Should the US bailout the big three automakers?

[tool time George]

Cobradan that was too funny!!!! thanks for the chuckle
Kit

[cobra bill]

All of those competing car companies that are not paying as much for labor, have a distinct advantage, all of those countries have, I know this is a bad word, but I'm going to say it any way's SOCIALIZED HEALTH CARE! we in this country for some strange reason think that everything has to be for profit, we didn't have this problem before Reagan started playing with Voodoo economics, and decided that healthcare should be for profit, as well as education, and it's been spiraling out of control ever since.
If not for the cost of healthcare, the salaries would be comparable, Oh and it's a loan, not a bail out! the biggest reason we were able to work our way out from the great depression was we had a manufacturing base in this country, we do not anymore, the auto industries is the last of what was the greatest industrial nation on the planet, if we lose that we will suffer the consequences in immeasurable ways, in WWII we used the auto plants to build our war machine, how will we do it in the future, ask Toyota too?

[clayfoushee]

Yep, health-care and retiree costs of the Japanese and European automakers are subsidized by their governments, among other things. Think of this as leveling the playing field a bit against foreign competition.

And yes, the Big 3 package in question is not a "bailout" but a "loan guarantee," program which is exactly what Chrysler CEO Lee Iacocca negotiated from the gov. in 1979. The loans were paid back with interest to the taxpayers and ahead of their due date.

[Jamo]

They bring them there Japanese or German doctors to America when they opened their plants here? Do the American retirees who work in the American plants have to retire within site of Mt. Fuji or the Black Forest?

In other words, it's not really relevant when you compare apples grown in America to apples grown in America.

As to products built across the seas...they get to our shores somehow. Seems that's an added expense. We can try to match up each country's ability to serve the global market all we want. Fact is...our companies are sucking right now, as they have several times in the past. Screw what Chrysler did in the 80s...since then they've been owned by a German company and now a private group of investors and they got their hand out again.

[clayfoushee]

Funny on the German/Japanese Dr. deal. Except, we're talking about parent company, home-country costs, and the majority of their workforce.

The foreign manufacturers haven't been here all that long, as you well know, and the "legacy" costs haven't caught up with them yet. And yes, with regard to transportation costs, that is one reason they built U.S. plants relatively recently, and the other reason was "political." They chose their places well in traditionally non-union states, got major tax breaks/assistance from those states, and put themselves in locations where a "Toyota plant job" was far superior to anything else available. All they do here is assemble. The intellectual capital and technology development happens off-shore.

There is a body of theory in sociology called "relative deprivation." Revolutions never start when people are at the bottom. They begin when people have something and start to lose it, or they begin to want more. This is relevant to the "legacy cost" issue.

Right now, the average US foreign-manufacturer worker is much younger and feels relatively lucky even though he/she gets less in terms of overall compensation. Over time, they'll want more and more, which is what happened to the Big 3.

Many also forget that the Big 3 signed a deal with the UAW last year, which will greatly reduce their health-care and benefit costs going forward and make them more competitive with the foreign competition. However, that deal doesn't cut in until Jan. 2010. With the current economic crash, they won't make it until then.

I'm sure you're well aware that Toyota, Honda, Nissan sales are also down 30+% in the US, similar to Big 3 sales. If economic conditions get appreciably worse, which they well might, we might even start seeing them shuttering U.S. facilities as well. Meanwhile, back home, their Govs. will make sure they do not go out of business.

It's not about inferior products anymore. I don't believe the Big 3 products are significantly inferior anymore, and most of the relevant stats support that statement.

[Cobrabill]

[quote=cobra bill;, we didn't have this problem before Reagan started playing with Voodoo economicsQUOTE]


Really?Try again.It started in 1969 when the 240Z hit the shores.And Detroit was to &%^$ing arrogant to see what was coming.A GM exec was quoted as saying there was an "anomoly" in California with Japanese cars.


Stop blaming foreign makers for something that is COMPLETELY Detroits own fault.

[Jamo]

Well, let's break it down, shall we?

Originally Posted by clayfoushee

Funny on the German/Japanese Dr. deal. Except, we're talking about parent company, home-country costs, and the majority of their workforce.

Hmmm...the fact is, for many of their most important models (things like Camrys and Altimas), they build right here. Why? Not only do they avoid transportation costs...the Japanese cite lower cost labor as one of their reasons. Now, why would they say that? See below.

The foreign manufacturers haven't been here all that long, as you well know, and the "legacy" costs haven't caught up with them yet. And yes, with regard to transportation costs, that is one reason they built U.S. plants relatively recently, and the other reason was "political." They chose their places well in traditionally non-union states, got major tax breaks/assistance from those states, and put themselves in locations where a "Toyota plant job" was far superior to anything else available. All they do here is assemble. The intellectual capital and technology development happens off-shore.

They've been here long enough to learn about our labor laws...by watching the mistakes our own Big 3 (used to be more than three, it seems to me, but we lose a few during every cycle of awareness we go through). The Japanese plants are just not sitting in right-to-work states. There is, obviously, no such thing as a no-union state...wished there was. Only thing that happens in a right-to-work state is that you don't have to join a union to work, ie., closed or union shops are illegal. Non-members still have to pay a union a representational fee equal to union dues, but can withhold other fees and charges associated with political contributions or call girls for the union bosses. Be that as it may, the lack of legacy costs has little to do with the age of the workforce, and more to do with whether outrageous retirement benefits are granted. With no union, there are more reasonable retirement benefits. GM is paying such extreme healthcare benefits to its retired workers that few go on medicare. As to leftover defined contribution funding liabilities, GM and the others have been bringing those down dramatically over the past decade from profits gained from smoothing camper shells on the backs of pickups and calling them SUVs and charging a bunch more for the same platform...that gravy train is over. GM, Ford and Chrysler have all built new plants during the last 30 years that the foreign mfgs have been here for engines and subassemblies...they had the same choices as to where they might build them, and they enjoyed more than a few taxbreaks over the years both for new plants and in refurbishing old ones. Ford got so much help from Michigan when they redid the River Rouge plant that a medium-sized African nation's despot would've have been tickled with the fortune gained. As to where design and technology occur for these foreign mfgs, maybe you've lost sight of all of the major European and Asian design studios in Southern California...see, they pay attention to what folks will want to buy in the future right where the future market first appears...Southern California (the only real place left on this planet where innovation continues to occur, whether it's the design for a car or how a Hmoung can feed five generations of folks from a few acres of strawberries). Our own dumbasses are blind. Case in point...Ford builds the great little Fiesta in several nations, designed in Europe, and we're only now going to get it. GM is bringing over Aussie vehicles whenever it can, and they are winners...if they can keep the Michigan designers' hands off of them. But you're right, the Big 3's intellectual capital and technology for the American market is kept in the bowels of the accounting department, which has to figure out how to pay for union wages and benefits instead of creating the best car they can.

There is a body of theory in sociology called "relative deprivation." Revolutions never start when people are at the bottom. They begin when people have something and start to lose it, or they begin to want more. This is relevant to the "legacy cost" issue.

Guess this point was lost in France circa late 1700s. A few heads at the top need to go me thinks. I don't blame just the unions...some azzholes keep giving in to them.

Right now, the average US foreign-manufacturer worker is much younger and feels relatively lucky even though he/she gets less in terms of overall compensation. Over time, they'll want more and more, which is what happened to the Big 3.

You keep talking like the foreign-mfgs just started building here a few weeks ago...they've been around for a few decades now (Honda-Ohio in 1982), and they have beat the union organizing drives on a consistent basis simply because they do a better job managing the jobs and folks don't feel the need for third party representation. Over time, they will appreciate the fact that their employer is still standing and they are being treated right with pay according to their ability rather than watching morons getting increases because of seniority because they can't be fired.

Many also forget that the Big 3 signed a deal with the UAW last year, which will greatly reduce their health-care and benefit costs going forward and make them more competitive with the foreign competition. However, that deal doesn't cut in until Jan. 2010. With the current economic crash, they won't make it until then.

It's a simple two-tiered system that many industries adopted decades ago (Retail Clerks in the supermarkets in the late 70s)...just shows how far behind the Big 3 are in their labor relations. Forget dates, they won't kick in until the old phuks that can't be fired, or are layed off at 80-90% of their pay, or retire with huge benefits move on or pass on. Decades from now...we'll be thinking about GM in the same vein as American Motors or Rover.

I'm sure you're well aware that Toyota, Honda, Nissan sales are also down 30+% in the US, similar to Big 3 sales. If economic conditions get appreciably worse, which they well might, we might even start seeing them shuttering U.S. facilities as well. Meanwhile, back home, their Govs. will make sure they do not go out of business.

When the economic downturn turns...who is better placed in the market? They export many of the vehicles they build here...again, it's cheaper for them. Gotta wonder what they see that Detroit doesn't.

It's not about inferior products anymore. I don't believe the Big 3 products are significantly inferior anymore, and most of the relevant stats support that statement.

No...but they have relied too heavily on the wrong products, and they can't move quickly enough to absorb some hits...not when you have to continue to pay laid off folks not to work.

Love ya buddy.

[What'saCobra?]

Returning to the basics:
Voodoo economics was a derogatory title assigned to a rather straightforward and functional monetary theory as practiced by Ronnie Reagan, a phrase used by Bush I as he fought (and lost to) RR for the Republican nomination for the elections in 1980. Bush I and Bush II both proved not to understand the need for more balanced budgets. And they both learned the hard way not to trust dem deals. Reaching across the isle is an easy way to lose an arm... or an election. Ask McCain (but i doubt that he learned what was taught).
------
RR never proposed that "everything has to be for profit". Nor was that proposed as the only requirement for education or healthcare. However, RR did posit that both health care and education and government services would be improved with more competition in every area of labor, products, prices, services, methods, engineering... One way to gain competition is to open closed markets in every area of business and services, including health care and education. Naturally the NEA and UAW don't care for this approach.

However, every investor or lender has a reasonable expectation of a return on that investment or loan. Investors expect dividends and/or potential capital gains (and a fair, orderly and legal market for their share investments), while lenders expect interest payments (rents) and a certain return of principal. For example, the Chrysler loan included interest and a return of capital. The investors of and lenders to FORD, GM and Chrysler have similar expectations. They are not being met.

Direct investments in banks, insurers & companies in return for shares are essentially unsecured if the companies ultimately fail. But, if they are "too big to fail" (the big lie), they will represent a never ending sink-hole of great sucking sounds from Mukkaw Bay to Fleming Key.

Nor are the Big 3 customer preferences being met; viz: the sale of Toyotas, etc. Sooner or later loan terms will be violated, as they run out of cash.

Nevertheless, i think the USA-built car fleet is simply the best we have ever done. Fit and finish are top drawer and function is superb. But, they are perhaps 5 years late and 15 - 20% too expensive.

Further, in their haste to win control of all of the US government, the dems and their media lackeys have badmouthed our economy, our military, our allies, our leadership, our national motives and our economic policies enough to unfortunately aid and abet our national and economic enemies sufficiently to endanger our financial and credit markets and much more.

It is further unfortunate that the incompetent and probably fraudulent attempt at eliminating whatever racist and predatory policies aligned against our "disadvantaged" citizens (if they ever existed) by requiring dirty loan practices by banks that wished to avoid DoJ charges and the loss of the Federal Deposit Insurance status and even their legal charters.

The combination has proved deadly to the automotive sector in particular, especially when we observe the manipulation of the oil markets and resultant gasoline prices.

Wasting taxpayer moneys on government make-work jobs in the public sector (bridges, roads, etc) from 1932 to 1939 didn't bring us out of the depression, because it doesn't create investment and real jobs. It took WWII to induce wealthy Americans and institutions to invest for those promised and likely to be received returns on their investments. The current TRILLIONS of "don't just sit there, do something" spending isn't likely to fix this investment/jobs/credit problem either.

The big three and their unions need to re-negotiate. Only legal bankruptcy can assure us that the discussions and deals will be public and open. Spending money to delay the inevitable is more than just wasteful of our tax money. It is also a lie and they know it. But, the dems are willing to take any chance to our economy, just like our security, to help save the union bosses and campaign donations.

The highly motivated might like to read the latest GM proposal to the US Senate Banking Committee and House of Representatives Financial Services Committee, that contains many embedded assumptions that are unlikely at best):
http://online.wsj.com/public/resourc...plan120208.pdf

[clayfoushee]

Ron,

LMAO......fun as usual.

I believe your suggested approach could cause too much pain, take way too many big and little people down, and possibly trigger something much more serious than what we are currently calling a bad "recession." You disagree, and you use equally good arguments to support your position.

One thing is clear and without doubt. Japan would never (even after pigs fly) allow it's auto industry to founder, even if it were in the same shape as ours. Japan also provides major governmental support even when it is healthy, and we do not do the same thing.

However, as we agreed on another thread, neither one of us has any freaking clue regarding what will happen in this downturn, given various interventionist vs. hands-off strategies, or what is best. However, we are both very good at expelling hot air !

[Jamo]

Yup...miss the play.

Japan might not let them fail, but you could bet your azz that there'd be more than a few bloody finger tips at the table before the old men of the Diet instead of offers to work for a yen a year. By the time the meeting was over...guts on the floor.

[xlr8or]

Was watching a news story tonight about this whole thing and they were saying that they have more accurate numbers available from the big3 showing the current "average" UAW worker has a fully burdened cost of $73 per hour. Thats just the employed worker cost, not the retired/pensioned. Not bad for a basically unskilled production line worker.

[Bartruff1]

This is a Republic and every single action taken by the Gov has the effect, if not the intention of redistributing wealth to some group at the expense of the general public. there isn't a dimes worth of difference between the parties except that they tend to promote polices that benefit their supporters. There has never ever been a free market economy, we subsidize the farmers, the railroads, the airlines, the natural resource industries even the churches. Your marriage, your home and your kids education is subsidized by the taxpayers. Don't waste your time trying to identify some sort of loony tunes conspiracy to explain what has happened. EVERY COUNTRY that has a automobile industry subsidizes it, and so will we. This is politics as usual ......a contest between the intrests of the south and the northeast against the west and the midwest. I believe it is in our interest to have a viable auto industry in the 21st Century (Just like Airline Industry) and I am betting my money on it. I bought Ford at $2 a share of common stock and expect to make some money.

[cobra bill]

One thing you have to keep in mind about legacy cost, its due to deregulation that there is even a problem with it, before Reagan took office it was required by law that retirement investments could not be used by the companies or the government as assets, I'm a civil servant, and during the Reagan administration they changed the law, and shortly after that was done, they changed the retirement system for civil service, went from CSRS to FERS, that's because they used the money that we had vested in our retirements to lower on paper anyway the deficit spending, Now for all of us still on the CSRS system there is no money left in the coffers, all there is IOU's so now there is a legacy cost, and that's why civil service is being replaced by contractors, because when its put out for a competitive bid, we can bid one it, but they include the legacy expense in that bid and we have a hard time competing. You have to keep in mind though we pay out of pocket for our retirement, but because they changed the rules and allowed themselves to use the money, we are now a legacy expense to them, it's the same way with the UAW, they pay into their own retirement, out of a negotiated salary, and now that the company spent it, is it there fault?

[Jamo]

Edited...presumably cobra bill has gotten the message.

[sparks]

Being a IBEW member I do feel for the workers to a point ! There union leaders should have realized what all there benies would cost down the road. I do not believe they are "unskilled labor", however my total benefit package w/wages is at $66 hr. Now to me I am a highly skilled worker and even though I make aprox $15 per hr more there package is more than mine ??
I think I am fairly paid. Some of the perks these guys get r retarded. I think they should do a 20% reduction across the board, no bonus's for execs untill they truely become profitable again. I no I would take a pay dec. if I new it would keep me working! They must really think and look at the big picture before they elect there union reps. It can not be blue vs. white
Wake up UAW or you will be no more..

[What'saCobra?]

Most everyone feels somewhat disturbed that workers negotiated in good faith for benefits and salaries that eventually turn out to be re-negotiated. But, such agreements might become ineffective due to various factors not truly within worker control. Military service, market forces, financial results, church service, health services, legal advice, consultant 'recommendations' and much more are, unfortunately, subject to error, revision and adjudication. Everything is subject to a lousy economy for whatever sequence of obvious or obscure events including war, pestilence and incompetency, just to pick a few.

For instance, in trying to correct the falsely high valuations of assets and shares held by Enron, which when discovered tipped the entire company upside-down into the proverbial toilet, the Accounting Standards Board and AICPA, after considerable hand-wringing and hearings at every level of society including Big Brother, public audits became subject to marking-down of over-valued assets to their current market values in order to issue a "clean opinion" with no scary qualifications. The quick phrase to describe this rule became "mark to market". It typically marked valuations down, not up.

The previous asset valuation method was at COST... how much did you pay? How long ago? Still performing? Not a bad old method for several hundred years or so, since the Italians (!) invented double-entry book-keeping to reduce theft and divide authorities/responsibilities. But, probably un-intended was this effect of this rule on banking audits, when lousy asset-based mortgage paper, still properly performing within normal payment policies, was required to be marked down with some sort of guess of the current market price. AND, if the market value continued to drop (have you looked at real estate prices lately?), the bank, mortgage bank or lending institution MUST continue to drop the book entry accordingly.

Overnight, bank balance sheets were bleeding in the streets with loans outstanding far in excess of their asset holdings valuations. This threatened not only the viability of the bank as a going concern and the legality of their State or Federal Charter, but made continued business as usual actually a federal offense that would nullify their FDIC insurance of depositors money. As certain elements of the "public" became aware of these ratios, they withdrew their moneys from the risky bank. The Fed Reserve watched these funds each night and stepped in as they chose to force various mergers, sales and closings.

Presuming banker honesty (ahem!), this was a huge restructuring of the entire banking profession, not according to well-defined and well-adjudicated agreements and laws. Everyone's career and retirement plans have been severely adjusted downwards, mostly. (Of course, dem party/family compliant FNMA and Freddy mac executives mostly have not been asked to return their bonuses based on fictitious profits (volume based sweet-heart deals).)

When certain un-American entities (Soros et al) decided to short-sell mortgage bankers big time, the cards fell on the floor, as planned.

Given all this and more, putting off the unfortunate isn't in most of our interests. Buying FORD shares may be a brilliant move. i hope anyone makes a bundle on it. But, i'm not personally that brave. i would rather bet on GM or maybe a newly merged FORD/Chrysler. But, i would even rather skip them all at the moment.

[Jamo]

Damn good explanation, Whatsa.

What cracks me up is how Soros finances the Democratic Party and then bails on America. May very well be the worst economic criminal of them all.

[Tom Kirkham]

If the Big 3 and the Financial Institutions are too big to let fail, then:
1. Why did the Government let them get so big?
2. If a company is "too big to fail," why aren't they being broken up?
3. Why is the Government letting them get bigger (Bank of America merging with Merrill Lynch, GM in merger talks with Chrysler)?
4. What other companies are "too big to fail" (probably Lockheed, and Boeing)?
5. Is "too big to fail" really "too big to save"?

[Cobrabill]

[quote=Jamo; Gotta wonder what they see that Detroit doesn't.[/QUOTE]


There is the question for the ages.

[vanoochka]