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Bail Outs For Auto Industry?

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bobman

Also the hourly wage of transplant company autoworkers is higher than the domestics.

hopefuly that fact will allow people now working in the US car manufacturers to transition to working for Hondaa Toyota ect without as much pain.

GM may dissappear but the demand for cars will not and the other manufactuers with a successful business model will have to take up the slack.

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Breakfast Boy
Union workers at the Big 3 make a good wage.  Nothing new there.  We have a decent wage and very good benefits.  But our benefits have been cut and workers hiring in now are making 1/2 of what I do.  I work across from a guy who makes half the wage I do and he's still glad to have the job.  So is that going to solve the problems?  Hell no.  Fact of the matter is that the union workers wage/benefits is not the reason the Big 3 are in trouble.  Simple waste of money is the problem.  Stupid spending by BOTH management and the union are to blame (IMO).  All of the blame can't lie with either the union or mgt.  I've seen some REALLY stupid **** from both sides.

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bobman

You want to know what really gripes my a$$... its advertising by the american car companies and to some extent the japs also, who thinks up those stupid ads?

You either have some babe telling you your car should turn you on (cadillac :p)  or some moron beating the hell out of his truck (:angry: recent dodge truck commercials).

How about a ad telling me about the features of the car and why they are better than the competition??

To simple I guess.

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Pat Berry

From today's paper:

In Detroit, Failure's a Done Deal

By George F. Will

Wednesday, November 19, 2008

"Nothing," said a General Motors spokesman last week, "has changed relative to the GM board's support for the GM management team during this historically difficult economic period for the U.S. auto industry." Nothing? Not even the evaporation of almost all shareholder value?

GM's statement comes as the mendicant company is threatening to collapse and make a mess unless Washington, which has already voted $25 billion for GM, Ford and Chrysler, provides up to $50 billion more -- the last subsidy until the next one. The statement uses the 11 words after "team" to suggest that the company's parlous condition has been caused by events since mid-September. That is as ludicrous as the mantra that GM is "too big to fail." It has failed; the question is what to do about that.

The answer? Do nothing that will delay bankrupt companies from filing for bankruptcy protection, so that improvident labor contracts can be unraveled, allowing the companies to try to devise plausible business models. Instead, advocates of a "rescue" propose extending to Detroit the government's business model for the nation -- redistributing wealth from the successful to the failed, an implausible formula for prosperity.

Some opponents of bankruptcy say: GM must not be allowed to fail before it perfects batteries for its electric-powered Volt, which supposedly is a key to the company's resurrection. This vehicle was concocted to serve GM's prolonged attempt to ingratiate itself with the few hundred environmentally obsessed automotive engineers in Congress. They have already voted tax credits of up to $7,500 for purchasers of such cars -- bribes that reveal doubts about consumer enthusiasm for them at a price that would reflect cost.

Congress could help the Detroit Three by allowing them, when meeting CAFE (corporate average fuel economy) standards imposed by Congress, to count fuel-efficient cars they import from their overseas factories. Congressional Democrats oppose that because those imports are not made by members of the United Auto Workers. Those Democrats, their rhetoric notwithstanding, really care most about the union. "Saving the planet" comes second and last comes the health of the auto companies.

Some opponents of bankruptcy stress that it might terminate health-care coverage enjoyed by UAW retirees who are too young for Medicare. Think about that. If people want to retire before 65, or 35 for that matter, that is their business. But there is no public interest in protecting the luxury of retirement in the prime of life just because in palmy days a private contract between a union and a corporation established it as an entitlement for all seasons.

In his new book, "The Great Inflation and Its Aftermath," Post columnist Robert Samuelson recalls that in 1950, when GM signed a five-year contract with the UAW, Fortune magazine celebrated this as the "Treaty of Detroit." Under "pattern bargaining," Ford and Chrysler struck similar bargains, thereby eliminating competition in labor costs. In 1950, the Big Three's share of America's domestic auto market was about 95 percent, Japan's and Germany's war-smashed economies were feeble, and the VW Beetle was a barely discernible harbinger of a huge threat. The Big Three and the UAW probably did not doubt the immortality of their oligopoly.

Six decades later, a "rescue" without bankruptcy will make those four entities wards of government. Doing so would make the five entities (including Washington) collaborators in unfair competition with America's thriving automobile industry that employs 113,000 Americans making vehicles containing many American-made components, but with foreign, mostly Japanese, nameplates. As Detroit continues to shrink, many American jobs "lost" will be regained in this industry, and its American suppliers, as Americans continue to buy cars. (Disclosure: Mrs. Will, who drives a GM product, is a public relations consultant for the Japan Automobile Manufacturers Association.)

The Economist reports that as recently as 2005, Americans bought more cars than did China, India, Russia and Brazil, combined. This year those four will buy more than Americans buy, but that is, potentially, good news for Detroit. In America's saturated market, there is almost one car for every person of driving age; in China there are three for every 100, and fewer than that in India. The Economist reports that in the next 40 years, the world's automobile fleet will surge from 700 million to 3 billion. After being restructured through bankruptcy, the Detroit Two, or One, might flourish. Let's find out. The ruinous alternative is to squander, in a doomed attempt to "save jobs," more scores of billions of dollars of scarce capital that will then be unavailable for job-creating investments in rising industries.

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Breakfast Boy
You want to know what really gripes my a$$... its advertising by the american car companies and to some extent the japs also, who thinks up those stupid ads?

You either have some babe telling you your car should turn you on (cadillac :p)  or some moron beating the hell out of his truck (:angry: recent dodge truck commercials).

How about a ad telling me about the features of the car and why they are better than the competition??

To simple I guess.

Amen to that!!

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Guest

Pat:

Thanks for posting that.

Personally I think that a Chapter 11 will not automatically lead to a Chapter 7.  I also don't like being threatened (as a taxpayer) by both the UAW and mamagement.  

I don't buy the idea that people won't buy from a company that is being reorganized.  There simply isn't any evidence to support that position in today's market.

Chapter 11 would allow a court to modify contracts including the UAW contact to the extent that it would relieve the company of liabilities.

I believe the best thing for the taxpayer would be for a prepackaged BK filed by all three on a Friday night.  The court could then make orders to stabilize the industry immediately and give the markets a chance to understand the situation prior to the Monday open.  If there was such a restructuring I would be much more inclined to support some Gov assistance either tax relief or capital injections.

Dave

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Pat Berry
Philosophically, I'm conflicted about all of this. In the simplest terms, I can't stand the idea of a bail out for anyone who made profligate decisions whether it's the large banks, the auto industry, or Joe-homeowner who extended himself beyond his means. Still, if these larger entities fail and take the rest of us down the toilet with them, well, I don't much like that either.

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bobman

I dont think it will take the rest of us down it will make the country stronger in the long run.

At least thats what I hope and history seems to prove it.

We are a great people and will innovate to get back on track. If the govt morons dont get in our way

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nickwilliams

I dont think it will take the rest of us down it will make the country stronger in the long run.

At least thats what I hope and history seems to prove it.

We are a great people and will innovate to get back on track. If the govt morons dont get in our way

Sure, it"ll be fine.

Nearly 3 million jobs would be lost in the first year alone – with another 2.5 million to follow over the next two years

Personal income in the United States would drop by more than $150.7 billion in the first year

The cost to local, state, and federal governments could reach $156.4 billion over three years in lost taxes, and unemployment and health care assistance

Domestic automobile production would more than likely fall to zero – even by international producers, due to supplier bankruptcies

The credit crisis that is affecting us all is wounding the U.S. auto industry in many different ways. Carmakers can’t get loans to restructure and to produce new advanced technology vehicles. Suppliers and dealers can’t get loans for routine business, and customers can’t get loans for new cars.

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Guest

From Stratfor today:

"Recession and the U.S. Auto Industry

For the United States, this choice has been posed in stark terms with regard to the dilemma of whether the U.S. government should use its resources to rescue the American auto industry. The American auto industry was once the centerpiece of the U.S. economy. That hasn’t been true for a generation, as other industries and services have supplanted it and other countries’ auto industries have surpassed it. Nevertheless, the U.S. auto industry remains important. It might drain the U.S. economy by losing vast amounts of money and destroying the equity held by its investors, but it employs large numbers of people. Perhaps more important, it purchases supplies from literally thousands of U.S. companies. There can be endless discussions of why the U.S. auto industry is in such trouble. The answer lies not in one place but in many, from the decisions and makeup of management to the unions that control much of the workforce, and from the cost structure inherent in producing cars in the American economy to a simple systemic inability to produce outstanding vehicles. There might be varying degrees of truth to all or some of this, but the fact remains that each of the U.S. carmakers is on the verge of financial collapse. This is what recessions are supposed to do. As in China and everywhere else, recessions reveal weak businesses and destroy them, freeing up resources for new enterprises. This recession has hit the auto industry hard, and it is unlikely that it is going to survive. The ultimate reason is the same one that destroyed the U.S. steel industry  a generation ago: Given U.S. cost structures, producing commodity products is best left to countries with lower wage rates, while more expensive U.S. labor is deployed in more specialized products requiring greater expertise. Thus, there is still steel production in the United States, but it is specialty steel production, not commodity steel. Similarly, there will be specialty auto production in the United States, but commodity auto production will come from other countries.  That sounds easy, but the transition actually will be a bloodletting. Current employees of both the automakers and suppliers will be devastated. Institutions that have lent money to the automakers will suffer massive or total losses. Pensioners might lose pensions and health care benefits, and an entire region of the United States — the industrial Midwest — will be devastated. Something stronger will grow eventually, but not in time for many of the current employees, shareholders and creditors. Here the economic answer, cull, meets the social answer, stabilize. Policymakers have a decision to make. If the automakers fail now, their drain on the economy will end; the pain will be shorter, if more intense; and new industries would emerge more quickly. But though their drain on the economy would end, the impact of the automakers’ failure on the economy would be seismic. Unemployment would surge, as would bankruptcies of many auto suppliers. Defaults on loans would hit the credit markets. In the Midwest, home prices would plummet and foreclosures would skyrocket. And heaven only knows what the impact on equity markets would be. In the U.S. case, the healthful purgative of a recession could potentially put the patient in a coma. Few if any believe the U.S. auto industry can survive in its current form. But there is an emerging consensus in Washington that the auto industry must not be allowed to fail now. The argument for spending money on the auto industry is not to save it, but to postpone its failure until a less devastating and inconvenient time. In other words, fearing the social and political consequences of a recession working itself through to its logical conclusion, Washington — like Beijing — wants to spend money it probably won’t recover to postpone the failure. Indeed, governments around the world are considering what failures to tolerate, what failures to postpone, and how much to spend on the latter. General Motors is merely the American case in point."

This was part of an article on the global recession.  If you are not familiar with Stratfor check them out on the web.  I highly recommend them.

Dave

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Chukarman
... However, I would like to see someone get a grasp on higher management for these companies and force them to quit mis-managing.  Whether we're talking about the banks, auto industry, oil industry or whatever.

The problem IS management. With the best and brightest of biz school grads going into high paying finance and consulting jobs, the industrial base of the country is sucking wind for real talent. Add to that the way biz schools create expectations of hopping right into a mid to upper management spot - without adequate grounding in how that particular business really works - and we have management problems.

Most of the really excellent managers in American industries spent years in the business, started at the bottom, or started the company themselves. You don't learn everything you need to know in business school.

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fuess

Today on CSpan, the leaders of the Big 3, Nardelli, Mullhally, and Wagoner, were "interviewed" by a congressional panel, about the perils of their companies, as well as the future of the industry.  Along with them, was the Pres of the UAW, and Professor Morecci (spelling?????) from I think  U of Maryland.

I have bit my tongue on this thread for a number of reasons, but suggest to everyone, if you have the chance, watch it.  Cspan usually runs these programs quite a bit.  I will also assume this will get alot of pres tonight and tomorrow, so be on the lookout.

I was quite impressed with the independant observations, recommendations, and posible/probale outcomes, suggested byu the professor, about the future of the industry.  I usually do not agree with acadamia, but I think this guy nailed it.

Unfortunately I did not see the whole thing, but did not need to form an opinion.

Now the problem, it is still in the hands of politicians to make decisions, and god only knows where that goes.

In any case, look for it, worht the watch, especially how it may flesh out this thread!

All the best!

FUess

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Guest

It is on CNBC right now.  I agree it is worth watching.  Some tough questions and then again Dodd had to get some brown nosing in.

Dave

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bobman

According to Forbes:

Labor cost per hour, wages and benefits for hourly workers, 2006.

Ford: $70.51 ($141,020 per year)

GM: $73.26 ($146,520 per year)

Chrysler: $75.86 ($151,720 per year)

Toyota, Honda, Nissan (in U.S.): $48.00 ($96,000 per year)

Bottom Line: The average UAW worker earns

52.6% more than the average worker at Toyota, Honda or Nissan.

Many industry analysts say the Detroit Three, and especially Ford, must be on par with Toyota and Honda to survive. This year's contract, they say, must be "transformational" in reducing pension and health care costs.

I asked the question in a post above above what are the unions doing to address this enormous difference in cost and my question was ignored I got no reply.

GM Ford and Dodge  cannot begin to compete with toyota honda and other with  these UAW labor costs. Any bailout monies are simply political payoffs for union support in the last election that will do nothing for the common auto worker and nothing for the long term health of the companies. It will disappear in some untraceable manner similar to much of the money thrown at AIG and others.

Its just good money after bad, they must go into chapter 11 and restructure ......or dissappear.

Chapter11 will allow 18 months of no money problems and the ablity to become efficient.

They are going to go bankrupt either way bailout or not.

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nickwilliams

According to Forbes:

Many industry analysts say the Detroit Three, and especially Ford, must be on par with Toyota and Honda to survive. This year's contract, they say, must be "transformational" in reducing pension and health care costs.

I asked the question in a post above above what are the unions doing to address this enormous difference in cost and my question was ignored I got no reply.

Good facts except you should read the read dates on the articles. What you are presenting was before the last contract.

i watched as much of the hearings as I could before I couldn't stomach them anymore. I just wish that some of the committee could shadow some of the best and brightest in the industry and see if they could keep up.

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