I have a really bad feeling about this. For all the many faults of America’s auto industry, now is not the time to let it disintegrate. Especially not when we’re propping up a more insidious and far less worthy entity, namely the financial industry. An astute financial reporter makes a persuasive argument:
They don’t deserve a bailout.
But then again, neither did Wall Street. The presumption, as we were told by the likes of Senate Minority Leader Mitch McConnell, R-Ky., was that the consequences for the greater economy would be simply too disastrous if we just stood by and watched as the financial titans whose own greed and irresponsibility created this mess crashed and burned. And that was back in September, several months before the economy started losing half a million jobs a month (a number that seems sure to go up judging by today’s awful jobless claims figures). The U.S. economy is in much worse shape than it’s been for at least a quarter-century, and appears to be unraveling at terrific speed. Thus, an even more timely case can be made for saving Detroit as was offered for Wall Street. Does it really seem like right now is the best time to see what happens if G.M. declares bankruptcy? As a worst-case scenario, might not it be better to help Detroit limp along for another year or two, until we see whether we can get out of what our current president not too long ago called “a rough patch”?
…There’s no sugarcoating this one — what’s good for Wall Street fat cats is not good for unionized Midwestern workers. It’s hard not to agree with the Detroit Free Press: We’re witnessing payback time for the UAW. Republican senators are on the warpath against organized labor.
Leave it to the Republicans to bailout Wall Street while kicking Detroit in the back. And maybe Detroit should be kicked in the back. But not right now, and not with such blithe difference to the consequences. They are playing with dynamite in a house of cards. The closing words of that article are scary as hell.
[I]t’s not so difficult for me to imagine looking back at this point from the perspective of a future historian detailing the events that led up to the Second Great Depression, and deciding to pinpoint the abandonment of Detroit as yet another grievous error that ensured a patient barely holding it together on life support went terminal.
I am under some pressure to return to America. For a number of personal reasons, I may have to. But once more, I feel that this remains a good time to be in China and paid in RMB. America really is on life support.
It’s been a long time, so some quick predictions: Current “deflation,” which is actually more of a disinflation – a return to where prices should be – will be short lived and oil prices will rise again. It’s a good time to buy oil, though it may remain depressed for another couple of months. The strengthening of the US dollar is also short-lived and will collapse as more money gets printed going forward. The new wave of home foreclosures will hit early in 2009, further devastating the banks. More money will need to be printed. You cannot have a strong dollar under those circumstances. While gold may not make you rich yet, it is still a safe bet. So is shorting long-term US treasuries. That’s my advice, take it or leave it.
Meanwhile, China will feel the pain, but will survive. As I say in my previous post, they are ready for the worst. America isn’t.
1
By fatbrick
As readers comment at elsewhere, GOP senators are surprisingly lack of strategies. The big three probably will fail one way or the other, no matter how much they can get right now. But GOP rejected the bail out now. The fault is on GOP’s shoulder. They can kiss the midwest states goodbye in the future election for a long time. And DEM can blame everything related to economy on GOP for another 2 -4 years. If GOP had granted this bailout, they could have let the big 3 going BK under DEM’s watch and blame DEM for it. Revenge seems to be sweet right now but GOP is going to pay for this later.
December 12, 2008 @ 11:34 pm | Comment
2
By pug_ster
The car makers are making most of their money by selling new cars. Now the economy makes everybody including myself to buy a 2-3 year older used car and that’s what hurting the car makers.
December 12, 2008 @ 11:36 pm | Comment
3
By Dave
A) Two wrongs don’t make a right. How does corporate welfare for Wall Street justify corporate welfare for Detroit?
B) There is a limited supply of capital. Any money invested in the Big Three must be taken from functional sectors of the American economy. How is that a net gain for the country?
December 13, 2008 @ 2:11 am | Comment
4
By Raj
There’s no sugarcoating this one — what’s good for Wall Street fat cats is not good for unionized Midwestern workers.
I think Dave makes a good point. Do two wrongs make a right?
Overall maybe it isn’t such a bad thing to bail out the car companies, but if Bush does do this he should impose strict conditions. Letting an inefficient industry carry on as is when there is so much extra capacity for car production in the world is a very bad idea.
+++
The big three probably will fail one way or the other, no matter how much they can get right now. But GOP rejected the bail out now. The fault is on GOP’s shoulder.
fatbrick, then why prop them up? You seem to be knocking the Republicans for not trying to buy votes by backing this…
December 13, 2008 @ 4:12 am | Comment
5
By Dave
A better “bailout” plan would be to let the Big 3 get bought out by the Chinese: http://www.huffingtonpost.com/jane-hamsher/chinese-want-to-buy-the-b_b_144920.html
By now, it’s pretty evident that the only way to build a good American car is to have foreigners manage the operation.
December 13, 2008 @ 7:35 am | Comment
6
By Raj
By now, it’s pretty evident that the only way to build a good American car is to have foreigners manage the operation.
Only if the unions play ball. You can have the best managers in the world, but without co-operation from the workers/their reps nothing will change.
December 13, 2008 @ 7:59 am | Comment
7
By tom wood
I had my business, bankrupt in 1978 because of a sever winer in iowa. I did not ask for or did i receive any bail-out from my government. because of that bankrupt, my home was also forclosed on. I now am a fiancial darwinist. let the bad ones fail.
December 13, 2008 @ 2:19 pm | Comment
8
By Richard
Maybe so – then we should definitely have let the worst offenders, the banking community, fail and die. But the point was to prevent catastrophe, and if Detroit dies the catastrophe may well bring America down. Bush knows this, which is why despite the GOP’s bad decision, the WH is going to step in and prevent it from happening. I hate bailouts, I hate our auto industry with their boat-sized gas-guzzling SUVs, etc., but we need to face the fact that the concentric circles of industries dependent on Detroit will be devastated at a time when the economy is at its most fragile. We bailed out Wall Street, we should bail out Detroit – or at least give the some very special loans. If your own business in 1978 had similarly threatened the lives of millions with the potential of actually igniting a national or even worldwide depression, I may have recommended the government bail you out, too.
December 13, 2008 @ 3:01 pm | Comment
9
By ecodelta
Bail them out but scrap out managing levels from top to bottom. Those who had taken the industry to this situation must be separated from it.
I read somewhere big three manager´s answer when they were asked by a congressman if they were ready to reduce their wages to one dollar a year to receive the bailout and save their companies. You can imagine their answer. I cannot conceive a real company owner that would not do anything to save his company and provide some security to his workers. Fire them all!
If public money goes there, the government should restructure the management level from top to bottom. Know the risk of government managing an industry, but it will be hard to brake the record set up by current auto industry managers. The government should trim their organization, look a way to provide a new management while keeping jobs as safe as possible.
Maybe cleaned up managers could be send them to a “reeducation” camp in CH. It seems there are some good Universities there to learn; or better send them to do some work practices in CH industries. Doubt that CH would like that last option, they will suspect, maybe with some reason, that it is a move to destroy their auto industry…. 😉
Just read that Opel workers in Germany are ready to significantly reduce their wages and social advantages in exchange of controlling shares from the company (and provided that the money does not goo into GM’s black hole). It doesn’t look a bad idea.
December 13, 2008 @ 6:36 pm | Comment
10
By Chip
Although I disagree with the bailout of Wallstreet, the logic behind it makes sense. Wallstreet and the financial system are crucial for the economy, because all business, whether its big corporations or mom-and-pop stores, relies on capital supplied by banks. Detroit? A bunch of whiny babies, and no, their effect on the economy isn’t even CLOSE to that of Wallstreet.
By the way, most of the comments are talking about switching over the management at the big three, which would be a good start. But the reason why Detroit is doing terribly isn’t just because of bad management, it’s being starved by the unions. If those pussies can’t take a reduction in pay and benefits, any bailout would be pointless. Either Detroit learns to play by the rules of the free market, or Detroit starves. I prefer the latter, American cars suck.
December 13, 2008 @ 7:02 pm | Comment
11
By Raj
Maybe so – then we should definitely have let the worst offenders, the banking community, fail and die.
I wouldn’t compare two car-making companies to the entire banking and financial sector. As you say yourself, if they fail it MAY cause a catastrophe. Whereas I think that it was far more certain that would happen if the banks etc weren’t helped.
That isn’t to say that the car-makers SHOULD be allowed to fail, but I think that the Republicans weren’t necessarily unreasonable in wanting change as a condition of help. The Democrats rightly objected to golden parachutes for failed executives when the earlier deal was being organised. So it all boils down to whether the pay cuts would have still allowed most workers to get by (i.e. the union heads were looking out for number 1, rather than the industry) or the cuts were too severe (i.e. the Republicans were asking for too much).
December 13, 2008 @ 8:56 pm | Comment
12
By Richard
Bottom line: letting the auto industry fail now is as dangerous as letting Wall Street fail a few months ago. Thus Bush will not let it happen on his watch. To his credit. The bailout denial was a typical act of Republican self-immolation, as brazenly insane as choosing Sarah Palin to run for VP. It risked hurtling America into a depression (which may happen anyway) and was universally damned by anyone with a clear head. Not the time to light a fuse that will lead to the unravelling of the backbone of US business. And that’s said by someone who holds no great love for the auto industry. Maybe we should let them fail – but not right now.
December 13, 2008 @ 9:14 pm | Comment
13
By Raj
letting the auto industry fail now is as dangerous as letting Wall Street fail a few months ago
Dangerous, I would certainly agree. As dangerous, I wouldn’t.
The unions could have agreed to the pay proposals. So I’m still curious whether the proposals were unreasonable in that people couldn’t have got by or that the unions were as much to blame. I wouldn’t like British MPs being effectively blackmailed by union leaders (“give us what we want or we’ll fall and take you with us”) – if they got away with it now, they’d get away with it again and again. Of course I also wouldn’t want MPs to use a bailout to punish people.
Are there any details of what the pay dispute actually amounted to, or was it confidential?
December 13, 2008 @ 9:47 pm | Comment
14
By Richard
Of course, the right will lay all the blame at the feet of the unions. There are many, many reasons behind the wretched state of the US auto industry. Unions are good. The average pay of a GM assembly line worker is $28 an hour. There are many hilarious myths out there about $70-an-hour salaries and the like, but they just aren’t true. Should the unions compromise? Nowadays, we all have to compromise. But blaming this on the unions is absurd, and it’s oh so Republican. Luckily that sort of thinking is on the way out in America. It’s about time. Go unions.
December 13, 2008 @ 10:04 pm | Comment
15
By Raj
But blaming this on the unions is absurd, and it’s oh so Republican.
I’m sure that the Republicans would blame the unions exclusively, but I would say even if the unions were being unreasonable the GOP has to share the blame.
Unions are good.
Certainly they are necessary, but a number of them really screwed up the UK in the 1970s. It’s hard when you get aggressive “peers” causing trouble – that reflects unfairly on the better ones.
There was a good article on the US car industry a while ago but I don’t have it now.
The average pay of a GM assembly line worker is $28 an hour.
Do you have an idea how many a hours a week and how many weeks a year they work? Otherwise I have no idea how that would compare to the US average.
But perhaps this is rather academic without knowing what the pay was proposed to be reduced to!
December 13, 2008 @ 10:38 pm | Comment
16
By Richard
Do you have any reason to believe the average work week of an auto worker is much different than that of most US workers? Most of us in America put in a 40-hour work-week. I am pretty certain the auto workers’ hours are about the same. Years ago I worked for a company as a member of a then-powerful union, the Newspaper Guild, and we worked the same number of hours as well.
Meanwhile, I’m glad to see that Bush is being sensible on this one issue. I believe he realizes his legacy is already in deep peril (duh), and that allowing the complete collapse of the nation to occur during his final weeks in office was to much to bear. I actually respect him for this decision – i.e., for stepping in and doing the right thing as the fools in his party sabotaged one of his few notable efforts:
For once, I fully agree with the Bush administration’s viewpoint.
December 13, 2008 @ 11:32 pm | Comment
17
By Raj
Do you have any reason to believe the average work week of a auto worker is far different than that of most US workers?
I don’t work in the US so I wanted to check rather than use an incorrect calculation.
Most of us in America put in a 40-hour work-week.
Ok, thanks. That would be $1,120 a week. So 52 weeks @ $1,120 = $58,240. Quite a bit above the national average then even without benefits.
“Administration officials are talking with those automakers about conditions that must be met to get the aid and have not made final decisions on the size or duration of the help.”
I certainly hope that this time everyone agrees to give enough ground. I have no idea what the workers’ reps were originally willing to give, but it might be better if they can try to get as close to their counterparts in the Japanese factories as they can – that way there will be less opposition to the bailout there. At the same time, as I mentioned before, the White House should take pains to avoid seeming as if they’re punishing workers.
December 13, 2008 @ 11:59 pm | Comment
18
By Dave
I have only two direct experiences with unions in my life.
1) I worked summers in a union paper mill in Minnesota to put myself through college. I made more an hour there at a job requiring two weeks of training than I do now as a college graduate. The mill never saw a profitable year while I was there and was sold off by its parent corporation (the fourth sale in the mill’s history).
2) I volunteered to pick up litter on the grounds of non-profit hospital but was denied because it would violate the hospital’s union contract with groundskeepers. That expense is passed on to patients and donors instead.
Unions are generally good an necessary, but if they can’t protect their own interests or they monopolize labor at the expense of the economy, then they need to get what they have coming.
December 14, 2008 @ 3:59 am | Comment
19
By Richard
Dave, some unions are corrupt and some are inane. Butthere has been a right-wing meme going around since Reagan that the unions are the source of all evil. It’s not quite that simple. Unions do more good than harm in general. When you look into a lot of the myths about union workers, like the $75-an-hour auto worker, you see how extensive the right-wing propaganda campaign against them has been.
For a good look at just how cynical this episode is, you have to check out this article.
If you really look into what’s going on, you see this is NOT about the auto workers’ pay. It is about the shitty cars Detroit makes. That’s why there should be a conditional bailout, including requirements for fuel efficiency and incentives for using alternative energy (as hybrids do), etc. The unions are nearly irrelevant to the failure of Detroit. It’s poor car sales, thanks to smarter, better cars coming from Japan and Europe.
December 14, 2008 @ 9:23 am | Comment
20
By Rah A.
“Meanwhile, China will feel the pain, but will survive. As I say in my previous post, they are ready for the worst. America isn’t.”
I think that’s debatable.
As is saying that unions “do more good than harm in general”.
I think there’s a good case to be made that the unionization of America’s manufacturing jobs has, over the last fifty years, helped to effectively kill America’s manufacturing industry.
Nothing is made in the US because it’s so much cheaper to manufacture elsewhere and export to America, and I would argue that that’s in large part due to the effectiveness of unions.
So I would contend that you can’t just dogmatically say unions are “generally good”, because there USED TO BE millions of manufacturing jobs in the states.
December 14, 2008 @ 2:12 pm | Comment
21
By Richard
Yeah, well I can be as dogmatic as I want to, Rah – that’s the joy of owning a blog. However, I don’t think I am being at all dogmatic. Nothing is made in Europe anymore, either – dirt-cheap labor elsewhere makes it unprofitable. Many if not most laborers who have been replaced weren’t even union members. And right now, many of our computer programmers, none of them unionized, are being replaced by their counter parts in India and elsewhere. So the “unions destroyed America’s manufacturing economy” is another myth wingers like to cling to. Sad to say, it just isn’t so. As mentioned, some unions are corrupt and their demands excessive. Some have done more harm than good. But we are much better off with them than without them. It is unions that helped make this a middle class nation and end the horrors of sweatshops and child labor. Of course, Republicans, who love the idea of an Apartheid-like separation of workers and Gentlemen, see unions dogmatically, as bad, as evil. I, in my infinite fairness and Solomon-like wisdom, see the faults of the unions but also recognize their benefits and why they are so necessary, and conclude unions are generally good. And that is an incontestable truth, at least here.
(And I only pretend to be an arrogant know-it-all speaking in absolutes to infuriate the right-wingers who, for reasons I completey fail to understand, choose to hang out on this site.)
December 14, 2008 @ 4:00 pm | Comment
22
By Chip
Economicly speaking, the ideal situation is a company without a union that runs itself under the fear that a union will form. The possibility of entry is enough to force employers to manage in a more reasonable way, while avoiding the corruption and distorted pay/benefits that come with an actual union. I agree somewhat with Richard, that unions can do good (and they HAVE done good, historically). However, I believe they pretty much have no place in modern america because their battles have already been won, all they do now is distort labor prices and hurt companies.
December 15, 2008 @ 8:39 am | Comment
23
By Falen
A big problem I see from the bank bailout, as seen from the Republic Window story, is the fact that the money is simply not filtering to the economy. Banks are taking the money to boost their balance sheet, buying out rivals, maybe even doing some speculations on stocks and currencies… instead of maintaining lines of credit for businesses. Whenever they can they are cannabalizing businesses instead, putting otherwise good companies out of business.
Congress need to watch how the bailout money is used. They are not to be used to make fat profit for banks.
Of course, Treasury is refusing to release the list of banks that has recieved money… typical.
December 15, 2008 @ 10:10 am | Comment
24
By Matt
It’s not about quality of the cars, Richard. The big three are very very close in quality metrics as the others. Toyota is slipping behind GM now, with Honda still perceived as number 1. (I bought my first American car last month, a GM product — great car btw).
Honda and Toyota has worse sales decline numbers in November than the big three decline. So the slump we’re in is not about quality, it’s about global decline in comsumption. (though the Big 3 market share in the states has declined in the past 30 years due to competition).
My prediction, and I’m always right: GM and Ford survive (hell, GM sells more cars in China than any other brand). Chrysler may survive in the truck and van segment. Unions will make more concessions and GM whittles the number of brands down from 8 to 4-5 (killing Saturn, Hummer, Saab, maybe GMC or Pontiac).
Net effect is like a chapter 11 — GM and Ford come out stronger, leaner.
December 15, 2008 @ 10:11 am | Comment
25
By fatbrick
Raj, of course GOP try to get revenge for UAW’s support for DEM. DEM then looks for to buy votes from UAW, or even let UAW suffers a little to make their cases.
December 16, 2008 @ 3:40 am | Comment
26
By PB
Well, seems I’m a little late to this discussion- I didn’t realize you were back in business, Richard!
Anyways, I think the notion that Wall Street HAD to be bailed out is a bit rich. It’s not like these guys got into trouble making loans to mom and pop shops, greasing the wheels of normal business, etc. They gorged on fee-driven financial manipulation and derivatives trading, blowing financial services way the hell out of whack in terms of its proportional size to the economy at large. This “paper” growth was unsustainable and, as has been amply shown of late, extremely detrimental to the global economy. Financials, basically, got out of control and became the economy when they are supposed to be one of its support mechanisms.
And then when it all comes crashing down, when the ability to make easy money and fat fees goes down the drain, then all of the sudden they are the champions of everyday American business again- yeah, the very same business that their rate of return says should shut shop and head oversees. Somehow, I don’t buy it.
Most of the financials are completely bloated and should not survive in their present form. Any bailout should have come with strict conditions and restructuring, unfortunately it was all given away for nothing thanks to a complete lack of political will and a good dose of ideological stubbornness in Washington. I doubt the big players are putting this money to work in productive parts of the American economy (if there are any left!)- I’m willing to bet they are instead busy figuring out how to game the current instability and profit from the arbitrage potential of so many economic linkages being completely out of whack. These guys abandoned any sense of obligation to the physical American economy a long, long time ago. It’s all just a paper game.
And I’ve always been amazed at the extent that financial services have managed to capture the hearts and minds of American leadership- ok, well maybe I’m not so amazed, as the “paper” economy sure pumped out a lot of all-too-real cash to keep the troughs brimming.
So, yeah, maybe the American auto industry is a mess. With significant global overcapacity on the horizon, I don’t see a way out for these guys. How do you restructure when, fundamentally, the world just wants (and some would argue even needs) a whole hell of a lot less of your product? Questioning whether they should be bailed out is completely valid, but I think this penchant for shitting on the unions is completely unfair. They ruined American manufacturing? Really? Uh, you might want to look at the role of finance in that as well. American industry has been wiped out by the search for a few gross margin points as much as by any evil labour plot to socialize America. Some guys would outsource their mom to China if it improved the bottom line. Give the factory boys a break, already. And this from someone who works in finance.
Rant Over.
December 19, 2008 @ 6:44 am | Comment