC News:
Another AIG Resort ‘Junket’: Top Execs Caught on Tape
KNXV Discovers $343,000 Secret Gathering, AIG Signs and Logos Hidden
By BRIAN ROSS and JOSEPH RHEE
November 10, 2008
Even as the company was pleading the federal government for another $40 billion dollars in loans, AIG sent top executives to a secret gathering at a luxury resort in Phoenix last week.
-ABC News
I’m sure with a little digging we can find examples of similar waste by GM. Let the whole bunch of them go down. This is the side of capitalism the Limbaugh loonies don’t want to talk about. The AIG people could have their “meeting” in Des Moines, Iowa or Trenton, New Jersey. Heck I’m sure Mayor Bob could arrange a nice meeting here in Columbia. This should make every taxpayers blood boil.
I would just as soon walk as own a GM product… well with the exception of a Corvette. I simply don’t enjoy spening my free time visiting a dealership service department all that much. Toyota/Lexus is the only thing that’ll park in my garage unless something drastic changes.
Walk?!?!?
(Imagine that I said that the way Maynard G. Krebs used to say “Work?!?!?”)
What are ya, unAmerican?
Me, I wouldn’t even want a ‘vette, unless it was pre-1965.
FORD = Fix Or Repair Daily.
An old Ford joke.
Having worked on the development of the current generation Corvette, and the Lexus 430, I don’t know how to take the comments of Bill C.
I own two GM products and they have both been very reliable and good vehicles. I had a very negative experience with a Japanese made automobile and I have refused to own anything foreign made ever since. But I firmly believe that all the car makers both foreign and domestic should have worked on making more fuel efficient/hybrid vehicles/choices long before now.
GM, Ford, and Chrysler have spent billions of dollars developing more fuel-efficient automobiles, including fuel cells, hybrids, and pure electric cars.
The problem is that there is insufficient demand for them. That is why Honda and Toyota have dropped most of their hybrid cars – they don’t sell, because they are not cost efficient. The little fuel they save in operation is more than offset by the extra energy consumed to tool up and manufacture them – so they are not fuel efficient, either.
Consumers need to have a full spectrum of choices on the vehicles they can buy, without government dictating the size, style, color, engine, fuel or miles per gallon.
Bankruptcy will not solve the problems of the automakers.
$50 BILLION in cash from the taxpayers will not save them, either. That is only 90 days of their combined current negative cash flow.
The only solution is layoffs with no severance pay from the companies, at least a 35% wage cut, a 50$ benefits cut for retirees, a cash out of current benefits to current employees… all by this Friday.
Posted by: Lee Mu