Should the US bailout the big three automakers?

[Wayne Maybury]

I recently read an interesting article on the US auto industry. While GM is looking at trying to find a buyer for the Hummer line (good luck these days), Ford sold Jaguar and Land Rover a couple of years ago and got a reasonable price for them. While GM and Chrysler are in Washington begging for a bailout, Ford raised billions of dollars 2 years ago in anticipation of this present mess. While GM and Chrysler are discussing dropping a model here and a model there, Ford has trimmed their selection of models to the bone. These factors have separated Ford from the other two. Ford has also worked very hard at improving their quality to the point where they are now considered as good, or better than, the competition (Toyota & Honda, not GM & Chrysler).

I am not an economist but I feel that the government should allow GM and/or Chrysler to go bankrupt at which time they would have to really get their business in order including renegotiating their labor contracts, pension plans, etc., and also probably getting rid of a lot of the dead wood at the top. The present shareholders would get hosed as the note holders would have all of their debt converted into equity. Of course this would result in a new board of directors and a new management team.

Wayne

[Don]

November 21, 2008

" AUTOWORKER WAGES.... To help explain the crisis facing the U.S. automotive industry, a growing number of conservatives have begun blaming the Big Three's workers for the companies' financial difficulties. Sen. Jon Kyl (R-Ariz.), for example, recently argued on Fox News, "For years [the companies have] been sick. They have a bad business model. They have contracts negotiated with the United Auto Workers that impose huge costs. The average hourly cost per worker in this country is about $28.48. For these auto makers, it's $73." "

Complete article:


http://www.washingtonmonthly.com/arc..._11/015760.php

[Great Asp]

Originally Posted by Wayne Maybury

I am not an economist but I feel that the government should allow GM and/or Chrysler to go bankrupt at which time they would have to really get their business in order including renegotiating their labor contracts, pension plans, etc.,
Wayne

Wayne,

That's the way I feel too, but this is more about Democrats in Washington supporting the Union voting block than doing what is right. Imagine who those votes might go to if Union people lost wage values, or even their jobs.

E

[Rick Weber]

Here's my $.02.

You can keep throwing $$$ at the automakers now and forever. The problem is...ready, here it comes...NOBODY IS BUYING!!! And it isn't just the U.S. automakers.

Rick

[What'saCobra?]

New nominal automobiles sell for variously $15K to $25K dollars per ton. Super-quality costs perhaps double. Exotics treble+. Assemblers in Detroit earn about $75 per hour.

Four-place new Aircraft cost variously $300K to $500K per ton. Assemblers earn about $35 per hour.

Aircraft are far more complex and require far more specialist skills to assemble correctly, which skills require considerably more effort and time to acquire.

Admittedly, aircraft do not have transmissions, axles and water coolant systems, very complex designs and frequently subject to failure. But, aircraft have propellers that change pitch, wing and prop de-icing systems, landing gears that fold in and out, very complex operating instrumentation, very complex navigation instrumentation that changes quicker than goosed lightning (all made of goldinium) and most importantly, much larger labor-hour content and skill requirements.

It is very upsetting if a bolt/screw falls onto the floor under the dash of our new Buick; but, it might be life-threatening if it happens in our new Beechcraft Bonanza G36.

It is a pain in the buttinski to pull-over in the slush to clean the ice off the frozen-solid windshield wipers of our new $30K Fusion; but, you are indeed in deep horse-pucky if it happens in your $6M Super King Air 350.

i love the automobile design and mfg business. Ditto in aviation, including repair, rebuild and operation.

Aviation wages are very competitive with other businesses and frequently not union, certainly not UAW, but often IAW (International Machinists and Aerospace Workers). New methods and new skills are regularly revised, reversed and eliminated as necessary, far more easily and comparatively cheaply.

The point? Aviation, though demanding far more skill requirements, pays just over half the wages of automobile assemblers, in order to compete with international competitors. Since most of the aviation companies have been bankrupt at least once, allowing the re-birth with less burdened fixed costs, there are not a large number of retirees that add thousands of dollars to the price of each airplane.

Accordingly, American aircraft exports are one of the very bright spots in our trade balance. Many foreign operators happily believe America builds the finest and safest aircraft in the world... at any price! Yet, we remain fleet competitive around the globe, even in military aircraft.

While labor wage rates and work-rule flexibility are not the whole story, particularly at the moment, it is an important part of aviation's very successful mfg and business model.

Yet, automobile design, manufacturing, regulation and marketing are so different it is hard to clearly comprehend how we can be so successful in one and so marginal in the other.

(However, do not forget the complete failure of both French, Spanish and Italian auto sales in the USA (except for a very few exotics). They are burdened with similar wage and rule and overhead problems in their auto industries.)
-------------
Ps: Watch Japan now invest in Chinese factories, to build cars for US importation... VERY cheap and very advanced efficiencies.

Pss: Having said all that, new automotive engine/transmission/hybrid designs are indeed getting VERY complex, now, at last, faster than aviation hardware (if not electronics).

[Wayne Maybury]

What's a

Very interesting post which adds a different perspective to this discussion.

Wayne

[JWilly]

What'sa: I agree with WM and it is a very interesting post. My guess is the US aircraft building industry is extremely small when compared to the US car building industry. I would also guess (speculating here, I really don't know) the union representing the workers of the aircraft industry has far less clout in Washington (the root of all evil) than the UAW does. The UAW has held the automotive industry by the short ones for many years. That grip may finally be loosening. At least I hope so.

Regardless of all this, I believe the US auto industry needs to suvive. Allowing GM and Chryler (and eventually Ford too) to enter bankruptcy would be a huge risk. If the economic damage was only to GM and Chrysler then I would say let'm rot in hell. But the problem goes way beyond GM and Chryler.

[RedBarchetta]

Originally Posted by JWilly

If the economic damage was only to GM and Chrysler then I would say let'm rot in hell. But the problem goes way beyond GM and Chryler.

http://www.bloomberg.com/apps/news?p...Eg8&refer=home

Where does it all end? This latest proposal essentially pre-pays the receivables to the suppliers that GM and Chrysler can't pay back today.

Someone has to die. We can't continue saving the herd. The slowest Zebra always ends up as dinner. The medicine tastes bitter, but how else we ever going to get to the other side if we just keep printing debt that China will eventually say NO MORE! to? Then what will we do then?

If Bush was using a high school mentality to stop the bleeding, then Obama is using elementary school tactics. Just wait until they tackle entitlements, Medicare/Medicaid, etc. We haven't seen anything yet. And the airline industry is not too far behind either. Everyone is going to suck up to Uncle Sam to bail themselves out.

[Jerry Clayton]

If we let the auto industry die we won't be able to haul the bombs or fuel to the fighters and bombers---

[What'saCobra?]

THX, but:
i only wish that more folks today would understand my principal point:
it is excess regulation via unnecessary, wrong-headed and economically impossible "rule making" that causes industry to fail, not avaricious marketing departments, sleazy salesmen or failed engineering challenges.

There is only ONE rule-making entity for aviation, the FAA. Admittedly, it is, like most of government, slow to change, but not frozen. Efficiency is NOT mandated. Safety in design, manufacturing and operations is mandated, by that one entity. Satisfy them and you are in the door. AND, since the rest of the known universe uses FAA rule-making and procedures as the basis for their own aviation industry (even the Russians!), you become globally competitive at the git-go (well, nearly).

In banking, it was the forced mortgage-writing for NINJA borrowers (No Income, No Job, no Assets) with "easy" terms and scant qualifications that created the rot at the core of current banking (note: not yet solved with TARP, which was used to cannibalize smaller banks BY DIRECT CONGRESSIONAL DEMANDS via law). The problem was not lack of regulatory control, but excessive and non-economic rule-making, with threats from Reno's DoJ (and the Gorelick-encouraged stone-walling of the Bush administration's demand for improved audits and improved administrative rules by the dem House under little Tommy Dashle and Nancy "i-can't-feel-my-face" Pelosi).

It is important to recognize the significant difference between excessive regulatory interference via Law and Rule-making versus the simultaneous lack of proper administrative internal controls of FNMA and other Fed Regulatory Agencies and the subsequent big-mouthed, race-baited and turf-defended illicit defense of the indefensible loaning failures. Most folks do not yet fully comprehend the exact nature of these failures nor the frequent attempts by McCain and Bush to correct them. FNMA etc were not administered by the executive branch. They are, like the Postal Service, quantos of a sort, but after-the-fact, guaranteed by the taxpayer, despite Congressional assurances that those would NEVER be the case.

re: Autos
We certainly have the capacity to mfg and sell world-class automobiles and we do so every day, but not very much of the US fleet is exported because it is not designed to world-market standards and regulatory requirements. More later, got to go.

[joe g]

Here in ct two more dealerhips that have been around for over 70 years just folded. Both family owned, on top of 25 that have gone in the past 6 months.
Between slow sales and no money from banks for new inventory they just could not survive.
I'm not sure where i stand, but if we do give them money, then no more 95.00er hour or being paid 80% of there paid when laid off for 5 years.
joeg

[sdfletch]

Jamo,

Your comment/attack on one of the members here is out of line. Mod take note.

[TButtrick]

Originally Posted by sdfletch

Jamo,

Your comment/attack on one of the members here is out of line. Mod take note.

I'm gonna have a drink on that one..

[392cobra]

Originally Posted by sdfletch

Jamo,

Your comment/attack on one of the members here is out of line. Mod take note.

Jamo,You can borrow my patch if wanted/needed.....

[Jamo]

Actually, I deleted it within a nano-second of posting it. I did so because I don't want to become embroiled in talking with brainwashed union folks, not because I thought it was out of line.

sdfletch...back off. This discussion has been going on for years. I am a member as well as a moderator.

[Jamo]

Thanks Fred.

I am going to move this to the Lounge though...turned a bit too political.

sdfletch...that's called moderating...I is one.

[Jamo]

Can't help myself (and now that it's in the Lounge): Dwight, you're full of sh!t. You obviously are part of the problem with your simplistic thinking that the corporation has no overhead over the damn plant you worked at. They have to pay for the non-working union folks that have caused the downfall of so many industries in this country. Your beloved union is still trying to hold on to the full-pay layoff provision that was supposed to be deleted as part of the bailout. [Just engaging in some fun discussion...see this: ]

No we're not all in this together...you union folks and your fellow travelers (that's a commie term BTW), the environmentalists and other brain-dead rainbow coalition maggots [note: ], caused this crap and now our children will have to pay for it.

BTW, I teach labor and employment at the university level. The things you think the unions brought are not all good, and most certainly were not brought in by unions...and I go back to the 1600s in my history.

[TButtrick]

For those of you who may have missed the brief fusion of a million synapses within Jamo's brain, I think he meant to say.. unions and their members can s##k donkey dongs.

[Jamo]

Hmmm...just noticed sdfletch has chimed in elsewhere telling folks not to talk politics on this site. Don't like fairly new folks telling long-time folks what to do around here. Biased? Yes...tough.

So here it is, sdfletch...you're banned from posting on anything remotely looking like a political thread.

Please...challenge me on this. Pretty please.

[Cobrabill]

Originally Posted by Jamo

Hmmm...just noticed sdfletch has chimed in elsewhere telling folks not to talk politics on this site. Don't like fairly new folks telling long-time folks what to do around here. Biased? Yes...tough.

So here it is, sdfletch...you're banned from posting on anything remotely looking like a political thread.

Please...challenge me on this. Pretty please.

Come on,Jamo...give him some rope.