Tuesday, November 18, 2008


It's not about cars and trucks

"Save the automakers."

I don't care about the cars. I don't care about the trucks. I don't care, actually, about Ford, General Motors or Chrysler.

I care about the people, and I care about the terrible drag go-zillions of out-of-work people would have on the economy -- and that's what talk of a "bailout" -- damnable word -- is about.

It's not the unions' fault, no more than it's the fault of the front offices of each of the Big Three. It is what it is.

Don't dribble out a few billion here and a few billion there, and not require major changes from the manufacturers. That's stupid: throwing good money after bad.

What the U.S. should do: Take on the pensions and retirement and insurance obligations of the automakers, freeing them up to make and market cars and trucks.

Freed of that burden -- which each freely negotiated onto its own back (so shut up, righties, and George Will, blaming the unions) -- surely they can return to success.

And if they can't, then let 'em burn.


That's just silly. The taxpayers of the United States don't owe favorable post-retirement health care to anyone just because they worked an already very lucrative union job. Either fix it for the country or the GM/Ford/Chrysler workers get pushed into the same quandary as tens of millions of uninsured or self-insured Americans. Reasonable and adequate pensions will already be assured by the PBGC after the automakers go through Chapter 11, have their shareholders wiped out and debtors take a haircut. We weren't party to those ridiculous agreements either. The USG casn't even take an equity stake for the money required - all of GM and Ford have a negative book value at this point and the entire compnay stock is worht a fraction of the money they're requesting. That's not to pick and choose between the wiped out capitalists and the reduced-benefit retirees and workers - they were in a mutual suicide pact. I didn't sign on myself, and neither did the rest of America. Gad, the only Big Three vehicle I've ever bought was made in Mexico. But if you feel the screaming need to send a check to the UAW for your share of their assumption of better health insurance than you (probably) have, then be my guest.
Nationalize all three. Chop off the top 5% of their administrators. Take on the retirement obligations, then reduce then down to a workable level within the contex of SSA and a new health plan.
Build ten or twelve U.S. gov approved models of autos/trucks with the help of the Smart Car people and others.
Seperate the car roads from the truck roads thus reduce maintance cost on infrastructure and vehicles. Tax each user according to use.
Sink tax money into public transportations systems both local and interstate.
I'd sooner send it to the UAW, with strings attached, than send it to the Big 3, with no strings attached.

The check is in the mail. All that remains are questions regarding the strings attached and who will cash it.
While I think the principle of sending good money after bad to the Big 3 is sound, I have changed my mind thanks to a single sentence from Paul Krugman - putting nearly a million auto workers out on the streets at this point in time would have horrible consequences for the economy.

So, yeah, it isn't about cars and trucks, or unions and management. It's about the workers, and making sure they keep their jobs, and their money, so they can keep on purchasing stuff. Right now, we all need to be out and about buying stuff.
I'm not getting the retirement and pension being offered by the automakers - why should I pay for these folks to get Cadillac benefits when I'm getting the equivalent of a Chevy? Now that's wealth redistribution at its worst, and in my case you're robbing a man who makes $45k a year and you're giving it to someone who makes $75k.
That's wrong, ER, and it's not the answer. The UAW forced the big three into this fiasco by refusing to accept reality - that their generous benefit plans weren't supported by the free enterprise system. Let them go bankrupt and be freed of the shackles of the past. It's time to create a new American auto industry where risk is real and innovation is rewarded.
Re, "The UAW forced the big three into this fiasco by refusing to accept reality ..."

BS. The UAW forced nothing; the manufacturers were right there across the table.
Right. So the UAW on one side of the table is getting what it deserves. The stockholders of the company are getting what they deserve.
I'll agree. But I say there is more at stake than the players themselves.

When a dilapidated building is crumbling and about to collapse, the community condemns it, then people come in and they implode it.

Some form of that is what should happen to one or more of the Big 3 -- a controlled dismantling and implosion, which could include Chapter 11. Plus steps to keep that collapsing building from sending debris onto surrounding property and people.

ANYTHING but pumping more billions into them without any change in their structure or obligations.
We're giving money to irresponsible financial companies. People want to give money to people who irresponsibly bought more mortgage than they could afford.

Given the number of morons that we're bailing out, it's pretty tough to make the argument that we should then punish the UAW for effectively bargaining for the benefit of it's members.

25 billion vs. 700 billion? Big deal.
If we do one stupid thing it means we have to do the next stupid thing? It's a shame the Republican-led opposition to the Republican-proposed bailout (which looks like a failure) didn't succeed, but Congress looks less panicked at this point and, of course, the administration opposes this aid.

Anyway, from The Economist's blog:

The first two paragraphs are from an open letter by U of C prof Luigi Zingales:

The restructuring cost at GM will of course be high, both in human and financial terms. But the alternative is worse: to spend $25 billion on aggravating and postponing the problem. It would be better to give away that money directly to the workers rather than let GM decide how to dissipate it. At over $200,000 for each of GM’s 123,000 North American employees it would a very nice gift. The taxpayers’ cost would be the same, but at least the money would help secure a future to hard-hit households.

Overall, however, we believe that paying off workers and liquidating the company is equivalent to putting the patient out of his misery before attempting to administer the best economic medicine. Some may argue that GM has been receiving medicine from taxpayers for quite some time, but clearly it has been receiving the wrong medicine. A Chapter 11 bankruptcy gives a firm that needs to restructure the chance to recover. If Chapter 11 cannot save GM, then nothing can.

This is exactly what bankruptcy procedures are for. Many think GM could be a profitable company if it could get out from under old and bad decisions made by GM and the unions. Receivership allows the company to salvage the good and jettison the bad in an attempt to maximise value and minimise disruption. GM in its current form just cannot survive.

Unfortunately, for Chapter 11 to work, people would have to continue buying GM cars during restructuring. Why buy a car from a company that may not be around in 6 months? Not gonna happen. Chapter 11 will insure that GM fails.

123,000 employees? Feh. That's a drop in the bucket when we consider all of the suppliers who will also be run out of business, not to mention the service industry jobs in and around factory towns.

I think people have no idea what Michigan is like these days. We've had almost double the rate of unemployment of the rest of the country for years. There are cities like my hometown, which honestly haven't recovered since the Carter Administration. Many of the retired UAW workers, that people here seem to believe are living high on the hog, have *already* had their pensions negotiated away, and now their 401Ks are worthless.

Oh, and in Michigan, we pay for our schools using property taxes. Say goodbye to our already troubled school systems once GM goes out of business and everyone either loses their house through foreclosure and/or moves to some other state.
That's what I'm talking about. It ain't about cars and trucks. It ain't about the union. It' ain
t about the stockholders. It's about a part of the country going to hell in a handbasket, and the greater effect that would have on the economy and the country at large.

The only thing is ... nobody gave a rat's when Oklahoma, Texas, Louisiana went to hell during the oil-real-estate-all-economy bust.
More proof $25 billion won't help; these guys are truly tone deaf.

Latest headline:
CEOs of Big 3 automakers reportedly flew luxury jets to D.C. to plead for a $25B taxpayer bailout to save their debt-ridden industry — costing tens of thousands of dollars.
Alan's right. It isn't "just" the GM employees. There are the suppliers, the subsidiary companies (GM finance, etc., etc.), and the local economies that will simply dry up and blow away.

I'm getting the sense that, while people believe "something" needs to be done, what that is isn't very clear at the moment. I saw a report that the Big 3 CEOs were on Capitol Hill today and got a bit of a verbal spanking. While I have no idea if using a private jet, or a company owned jet, should be considered a luxury they can ill-afford at the moment, I think that it certainly gives the appearance that these gentlemen are tone deaf to our current situation.

I do not believe that the collapse of our automobile manufacturers is inevitable. I do believe, though, that talk like that doesn't help. I guess I'm at the point now where I think, "Yeah, they do need help," but in what form I have no idea.

Oh, and most definitely with strings. Ropes, in fact, and harnesses.
Here's one proposal about combining the Chapter 11 with Federal help:


Wipes out equity, restructures debt, breaks contracts, etc., along with a Government backed warranty on the cars. I'd suggest the rewritten labor contract give long time employees the reduced wage their union agreed to for new employees, adjusted by demonstrable productivity differentials. It's karma.

But I do have to say an image of Michigan returning to second-growth hard wood forest is very attractive in itself.
Studebaker*- DeSoto- AMC- Citicar- Austin American- Delorean- Checkers- Crosley- Edsel- Frazer- Willys- International Harvester- Reo- Plymouth- Packard*- Osmobile- Nash Rambler*- & White:

In my 6+ decades I have owned (*), ridden in, or driven the previous list of automobiles/ trucks. They all were made by American car companies that no longer exist.

That's not counting the Corvair Van* from GM.
Another excellent discussion of the need for Chapter 11 bankruptcy and government help with the restructuring:

"I'd suggest the rewritten labor contract give long time employees the reduced wage their union agreed to for new employees, adjusted by demonstrable productivity differentials. It's karma."

So we save the mortgages of irresponsible people who idiotically bought more mortgage than they could afford and the irresponsible banks that idiotically sold those mortgages, and yet we cut the salaries of long-time employees?

And that's karma, how, exactly? They negotiated those salaries with the automakers, and apparently did a reasonably good job, and for that they should be punished? Gotcha.

Just to save $25 billion? Which is 3% of the size of the bailout that we gave Wall Street?

That seems ... odd, to put it mildly.

"But I do have to say an image of Michigan returning to second-growth hard wood forest is very attractive in itself."

Yeah, that's exactly what we Midwesterners love to hear. Let's wipe out an entire state, just because it isn't NY or CA.
"We" cut? No, the auto company cuts the salaries of whatever employees it needs (after firing the rest) to sell whatever vehicles that it can, paying them what it can afford to pay them based on the price it can get for said vehicles and making whatever profit it needs for long term survival, after paying back the U.S. government for whatever transition assistance it needs in Chapter 11. That's sorta how business works. As i mentioned before, that the government makes bad decisions elsewhere doesn't provide a shred of justification for another. Thank God for corporate jets and arrogant executives.

25 billion isn't going to buy anything but a bigger hole for those companies. They have too many workers they can't fire to make more cars than they can sell, even apart from their pay package. They preserved their benefits packages at the expense of new employees - the ones who weren't members of the UAW when the pacts were negotiated. You act like a given level of compensation is some kind of right that I and my brother and sister taxpayers have to guarantee.

Nor do I particularly care if regions decline and population moves, and think concentrating them in otherwise ugly areas like scrub-brush California rather than a place that used to be beautiful is a bad thing. I'm not sure if I'm supposed to get sniffy-nosed about Motown or something - the loss of Detroit; the wonderful setting of Grosse Pointe Blank. I hear the whaling town of new England used to be thriving metropolises

And thanks for living in the Midwest. In an atheistic but Berkeleyan worldview, only your kind attention and that of similarly geographically-seated keeps the land from vanishing and the coasts from rushing together in an awful collision. You also serve who only stand and wait.
"You act like a given level of compensation is some kind of right that I and my brother and sister taxpayers have to guarantee."

Nope, but I do believe that a contract is a contract, and that those with anti-union sentiment shouldn't try to use this as an opportunity to break the unions and punish them for being effective negotiators.

All that and no one has yet provided any good reason why we should provide $700 billion dollars of corporate welfare to banks, and refuses to give 3% of that to the auto industry, which actually employs real human beings. Fair is fair. Nor has anyone suggested any viable alternatives to these loans, nor how those alternatives would actually help all the stores and service industries, nor how they'd save our schools, etc.

No soup for you! is a great slogan for the soup nazi, but as an economic idea, it's probably a little simplistic.

"I'm not sure if I'm supposed to get sniffy-nosed about Motown or something ..."

Nope, Detroit is already basically New Orleans post Katrina and has been for years, the difference is that it has happened over a period of 40 years instead of 40 hours. We're just sick of being referred to as fly-over states, having entire US maps omitting us, hearing on the news that the Democratic party is now a "coastal party" while the anchor stands right in front of 6 Midwestern states that gave Obama the win., etc.

But don't worry, I've spent lots of time in both CA and NY, so I understand the attitude and actually think it's cute in it's own little way. It would be great if Californians didn't, for example, just prove themselves just as backward as us poor benighted Midwesterners. That would give them a good reason to be snooty, one that I would respect.

Berkeley, eh? Ah yes, as we Wolverines like to say, the University of Michigan of the West. That's a compliment by the way. Stanford is the Michigan State of the west. ;)
Umm, the reference was to Bishop Berkeley, not the University of California.

If it's any compensation, all the executives' employment contracts are likewise voided by the bankruptcy. I'm not sure why this offends you since the "capitalists" - the stockholders - are wiped out completely rather than somehow profiting by labor's sacrifice.
"Umm, the reference was to Bishop Berkeley, not the University of California."

Um...it was a joke. Playing off the whole CA & NY vs. the flyover states reference. Hence the wink. I thought it was clever, playing off the supposed stupidity of us poor sods in the flyover states, but now that I have to explain it, less so perhaps.

"If it's any compensation, all the executives' employment contracts are likewise voided by the bankruptcy. I'm not sure why this offends you since the "capitalists" - the stockholders - are wiped out completely rather than somehow profiting by labor's sacrifice."

I'm not sure what of that is supposed to offend me, since none of this "offends" me. I just think it's strange that this industry, unlike the financial sector, the airlines, and especially farmers, is unable to get government assistance for less than than we pay for two months' military involvement in Iraq and Afghanistan. Saving the economies of 3 or 4 actual, you know, states in our own country? A steal at twice the price if you ask me. We fight them abroad so we can go bankrupt here? Hm.

But I have no doubt that the stockholders and the CEOs will be fine. The only people whose portfolios will actually be hurt significantly by Chapter 11 will be those who actually depend on their 401Ks for their retirement like, oh say maybe, the autoworkers themselves. Once again, I'm sure the Wall Street fat cats will land on their feet ... with $700 billion in government assistance. :)
TStockmann's cavalier attitude with regional economies and the derivative health of the population who benefit from the engine of any such city/region economy (ala Jane Jacobs) surely divorces him from a right understanding the good Bishop, the father of Idealism.

Primitivism, on the other hand, is a strong strain in American. And TStockman seems exeedingly well named for such a meagre and destructive tradition.
Folks on the coasts don't think of Midwesterners as stupid - that's reserved for the South, especially the rural areas. Midwesterners are known for bland, overcooked food as a metonymy for being dull, earnest, and badly dressed.

Ah, and I see that Harvard primitivist Edward Glaeser has also come out in favor of Chapter 11. He will be embarrassed not to have Feodor's esteem.

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