Crunch Time for the Big 3

[Benny B]

Crunch Time for the Big 3
By E. J. Dionne Jr.
Tuesday, December 2, 2008

There is a paradox at the heart of the proposed bailout of the auto industry. The rescue would have no chance of passing without the muscle of the Big Three's unionized workforce. Yet you can't turn around without hearing someone trash autoworkers for the terrible crime of trying to earn a decent living.

The CEOs of Ford, General Motors and Chrysler, having blown their plea for help last month, deliver their revival plans to Congress today and face their big test later in the week when they defend them. Democratic congressional leaders desperately want to help an industry that accounts, directly or indirectly, for some 3 million to 5 million jobs. But House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid were astonished at how unprepared these corporate titans proved the last time.

By flying into town on private jets and offering few answers to their congressional interlocutors, the big shots suggested that they didn't understand that people begging for taxpayer money owe a certain deference to their potential benefactors. They must have thought they were running Citigroup.

The auto companies are having trouble securing help precisely because members of Congress are overwhelmed, even appalled, by the hundreds of billions of dollars they have already shoved out the door on behalf of the finance industry. One of Pelosi's top lieutenants referred to the phenomenon as "bailout fatigue."

Yet the auto industry will almost certainly be tided over precisely because the economy is in such turmoil. The dominant view in Congress is that the country can't afford to risk the financial and human calamities that bankruptcy by the Big Three would inevitably trigger.

Assuming the CEOs have done their homework, are reasonably humble and arrive in Washington by less ostentatious forms of transportation, Democratic leaders are likely to push for one of two forms of aid.

The House and Senate leadership is inclined to give the industry the full $25 billion it seeks. But a top congressional aide said it is not yet clear that a bailout that large has the votes to pass both houses, let alone get the backing of President Bush, who would have to sign the bill. Plan B would involve passing enough assistance to keep the companies solvent until President-elect Barack Obama takes office. Obama -- who carried Michigan by more than 800,000 votes and swept the rest of the industrial Midwest -- has strongly signaled that he would support a properly structured bailout.

But "properly structured" is in the eye of the beholder, and if this bailout happens, it should reflect the core reason it will pass: Long-term economic growth depends on a well-paid middle class (and that definitely includes autoworkers) with real purchasing power. If saving our auto industry means moving GM workers ever closer to Wal-Mart wages, the bailout isn't worth doing.

A hideous class bigotry has disfigured this debate.

The failure of the Big Three is regularly attributed to the high wages and benefits earned by members of the United Auto Workers union, and it's true that the Detroit-based auto companies operate under heavy "legacy costs" for retirees' pensions and health coverage negotiated during the industry's fat times.

But the blame-the-workers-first cant ignores the fact that if the Big Three had designed better cars, they would not have lost as much market share to Toyota, Nissan and other competitors. The unions did not prevent management from producing a better product -- and I say that as someone who has enjoyed driving Saturns for the past 15 years.

It's also nonsense to say that the UAW has been indifferent to cost issues. The last auto contract included so many givebacks, on top of revisions in an earlier pact, that Ron Gettelfinger, the UAW president, was threatened with a rank-and-file rebellion. He told a House committee last month that because of "these painful concessions," the gap in labor costs between the Detroit-based auto companies and the "foreign transplant operations," as he called Toyota and the others, "will be largely or completely eliminated by the end of the contracts."

Appearing Sunday on CNN, Gettelfinger signaled that his union was prepared to make further concessions. So the burden this week should be on the CEOs to explain how this rescue could be a good deal.

Unlike the other bailouts, this one could provide a model for how management and labor might team up to create better companies in a fairer, more productive economy. If this actually happened, the taxpayers would get their money's worth. But if all that's on offer is a plan to buy the CEOs a few more months or years, they should drive back to Detroit empty-handed.

[Hereford]

I stopped reading after the second sentence.

Union propaganda.

[Alex23]

Funny... I just read the same article on a news website 3hours ago...

[Benny B]

I stopped reading after the second sentence.

Union propaganda.

Translation: The words in this article were too big for me to understand so I gave up.

[shootfighter1]

Anyone who blames this all on the unions is misinformed.

Anyone who doesn't see the unions as a problem in the industry are ignoring part of the problem.

[Hereford]

Translation: The words in this article were too big for me to understand so I gave up.

Translation: I didn't read it either, but I am a sympathetic union shill so I'm going to attack you personally, in true liberal fashion...

[Benny B]

Translation: I didn't read it either, but I am a sympathetic union shill so I'm going to attack you personally, in true liberal fashion...

Why would I post something I didn't read, numbnuts? That's seems like something a true genius like you would do.

By the way, I have never professed a pro or anti union position on this board. I've often posted editorials whereby there were certain aspects I disagree with. It is meant to create an alternative point of view and/or spark further discussion. I don't write editorials and then attach someone else's name and newspaper to them. 
 

[Dan-O]

Mitt Romney says, let the shmucks go bankrupt.  Amen, brother Mitt.  This crisis is a mandate for an overhaul of the domestic auto industry, not a blank check to continue the status quo.

http://www.newsmax.com/insidecover/Romney_detroit_bankrupt/2008/11/19/152984.html?s=al&promo_code=719A-1

Mitt Romney: Let Automakers Go Bankrupt

Wednesday, November 19, 2008 12:03 PM

By: Jim Meyers    Article Font Size 


Former Massachusetts Gov. Mitt Romney — whose father once ran American Motors — says he opposes a bailout of the American auto industry and believes bankruptcy may be the only path to solvency for the Big Three automakers.

In an opinion piece published in Thursday’s New York Times, Romney states that if General Motors, Ford and Chrysler get the bailout the companies have sought from the federal government, “you can kiss the American automotive industry goodbye … Its demise will be virtually guaranteed.

“Without that bailout, Detroit will need to drastically restructure itself. With it, the automakers will stay the course — the suicidal course of declining market shares, insurmountable labor and retiree burdens, technology atrophy, product inferiority and never-ending job losses. Detroit needs a turnaround, not a check.”

Romney, who has had success revamping corporate finances and is credited with turning around the 2002 Winter Olympics in Salt Lake City, said automakers must take several steps to survive, including:

# They must eliminate the huge disparity in costs relative to foreign brands by devising new labor agreements that align pay and benefits with those of workers at Honda, Nissan, Toyota and other competitors. If this disparity is not dealt with, any bailout “will only delay the inevitable.”

# Management as is “must go. New faces should be recruited from unrelated industries — from companies widely respected for excellence in marketing, innovation, creativity and labor relations.”

# Automakers should cut executive perks drastically. “Get rid of the planes, the executive dining rooms — all the symbols that breed resentment among the hundreds of thousands who will also be sacrificing to keep the companies afloat,” Romney writes.

# Investments must be made for the future. “No more focus on quarterly earnings or the kind of short-term stock appreciation that means quick riches for executives with options. Manage with an eye on cash flow, balance sheets and long-term appreciation. Invest in truly competitive products and innovative technologies — especially fuel-saving designs — that may not arrive for years.”

Romney also said the federal government, instead of handing over billions to the automakers, should invest more in basic research on new energy sources, fuel-economy technology and the like, which will ultimately benefit the automotive industry.

He concludes: “The American auto industry is vital to our national interest as an employer and as a hub for manufacturing. A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.

“In a managed bankruptcy, the federal government would propel newly competitive and viable automakers, rather than seal their fate with a bailout check.”

Romney’s father George Wilcken Romney was chairman of American Motors from 1954 to 1962, served as the governor of Michigan from 1963 to 1969 and ran for president in 1968, ultimately losing the Republican nomination to Richard Nixon.

© 2008 Newsmax. All rights reserved.

[240 is Back]

If Mccain had selected Romney, Obama would be back in the Senate licking his wounds right now.

[Alex23]

If Mccain had selected Romney, Obama would be back in the Senate licking his wounds right now.

[Mark Kerr]

If Mccain had selected Romney, Obama would be back in the Senate licking his wounds right now.

I don't think so. The American people have had enough of Republicans. I don't think it really mattered which Democrat won the primaries.

The Democrats were going to control the White House and Congress. Barack Obama was in the right place at the right time. 

[240 is Back]

I don't think so. The American people have had enough of Republicans. I don't think it really mattered which Democrat won the primaries.

The Democrats were going to control the White House and Congress. Barack Obama was in the right place at the right time. 

maybe... but around sept 15th, mccain was AHEAD of obama in polls and on intrade.

Then, 2 things happened.  Palin went on CBS and got exposed as a simpleton, and the market tanked.  Picking Romney would mean no Palin to drag him down.  It would also mean this young, confident, intelligent guy who could speak for hours about business terms - something neither mccain or palin could do.


Don't get me wrong, I didn't like Romney.   And I was glad mccain didn't pick him - I thought he would.  I think the repubs would have had strong footing on the economic issue, there woulnd't have been the fear of putting a pretty gimp into office, and the election would have been a lot closer.

[Benny B]

If Mccain had selected Romney, Obama would be back in the Senate licking his wounds right now.

People vote based on the top of the ticket, dummy.  Always have.

Carmakers on a road to nowhere

Published: December 3 2008 22:12 | Last updated: December 3 2008 22:12

General Motors, Chrysler and Ford have asked the biggest player in US banking for a huge loan: the US federal government. They came armed with dire portents of imminent collapse, but the Big Three should not be helped to stumble on through the downturn. If there is to be government support for the carmakers, it should focus on forcing the Big Three to consolidate.

The US carmakers are in poor shape. The recession has reduced sales dramatically and they are poorly positioned to benefit from a recovery. Lulled by cheap petrol into reliance on gas-guzzling sports utility vehicles, they are moving belatedly to offer more cheaper-to-run cars. Despite vigorous cost-cutting, they are still at a disadvantage compared with foreign-owned, US-based plants. Like their cars, the domestic motor industry must become smaller and more efficient.

The auto giants have asked Congress for $34bn in low-cost financing. In return, they have produced plans to cut costs, downsize and set out timetables for a return to profitability. The schemes are moves in the right direction but there is already a well-established process for troubled companies in need of restructuring: bankruptcy.

Bankruptcy procedures in the US focus on preserving value: the purpose of Chapter 11 is to save the good parts of a troubled business. Because of the credit crisis, however, it is argued that financing for significant restructuring would not be available, and bankruptcy would lead to a tide of avoidable unemployment. The companies also protest that consumers would not buy cars from a bankrupt company because the warranties they offer could be worthless.

None of this makes the case for giving loans to the auto groups a slam dunk. But, if political necessity dictates that there really must be a rescue, it should be some form of state-sponsored consolidation and lead to the same outcome as a successful bankruptcy process – turning the carmakers into smaller, stronger, more robust businesses.

Such a consolidation process could not be run from the White House or from Capitol Hill; Michigan’s voting power would make it too politically sensitive. An independent body should manage the process. A Democratic Congress is unlikely to choose him, but Mitt Romney, the former Massachusetts governor, would be an excellent appointment. A sceptic about public involvement, he has bravely recognised the need for significant consolidation. If there is no choice but to use the public purse to help the car companies, Congress must insist on a complete overhaul.

Copyright The Financial Times Limited 2008

[Benny B]

US auto union makes concessions
By Bernard Simon in Toronto, Daniel Dombey in Washington, and Julie MacIntosh and Nicole Bullock in New York
Published: December 3 2008 21:15 | Last updated: December 3 2008 21:15

The United Auto Workers on Wednesday made significant concessions as the US’s three largest car makers prepared to appear at Congress on Thursday to make their case for emergency funding.

The main car workers’ union said Wednesday that it would suspend a contentious practice that allows so-called “idled” car workers to collect virtually full pay and benefits without working.

Ron Gettelfinger, the UAW president, said in Detroit that the union would also consider other modifications to contracts reached with General Motors, Ford Motor and Chrysler last year. Concessions were “the responsible thing to do”, he added.

The carmakers have been seeking to dismantle the job security measures, known as the Jobs Bank, for some time as a way of lowering their labour costs. Mr Gettelfinger faced questions about the practice from members of Congress during hearings two weeks ago.

Barack Obama, US president-elect, on Wednesday indicated that the Democratic party would look more favourably on the automaker’s latest request for emergency funding than it did on the ‘big three’s’ ill-fated pleas for $25bn in loans last month.

“It appears, based on reports that we have seen, that this time now the executives from these automakers are putting forward a more serious set of plans,” he said. In a reference to the company’s proposals to restructure, he added: “I’m glad that they recognise the expectations of Congress – certainly, my expectations – that we should maintain a viable auto industry.”

His comments follow remarks this week by Nancy Pelosi, House speaker, that bankruptcy was “not an option” for the carmakers.

The likelihood of federal aid for Detroit has also increased as the government has boosted its help for the financial sector – including the announcement of an $800bn loan programme last week – that has made it politically more difficult to give an outright refusal to the big three’s demands.

Indeed, Mr Obama hinted at greater flexibility among congressional Democrats, who had insisted that any loans to the car industry be granted from the $700bn fund established to buy toxic financial assets. Until now, Democratic leaders have ruled out the Bush administration’s rival proposal of using money from a $25bn programme already put in place to make the industry more energy efficient.

“With respect to Tarp [troubled assets relief programme] versus 136 [energy efficiency] money, at this point, I’m more interested in seeing whether or not there is a sound plan there,” Mr Obama said.

Separately, GM creditors, who are being asked to restructure their claims, are waiting to see whether Congress will give the struggling automaker long-term financial support.

GM is weighing whether it can persuade debtholders to swap their debt for equity in the company as it restructures. Since GM has said it could collapse by the end of the month without government help, much of its negotiating leverage is in the hands of lawmakers.

[Benny B]

Mitt Romney says, let the shmucks go bankrupt.  Amen, brother Mitt.  This crisis is a mandate for an overhaul of the domestic auto industry, not a blank check to continue the status quo.

http://www.newsmax.com/insidecover/Romney_detroit_bankrupt/2008/11/19/152984.html?s=al&promo_code=719A-1

Now ain't the time for that shit. We are in a serious recession, and letting the car manufacturers go bankrupt creating a potential loss of up to 3 million jobs could take us from a recession to a depression. You're talking are dealerships across the country, auto parts suppliers...that's a lot of people added to the unemployment ranks. 

[Dan-O]

Now ain't the time for that shit. We are in a serious recession, and letting the car manufacturers go bankrupt creating a potential loss of up to 3 million jobs could take us from a recession to a depression. You're talking are dealerships across the country, auto parts suppliers...that's a lot of people added to the unemployment ranks. 

Did you bother to read the article?  Bankruptcy doesn't mean completely going down the tubes.  Romney has a smart plan for what's needed to revamp the industry, and he knows a thing or two about the auto industry.

[Benny B]

Did you bother to read the article?  Bankruptcy doesn't mean completely going down the tubes.  Romney has a smart plan for what's needed to revamp the industry, and he knows a thing or two about the auto industry.

I know what bankruptcy means, dude. 

[Dan-O]

I know what bankruptcy means, dude. 

Then you should know it doesn't mean that the unemployment lines would suddenly be flooded with 3 million new applicants.

But even if that DID happen...  big deal.  I was a displaced IT professional post-9/11 and had just graduated from school the year before.  Here in UT the IT job market was flooded with lots of highly-qualified, more experienced competition and for a while I had to take what I could get in the way of work, even if it meant working in another field.  I survived.  It wasn't anyone else's responsibility to ensure my employment.  That was my own problem.  So if some UAW schmuck who's used to making $70/hr to sweep floors or wait around in a room playing cards until it's time to move a machine, has to get a job bagging groceries for a while, hey, he gets no sympathy from me.  Why should he get any special privileges not extended to you or me?

[Benny B]

Then you should know it doesn't mean that the unemployment lines would suddenly be flooded with 3 million new applicants.

But even if that DID happen...  big deal.

Oh, it'd come pretty close. Obviously these companies can't file bankruptcy and maintain their current levels of employment.
Big deal, you say? Well, you may have a mean-spirited, no-sympathy approach to such matters, but as I stated previously, this is not the time to have millions more people hitting the unemployment payrolls. The unemployment rate is close to 7% as it is. A long, protracted recession WILL affect you bro.

You strike me as the type of guy who would step over a homeless family begging for a couple of dollars to get through the day as you stride off to work. I am not inclined to be so cold blooded.



80% of Consumers Won't Buy A Car From A Company That Files Bankruptcy
Vociferous southern Senators like Richard Shelby and Bob Corker made it clear during the auto industry hearings yesterday that they would very much like to see Detroit automakers go bankrupt, without mentioning how it would benefit the heavily subsidized foreign automakers in their right-to-work states.

As I watched cable news following the hearings, people appeared preaching Corker's gospel of Chapter 11 as a way to make them "financially viable," including Robert Reich (video). Nobody seemed to think that consumers will have any problem buying cars from a company that has filed for bankruptcy.

MSNBC analyst Chrystia Freeman: "I think the carmakers are using a lot of scare tactics, trying to play chicken with the politicians. We heard it with Phil Lebeau actually -- 'oh, well no one will buy cars from a company that's in bankruptcy.' I don't think that's proven."

Really?

    A recent study from automotive market research firm CNW surveyed 6000 people intending to buy a new car within six months, and discovered that more than 80 percent of them would switch brands if the vehicle they wanted came from an automaker that went bankrupt. Breaking it down by company, Americans were more likely to abandon domestic automakers than foreign ones, with Chrysler faring the worst -- a full 91 percent of buyers wouldn't take home an Auburn Hills product if the company went bankrupt. Ford and GM didn't do much better, with 80 percent of those surveyed saying they would jump ship if things went south.

Freeman went on to say that foreign automakers are doing quite well in the US, actually, it's only the domestic automakers who can't be competitive because of their "legacy costs." In fact, as Marcy Wheeler notes, sales are down across the board -- and Ford's are holding better than those of Toyota, Honda, Nissan, Hyundai, and Kia. In fact, Ford doesn't require a bridge loan, and isn't asking for one -- they may have enough cash to weather the storm, but are requesting a line of credit as a backstop should things get worse. Common sense would inform most people that if this turns out to be the case, foreign automakers will not be immune, either.

The fact that the Detroit automakers are in a cash flow crunch, and that getting rid of legacy costs would do almost nothing to ameliorate that, doesn't seem to have occurred to her.

Did she pick up Richard Shelby's talking points in the green room by accident?

As former Wall Street GM analyst Ron Glanz said recently, an American made car is already selling for $4000 less than the exact same car made by a Japanese manufacturer would, expressly because of bad product legacy and fear that the manufacturer will go bankrupt. It's a PR problem that can't be overcome simply by waving your arms and shouting "no, no, really, Chapter 11 bankruptcy. . . it's just financial reorganization."

The danger here is, if they're wrong -- and all the evidence is that these "experts" are terribly, terribly wrong -- they're dooming US automakers to a hole they may never be able to dig themselves out of.

One in ten jobs in the US is directly tied to the auto industry. The stakes here are high. It shouldn't be too much to ask that people do a little research before climbing on cable news an making outrageous and demonstrably false claims.

[Dan-O]

Oh, it'd come pretty close. Obviously these companies can't file bankruptcy and maintain their current levels of employment.
Big deal, you say? Well, you may have a mean-spirited, no-sympathy approach to such matters, but as I stated previously, this is not the time to have millions more people hitting the unemployment payrolls. The unemployment rate is close to 7% as it is. A long, protracted recession WILL affect you bro.

You strike me as the type of guy who would step over a homeless family begging for a couple of dollars to get through the day as you stride off to work. I am not inclined to be so cold blooded.

Well it might surprise you to know I give money to panhandlers all the time.  Then I wash my hands at the first available opportunity.  I even put up a homeless family in my basement once when I was married.  Until the dad did a drug deal in my driveway and I kicked his ass out to a motel down the street.  True story.  Oh and we all got head lice (my then-wife, kid and myself) from them.  But hey, it was worth it.  Also a true story.

I've said on here before...  I do believe in the Judaeo-Christian injunction to love thy neighbor.  But I think welfare should be a private matter and not government-mandated.  And in a similar vein, I believe we the people don't exist to serve the Big 3 automakers, it's the other way around.

[Decker]

Then you should know it doesn't mean that the unemployment lines would suddenly be flooded with 3 million new applicants.

But even if that DID happen...  big deal.  I was a displaced IT professional post-9/11 and had just graduated from school the year before.  Here in UT the IT job market was flooded with lots of highly-qualified, more experienced competition and for a while I had to take what I could get in the way of work, even if it meant working in another field.  I survived.  It wasn't anyone else's responsibility to ensure my employment.  That was my own problem.  So if some UAW schmuck who's used to making $70/hr to sweep floors or wait around in a room playing cards until it's time to move a machine, has to get a job bagging groceries for a while, hey, he gets no sympathy from me.  Why should he get any special privileges not extended to you or me?

I've seen estimates exceeding 1 million lost jobs b/c of the massive lay-offs that would follow a bankruptcy reorganization.

[shootfighter1]

Even if there are massive job losses and I believe it would be a fraction of the automotive laborforce, many of those jobs would be available again after restructuring.  Perhaps with different pay, benefits and duties.  There will always be a market for domestic automobiles but there has to be serious change so we can compete.

How can we give the auto companies 34 billion dollars the gov does not have anyway?  (I know how they do it, I just mean its more irresponsible made up spending).  I love how they asked for an additional 9 billion and I still haven't heard any impressive long term changes.

Companies file bankrupcy fairly frequently and often come back stronger.  Chapter 11 wasn't intended to be the death of the company, it was designed for this purpose...restructure and have a second chance.

[Soul Crusher]

This is very simple,  the labor costs, legacy costs, etc, make it so that thew American car companies cannot produce a car and make a profit unless it costs 35k or more.  

Its that simple.

They need to go bankrupt because if not, they will be back in 6 months again needing billions.

[Soul Crusher]

Now ain't the time for that shit. We are in a serious recession, and letting the car manufacturers go bankrupt creating a potential loss of up to 3 million jobs could take us from a recession to a depression. You're talking are dealerships across the country, auto parts suppliers...that's a lot of people added to the unemployment ranks. 

Who is going to buy these crap cars?

The only cars they make that are decent are SUVS and Trucks, not electric go carts. 

However, you moron liberals want to do away with SUVS!  Those are the only ones they make money on!

[Decker]

This is very simple,  the labor costs, legacy costs, etc, make it so that thew American car companies cannot produce a car and make a profit unless it costs 35k or more.  

Its that simple.

They need to go bankrupt because if not, they will be back in 6 months again needing billions.

No, you're dead wrong.  It's executive mismanagement and executive compensation that is making the problem worse.

It's not that simple though b/c even my reduction of the matter isn't entirely correct but it's more right than your conclusion.