republican unwillingness makes automative bailout look unlikely

Tonight, I was going to write the most definitive post in the entire world on the plight of the Detroit automakers, and the arguments both for and against their receiving the government bailout that Democrats are asking for, but then I entered into the magical realm of the Ypsilanti 2020 Task Force, where my razor sharp wit (and will to live) got worn down to a dull, little nubbin by two-and-a-half hours of group editing… I mean, I love the folks I serve on the committee with, and I appreciate their dedication to this struggling little town of ours, but after an hour of debating punctuation, wording and layout issues with a dozen people, I’d do almost anything to make it end… Fortunately, our meetings don’t take place near a tiger enclosure.

As for the Big Three getting their piece of the $700 billion bailout pie, it looks like we could see a vote in Congress as early as Wednesday. Right now, it doesn’t look as though any Republicans are onboard, but maybe that will change if they become sufficiently scared between now and then. GM, in hopes of seeing that happen, has just released a terrifying new video about what we can expect if they go out of business. As fear seems to have been the primary motivating force responsible for the Wall Street bailout, I suppose it’s got a pretty good shot at working here.

And here’s a clip from CNN:

…Senate Democrats were trying to earn GOP support for their proposed bailout of the Big Three automakers. Democrats would like to see a vote Wednesday, but some concede they probably don’t have the support.

Senate Majority Leader Harry Reid, speaking on the Senate floor Monday, urged action on the plan.

“The Treasury Department has acknowledged that they could provide the auto companies the temporary assistance to keep automakers solvent by taking money out of the $700 billion we’ve already provided to the Treasury Department,” Reid said.

“If we move forward, we can protect American jobs, help American families and prevent our economy from falling further into a recession,” he said. “In the event there is objection to passing this important legislation, we’ll have the opportunity to vote on a second piece of legislation … that consists solely of unemployment insurance and relief for the auto industry and the auto industry’s work force.”

So, if I understand this right, if Congress doesn’t agree to extend the bailout to the automotive companies, they may pass new unemployment laws making it easier for displaced autoworkers to collect unemployment insurance, perhaps for a longer period of time than currently allowed for… I guess that’s something.

Harvard economics professor Martin Fledstein seems to advocate for bankruptcy in today’s Washington Post. But, if we’re unwilling to do that, he feels that restructuring is possible under the following terms:

…The goal of that restructuring should not just be to require the companies to make cars that are fuel-efficient and more environmentally sound, as President-elect Barack Obama has said, although that can be included in the government’s list of requirements. The goal should be to put the companies on a course that will allow them to survive for the long term, producing cars and creating jobs.

To do that, the government should insist that the unions accept reductions in wages and benefits to levels that allow the firms to compete with imports and with nonunion U.S. auto firms. The trustees of retiree benefits should be required to accept reductions in those benefits. The government should also insist that management eliminate dividends and restrain salaries until the firms return to profitability. Even creditors should have to accept write-downs in the value of their debts.

The government has substantial leverage to ensure that these changes occur. The auto companies’ management, unions, trustees of retiree benefits and creditors would recognize that without government assistance, the firms would be forced into bankruptcy and that the bankruptcy court could require even more severe cuts in incomes, benefits and payments to shareholders and creditors…

From the perspective of U.S. autoworkers, it looks as though such concessions are off the table, at least for now. But, as the professor points out, that doesn’t mean they wouldn’t be forced to accept concessions during either government imposed restructuring or bankruptcy.

And, for what it’s worth, not everyone agrees that high worker pay is to blame for the current situation. Some think it’s more due to management’s demand that the companies crank out gas-guzzling vehicles dependent on plentiful, cheap oil.

Get ready for a bumpy ride, Michigan.

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  1. LEK
    Posted November 18, 2008 at 7:31 am | Permalink

    Obama’s “Environmentally Friendly Auto Industry Plan” won’t be ready for some time. Go here to urge your congressperson to support a bailout.

  2. Eileen Catrett
    Posted November 18, 2008 at 8:42 am | Permalink

    About 15 years ago ,the Dad of my sons friend was a DEFECT DESIGNER for one of the major American car manufacturers. This is just appaling to me. If they wanted us to buy American made cars they should make them at least as good as they could and certianly not purposly design defects in them. I have not bought an American made car since I found out about this and certainly don’t think we should bail them out or anyone else who is so unethical and greedy

  3. Ty
    Posted November 18, 2008 at 9:02 am | Permalink

    General Motors says it wants a loan to weather this “rough patch,” but Andrew Ross Sorkin argues that the government should shepherd the ailing automaker into an orderly bankruptcy.

    In his latest DealBook column, Mr. Sorkin says that a much-needed reorganization, sponsored by Washington and including a merger with Chrysler, could allow G.M. to make the wrenching changes necessary to staying viable.

    Go to Article from The New York Times:

    Rick Wagoner, G.M.’s chief executive for the last eight years, will join the heads of the Ford Motor Company, Chrysler and the United Automobile Workers in testifying before Congress on Tuesday and Wednesday.

    The hearing comes as the newly reconstituted Congress is still divided on the issue of a separate bailout package for automakers.

    Go to Article from The New York Times:

  4. M Hardy
    Posted November 18, 2008 at 10:14 am | Permalink

    My company recently went through what GM, Ford, and Chrysler are going through now. Fat, bloated union contracts that they can not afford. We went through Ch 11 for 4 years. I haven’t had a raise since 2000. But, we are still working and have managed to trim our costs some, although we still pay an exhorbitant amount to the union for pension and health care. The Big Three needs to go ahead and start the process now. The union will not take wage and benefit cuts unless forced on them through the courts. If we are going to the bottom with the economy, lets clean up all our messes now, so that we can hope to prosper again some day.

  5. Brackache
    Posted November 18, 2008 at 4:16 pm | Permalink

    If only the Republicans would have prevented the first, bigger bailout.

    I wonder if they had a genuine change of heart after seeing the bad results of the first bailout, or if they’re just keener on letting the Democrat-voting UAW (and blue MI in general) lie in their beds. Or is it lay in their beds? Shit.

    Perhaps AIG was a little more nonpartisan in its contributions?

    Merely speculating and pulling stuff out my ass. Nothing to see here.

  6. XX
    Posted November 18, 2008 at 4:39 pm | Permalink

    Let them fail.

    And can someone tell me whether or not there are adult features rated XX? The 3-X ones are a bit too much for me. (I’m sensitive.)

  7. Posted November 18, 2008 at 5:21 pm | Permalink

    Let the car companies fail. Someone will come in and buy them up and restructure the whole thing. They are just worried that the Japanese or the Chinese will come and buy it up if the government doesn’t.

  8. Andy
    Posted November 18, 2008 at 11:09 pm | Permalink

    Brack: “…or if they’re just keener on letting the Democrat-voting UAW (and blue MI in general) lie in their beds. Or is it lay in their beds? Shit.”
    Yes, it is “shit in their beds”.
    Interesting article here:
    Southern lawmakers sour on Detroit bailout

    If it’s no surprise that Michigan lawmakers are behind the pitch for a $25 billion lifeline for Detroit automakers, then it might be just as predictable that Southerners would be leading the charge against it.

    Southern politicians have spent years luring foreign automakers to build cars in their states, with huge success. South Carolina has BMW. Mississippi recently landed a major plant for Toyota Motor Corp. Alabama boasts plants run by Mercedes-Benz, Hyundai Motor Co. and Honda Motor Co.

    In Georgia, the governor recently began using a Kia SUV in honor of the company’s planned $1.2 billion manufacturing facility there.

    It’s not that Southerners are secretly wishing for the Big Three to collapse. But if those automakers were to falter, the new players are poised to ramp up production and possibly turn the South into the next Detroit.

  9. Brackache
    Posted November 19, 2008 at 12:30 am | Permalink

    Andy, that is some thought-provoking shit to buzz yon heads with.

    I bet Mark H. can draw up some interesting congressional parallels regarding north-south economic competition and cheap labor in the 1800’s.

    And then you wonder if the southern migration north of all them ypsituckians will reverse to follow the auto jobs, and all the cultural/political shifts/conflicts that that might entail!

  10. Oliva
    Posted November 19, 2008 at 9:06 am | Permalink

    Even those of us tied to the Big-3 have been shrieking about the SUVs and trucks and poor decisions these past years. But it’s also true that the automakers tried for a long time to meet with Bush, which he resisted for years (finally did in 2006, with Cheney, for one hour).

    People assume that because Bush-Cheney are oil men, they are somehow out for the automakers too, which is obviously untrue. Oil industry moneymakers have been benefiting from the gas guzzlers while leaving the automakers out to dry, turning a blind eye until the automakers crush the union. It’s ugly (as are my mixed metaphors).

    Thank goodness Obama is pro-union. (Thank goodness for Chicago’s rich labor culture and history.) We have needed better national leadership for a long, long time (understatement of all time). The automakers have made dreadful decisions (where is Jacques Nasser now?!), but the bigger story is a Bush-Cheney tale of despise and blame the unions and those who let them still exist.

    Ouch, it really hurts.

  11. maryd
    Posted November 19, 2008 at 12:18 pm | Permalink

    My Nana used to reminisce about her days of work in the very early 19th century. The mother of 7 recalled the grand days before marriage and children, of working every day for the budding phone company in St. Louis MO. She worked every day with one day, one Sunday off a month. If she walked the bridge daily to work rather than take the streetcar, she could save enough for a day on a riverboat w/ friends, on her one day off a month. Grandparents can tell us how it was.
    Unions; they brought us the weekends, equal pay for equal work- man woman black white or red, the end to child labor and BENEFITS. Oh yeah I forgot not benefits, those are legacy costs, from greedy workers. Workers that stand on a line all day, frequently doing repetitive difficult tasks and breathing air so polluted that to open windows violates clean air standards. And these workers actually produce something and employ our own friends and neighbors. And pay taxes and practice community philanthropy.

  12. Brad
    Posted November 19, 2008 at 1:13 pm | Permalink

    Till the company goes under.

    I can also thank unions for my being a Michigander. Union thugs killed a bunch of my grandpa’s friends in Chicago and threatened to kill him if he didn’t unionize his milk delivery service, to the point where he had to carry a gun and a baseball bat in his milk truck all the time, so he fled to live in the country in Michigan and be a farmer. Thanks, unions!

  13. d
    Posted November 19, 2008 at 1:46 pm | Permalink

    Comparison of US vs. Japanese auto worker vs. university professor salaries:

  14. Posted November 19, 2008 at 2:04 pm | Permalink

    Oh man, that’s depressing. No wonder these guys are sending all their plants to Mexico.

  15. Posted November 19, 2008 at 6:16 pm | Permalink

    Just as an FYi, the last labor contract the unions ratified put in place a 2 tier system of pay. New hires will now cap out at about half of what current workers are making.

    The union is also now responsible for retiree health care.

    All the auto companies dumped a ton of cash to buy out the expensive workers. Ford has cut almost 25% of it’s salaried work force and GM has reduced expenses for salaried workers 30%.

    All the auto companies are bloated yes, and they’re somewhat poorly managed and they have too many brands.

    The unions did get out of hand, but I view that as a natural progression. Once they got the important concessions like decent wages, protection from unfair labor practices and decent benefits they had to continue to justify their existence. And they did that by getting more and more concessions. Like making election day a company holiday. And the start of deer season a holiday. They were running out of things to ask for. Frankly I think the concessions they made will help them go back to being the underdog in a few years. They’ve pressed “reset” and now they can once more demonstrate they’re needed.

    But really, if the auto companies go under enitrely it’s gonna be ugly.

  16. Andy
    Posted November 19, 2008 at 7:06 pm | Permalink

    More on the North-South auto axis here:

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