Automaker Loan - For or against?

[itschris]

A buggy whip analogy doesn't make me believe that UAW make $70k/yr for sitting in chairs. I have known a few UAW. Seems like they all got up, went to work in the morning and came home tired. The foremen had a weird habit of having nervous breakdowns. I have no idea why but I thought that was funny.

I would be interested to know if you ever would have accepted an offer to double your income to work as a UAW for the rest of your life. My point is that not only is it not a free ride, it's also not very appealing. Those cars don't get built by people sitting in chairs. Which reminds me that I should get out of my chair and do something better than debating with a debate champ.

The buggy whip analogy is about the current business model. It's no longer viable. No one's saying autoworkers don't work, but you have to question the compensation model as compared to just about any other industry. I made myself clear... I don't begrudge anyone for taking advanatage of all they can, when they can. In the past, the model worked. Today it does not and things will have to change. The auto companies provided fantastics livings for many individuals and they still should, but perhaps on a lesser level perhaps. I'd rather see some percentage of the workers still receiving solid compensation rather than the entire percentage losing everything at some point in the future. The current model simply isn't working. Of course it's easy to sit here and talk about this stuff in matter of fact terms when you don't factor in the cost to the individual. That's the brutality of it. Dave is one my favorite people here and I'm in a long list of people who would never want anything negative to happen to his livelihood. But if you can't make something work anymore... and lets not worry about what has happened, but what will ultimately happen if things don't change,.. and you don't change it, then everyone suffers dramtically as opposed to some.

We're facing it here at my company. We've cut everything. No holiday parties, no lunches, nothing. No bonuses, no increases. Personally, I think that blows, but the alternative is potential layoffs. We've already had to let a few go. Granted it's trimming the fat and if you look at it from machine-like perspective... they were adding little to productivity and won't be missed at all. However, it's the human aspect that breaks your heart and keeps me up at night. But when we looked at it from a department standpoint, the area was way in the red, losing more, faster everyday. Do we keep everyone and let it hang on an extra 3-4 months then have to lose everyone, or do we make difficult choices now and save who we can long term. These choices are never easy, but it's easy to come across cold hearted when you discuss these things in matter of fact way.

The union is not the only problem. Poor choices and business direction are also to blame. If you've watched the hearings, there's a lot of blame to go around, but the problem i have is the the CEO's have almost an arrogance in the way they defend themselves. Failure is okay. But you must fail fast and move on. YOu have to be able admit that. The models that are currently in existance siimply don't allow for response and adaptation.

If soneone could make me beleive that giving the 25 billion today and another 25 billion 6 months from now and maybe more later would solve the problem and everything would suddenly work out... I'd be on board. But from everything I've seen, even from the testimony of the CEO's and the UAW, I don't think even they believe they can be an ongoing concern without a direct partnership with the government.

 

[Davemcc]

Thanks for the kind words, Chris. Right back at you.

I find myself in an awkward position at work. I'm an outspoken advocate of free markets living in a socialist nation doing a union job. I see the fundamental flaws in the system but there is no way that I can make people around me see that it is an unsustainable economic model. We all know we're the last generation of autoworker as we know it, but most people with my seniority are just hoping (probably in vain) to make retirement. So far, we've given up a lot in our last couple of contracts. We're in a wage freeze right now for the next three years, including cost of living, lost a weeks vacation, given up many non-production jobs to outsourcing (transport drivers, quality inspection, janitors, etc.), reduced job classifications, consolidated skilled trades specialties, and more. Our wages have not met inflation for years. Yet I still don't think that's enough. I think we should actively lower our wages but the union does our negotiating and they do not agree. I would rather have a decent, secure job than no job at all.

If the automakers were to go under, I would rather see it happen after the economy regains some strength so that the labor market can employ as many displaced workers as possible. A healthier economy has a better chance of providing gainful employment or entrepreneurship to these workers than what is possible now. I would think it's better these people move into other jobs than land on the entitlement rolls of the government further draining the economy.

 

[MidnightSensi]

Why didn't they make the appropiate adjustments to their business plan long ago when they first saw this day coming, asy in hte eighties or nineties?

I had a professor in college who started as an engineer for Ford in the 80s. He was giving a bit project for the indoor air quality of their plants, well funded. He put together this project, had it all worked out and then all the sudden they decided against it. He said to us that he left after that because he knew that there is no way a company could keep doing things like that and stay in business.

He would be surprised they lasted this long.

Your question is absolutely legit.

 

[Exit]

Maybe China will buy US automakers out

We have lost so many industries like consumer electronics, steel, textiles, shoes, etc. that I can’t see losing the automotive industry too, when we can do something about it. Where are all the displaced workers going to find jobs when there are so many people out of work already. I like the automotive industry better than the banking industry anyway so if you can bail out one, why not the other? All those people are paying taxes too so they would end up taking money from the government rather than putting it in. Maybe the Chinese will buy the US automakers with all the trade surplus they have and get a big presence in the US market

 

[Alamar]

If the automakers were to go under, I would rather see it happen after the economy regains some strength so that the labor market can employ as many displaced workers as possible. A healthier economy has a better chance of providing gainful employment or entrepreneurship to these workers than what is possible now.

How about this ...

1. Maybe congress could pass special legislation that would give the auto makers the protections that you'd normally see with a "reorganizational bankrupcy" so they could get out of any bad contracts with labor / dealers / etc. and renegotiate without the stigma of bankrupcy. This would allow the auto companies to reorganize from the ground up which is what they need to do.

2. If the auto companies can't get financing to get them through the hump then government loans to the industry would be next.

 

[markw]

"Maybe China will buy US automakers out" - Funny you should say this.

We have lost so many industries like consumer electronics, steel, textiles, shoes, etc. that I can’t see losing the automotive industry too, when we can do something about it. Where are all the displaced workers going to find jobs when there are so many people out of work already. I like the automotive industry better than the banking industry anyway so if you can bail out one, why not the other? All those people are paying taxes too so they would end up taking money from the government rather than putting it in. Maybe the Chinese will buy the US automakers with all the trade surplus they have and get a big presence in the US market

Be careful what you wish for.

http://www.agoracosmopolitan.com/home/Frontpage/2008/11/19/02867.html

Think about it. They could buy the factories for real estate and capital. close them down, and reopen them under a different charter with no allegience to the UAW.

Where would we be then? Would they send out for American food?

 

[Mort Corey]

I like the automotive industry better than the banking industry anyway so if you can bail out one, why not the other?

Don't forget to throw in the insurance industry too....AIG is up to close to $150B and counting and they don't "make" anything (well, except maybe a mess) It's a worldwide race to the bottom...I hope we don't win.

Mort

 

[Exit]

Thought you guys might find this glimpse of the Chinese auto industry interesting.

http://money.cnn.com/galleries/2008/fortune/0810/gallery.china_cars.fortune/index.html

 

[itschris]

Thanks for the kind words, Chris. Right back at you.

I find myself in an awkward position at work. I'm an outspoken advocate of free markets living in a socialist nation doing a union job. I see the fundamental flaws in the system but there is no way that I can make people around me see that it is an unsustainable economic model. We all know we're the last generation of autoworker as we know it, but most people with my seniority are just hoping (probably in vain) to make retirement. So far, we've given up a lot in our last couple of contracts. We're in a wage freeze right now for the next three years, including cost of living, lost a weeks vacation, given up many non-production jobs to outsourcing (transport drivers, quality inspection, janitors, etc.), reduced job classifications, consolidated skilled trades specialties, and more. Our wages have not met inflation for years. Yet I still don't think that's enough. I think we should actively lower our wages but the union does our negotiating and they do not agree. I would rather have a decent, secure job than no job at all.

If the automakers were to go under, I would rather see it happen after the economy regains some strength so that the labor market can employ as many displaced workers as possible. A healthier economy has a better chance of providing gainful employment or entrepreneurship to these workers than what is possible now. I would think it's better these people move into other jobs than land on the entitlement rolls of the government further draining the economy.

Hey Dave, I was talking to an analyst yesterday who thinks the likely scenario will be a structured bankruptcy where everything will be predetermined. That's what he thought anyway and in my mind would be the very best scenario. I think it will allow and force the auto makers to redefine their contracts and business metics. You know, part of the problem is that around 10 years ago things started heading south fairly quickly and not a whole lot changed. The market, really what it can bear in both volume, compensation, and many other aspects, ultimately has to dictate the course of action When you artificially prop things up, you will suddenly find yourself on borrowed time.

I think in the end, what we can really hope for is an industry that can better adapt. Efficiency builds momentum... that how you succeed. I believe downrange, we'll be far more formidable as an industry.

IN a lot of ways, we struggle with some of the same issues, but obviously to a much lesser degree. We have long-timers here who keep getting increases year after year after year who far outpace their coworker just because of the time they've put in. In one of the division I oversee, we have two ladies who have been here for 20+ years. Both recently got college degrees, one just a couple of years ago, the other maybe five years ago. They've been doing the same job, or at least the same level job forever. There's no interest in doing anything more or less. It's clerical work and they're both very satisfied to stay put. I think that's fine and I have no problem with that, but our concern is that they literally make almost twice what the kids who work next to them make. It's a struggle between what's a job worth vs what's a person worth and what happens when those diverge.

I mean we could get rid of both of them and hire two new folks for less than one of their salaries.. not to mention the thousands of dollars we spend on their education which they chose not to use in any way at our office. I don't mind investing in that, if it's to better yourself and reach out for new oportunity. But how do I justify paying them that much for what they do? It's tough. What really bugs me though is that they feel entitled. They do no more than any of the other workers and rreally add not extra value to the process, yet they get paid twice as much just because they've worked here for so long. We're going to have a conversation soon telling them that they will not longer be eligible for increases at their current level for the current job they're doing. I'm sure it won't go well.

And when I think about that, it makes me have even more respect for you that you're willing to acknowledge the changes that may be needed... even to your own personal detriment. That's brave and give a lot of insight into your character my friend. I'm sure if things continue the way they are, the CEO will start looking at my salary and wonder if I'm worth it or not. Hopefully he does, but at the same time, they'll suffer the incovenience of not having me around if they need to.

We're all in the same boat to one degree or another. Take care!

 

[annunaki]

I haven't made it any secret that I'm an autoworker and will be affected by the outcome of all this. But in my view, Chris is absolutely correct. The result of decades of union gains is more like extortion than anything else. It is certainly not negotiation, as in the mutual agreement of two free and willing partners. Every time a contract comes due, the union makes "demands", not offers and they are willing and legally able to hold tens of billions of dollars in company assets hostage in a strike during the "negotiation" process. Since no company can have it's means of production idle for very long periods, it simply becomes a game of boardroom chicken between the company and the union. The current set of laws favors the unions and has for decades.

The other factor to consider is the decades of past contracts. The front page of my local paper shows that GM has 1200 people working and 2400 retirees right here in my city alone. Overall, the Canadian GM pension plan has a $4.5 Billion deficit. This is entirely the legacy of decades of laws that favored the union at the expense of the long term interests of the company. Let's face it, the domestic auto companies did not want to become the victims of mass extortion every three years!!! How is this their fault??? I can lay the "flawed business model" right at the feet of the governments that passed these and other similarly stupid, short-sighted and vote-pandering laws.

As I've said before, it's the government's mess, let them clean in up. Even if the aid package only gets the domestics over the hump in the economy, it will be less damaging to the overall economy to let the companies reorganize at a time when the rest of the economy is not in meltdown mode. Blow after staggering blow to an already reeling economy is an unwarranted invitation to disaster. Let the housing and credit markets rebound, let the stock market regain some strength and let the domestic consumer market recover somewhat before we lay off millions more people, reduce pension income for retirees and leave tier 1 and tier 2 suppliers with billions in defaulted payments. Six months or a year from now, probably nobody will notice if Cerberus closes up Chrysler and sells off the assets.

In the end, I am for the bailout and against it. Get the automakers past the near term economic weakness and let the restructuring take place when the economy is not already weakened. But if we are going to hold the automakers to a free-market standard when they are in trouble, then let them operate in a free market. Lose the outdated laws protecting the unions and let companies have real "negotiation" instead of "extortion". There is a terrible double standard in play here, legislatively forcing the automakers to run their business in a social utopian model then rubbing their noses in free-market dogma when that socialist model inevitably fails. Pick a side, free-market or socialist, and apply it to all aspects of the domestic's business model. But please don't pretend that the free-market has been in effect up to this point.

Nice analysis and insider input.