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December 15, 2008

What to Buy After the Bailout

Donald Pittenger writes:

Dear Blowhards --

As I write this, the unending saga of a pre-Inauguaral, seriously temporary, only a few billions "invested in America's future" cash injection for General Motors and perhaps Chrysler still hasn't been resolved. But I won't let such uncertainty stop me. Gotta keep the content rolling, after all.

Just for kicks, let's assume it's five or six months from now. Obama, Pelosi, Reid et.al. took the path of bailing out the domestic automobile industry. Let's posit that the plan voted by Congress and signed by the President imposes far fewer cost-cutting options than a Chapter 11 bankruptcy would.

Finally, assume your faithful car is now running up repair bills that, annualized, are getting near what you might be spending on payments for a new car. That means you're ready to start shopping.

What do you think you might do if the domestic car makers have been nationalized to some degree?

Here are your main options:

  1. Buy a car from an American firm to help save the industry.

  2. Buy a car from a foreign-owned firm, but one assembled in the USA (or Canada) -- as a protest against government meddling.

  3. Buy a car from a foreign-owned firm that's not built here -- as an even stronger protest.

  4. Buy the car that best suits your needs and means regardless of who the maker is.

I suppose that, at crunch time, I'd take option 4. But I'm no fan of government getting its fingers into the private sector and therefore can't rule out options 2 and 3 (with a preference for 2, depending on features/prices of what's on the market then).

What would you do?

Later,

Donald

posted by Donald at December 15, 2008




Comments

Number 2 or 3, but for a different reason.

I'm done with the "Buy American" nonsense and with shelling out my hard earned money to a bunch of incompetents who can't get even the simple things right. Since my tax dollars are now "buying American" through the bailout, I'm free to buy a well-engineered, reliable Japanese car.

I owned two Fords, followed by two Buicks. All were crap. From failed head gaskets after only 2 years of ownership, to knobs falling off the dashboard, to an electrical system that went haywire when it rained (always loved it when I would jump out of the car to mail a letter in the rain and come back to find the car had automatically locked the doors). During this period, my wife bought Japanese cars. While mine were literally falling apart at 135,000 miles, hers were (and are) going strong at well over 200,000 miles.

Posted by: Bill on December 15, 2008 1:36 PM



RE: But I'm no fan of government getting its fingers into the private sector...

I have no idea what this means. Are you going to ask that the government give back the $700 billion that it already threw at the financial markets? Is it government getting its fingers in when lobbyists and special interests actually write or strongly "sponsor" legislation that gives them an advantage over competitors?

Do you want to abolish the FDIC, and not have ANY insurance for bank deposits?

And of course, the foreign owned firms that assemble cars in the US got positive government meddling in the form of state government incentives, to move their operations to the US. And we have seen with other industries that they would be very willing to move operations to Mexico, Canada or elsewhere if it suits their needs.

However, to answer your direct question, I would choose option 4. The only rational option is to choose the vehicle that meets your needs.

By the way, I tend to favor free markets, but I note that markets includes buyers and sellers and consumers and wage earners, not just businesses and ... suckers. And I noted in a post long ago that the United States had a larger GDP than Great Britain around 1870. Britain was still a great power, but the US was potentially poised to overtake the "mother country." There is nothing about free markets that guarantees that the US will always be a great economic nation. I wonder how many people would be content with the idea of this country as a second-rate nation.

Posted by: Alec on December 15, 2008 3:22 PM



Alec -- Obviously, this is what's called a "gray area."

Taxation (and the rules by which it is implemented) is indeed a form of government manipulation/interference, but an unavoidable one given that all governments of any consequence tax. So are regulations. Which are "good" or "detrimental" or otherwise is probably best evaluated in the judgmental world of "context" though a capital-L Libertarian or someone else tightly wedded to a doctrine might sneer at such a wishy-washy way of looking at things.

In the case under discussion, I'm thinking of Congress or a "czar" stipulating what kinds of products to develop and placing limits on union concessions -- matters that are likely to affect a company's ability to become economically viable. (There already are the "CAFE" mileage restrictions which, in my opinion, have never been warrented; market prices for fuel are a better driver of sales by characteristics of the vehicle. Then there are efforts by states such as California to dictate what percentage of sales should be for electrically-powered cars; again, a degree of interference that is uncalled-for, so far as I'm concerned. Others will find such restraints perfectly reasonable.)

Posted by: Donald Pittenger on December 15, 2008 3:53 PM



Don – Here’s the deal. Taxation is necessary to civilization, whether it was the demands of animals for sacrifice or tithes going to early theocracies, or the appropriation of grain or human labor of early monarchies. To this extent, the ramblings of liberations for some government-free society are like the babble of children.
But I take your larger point: the question is the degree of intervention. I hate the idea of a Car Czar, for the same reasons you outline. But I have no problem with CAFÉ mileage standards (which are not “restrictions”). The auto industry has a history of whining about government mandates which later contributed to the value of automobiles – from seatbelts to anti-lock braking systems to airbags. The inventor of the catalytic converter, Carl D. Keith, recently died (nice obit in the NY Times). So, where we once had the auto industry complaining that requiring this technology would make it to hard for consumers to afford cars, we have this: “According to an E.P.A. statement, today’s cars are 98 percent cleaner in terms of nitrogen oxide emissions than those built in the 1970s, “and the three-way catalytic converter is the greatest contributor to that reduction.” And the car industry found a way to make this safety technology affordable.
Also, in a world in which OPEC exists, it is a fantasy to talk about “market prices for fuel.” And at one level I don’t see much material difference between the oil industry screwing with the auto industry and the government screwing with the auto industry. Both can have a negative impact, and it might be even money as to which might be more coercive. The California flirtation with electric vehicles was both short-lived and trivial, and had zero impact on the auto industry.

Still, all this is an order of magnitude of difference between having the government regulate and set standards, and getting involved in the planning or operational decisions of an industry, or in trying to keep a dying industry from failing.

Posted by: Alec on December 15, 2008 5:11 PM



#4 Always. Despite what consumers may blabber , they are loyal to their purses above all else.

Two weeks ago, I traded in my too-expensive-to-maintain-and-repair Audi for a Ford Focus. I love the smallness, the smoothness of ride, and I LOVE LOVE LOVE the $15,200 + taxes pricetag.

Posted by: jz on December 15, 2008 5:16 PM



Since we went through all this in Britain a generation ago, I can tell you that you should hold back from buying the native rubbish until the closing-down sale, when prices will be really sharp. You will tnen find, mirabile dictu, that there will be no particular shortage of spares when you need them, because the market will solve that problem for you.

Posted by: dearieme on December 15, 2008 5:53 PM



During this period, my wife bought Japanese cars. While mine were literally falling apart at 135,000 miles, hers were (and are) going strong at well over 200,000 miles.

This might be a bit off topic but the sad thing about all of this, is that the guy who taught the Japanese how to make good quality products was an American, Dr Demming. The crappiness of American products comes from the decisons made upstairs, not from the factory floor. The culture of management sucks.

Btw, Wagoners "compensation" for 2006 was just over 10 million, the CEO of Toyota, just under one. Makes you think.

Posted by: slumlord on December 15, 2008 7:04 PM



Option 5. Buy a Harley!

Posted by: Merlin on December 15, 2008 9:56 PM



I would do whatever would not put one cent into the UAW's pocket.

Posted by: beloml on December 15, 2008 10:15 PM



Merlin -- Interesting thought. But I'm not sure my wife would want to be seen riding on the stern of the saddle wearing a leather bikini as some Harley molls do down in Hollister, CA for the 4th of July gathering of the gangs.

Posted by: Donald Pittenger on December 15, 2008 10:18 PM



2, 2, and again 2! Enough of rewarding the imprudent, the incompetent, and the larcenous (ie., the UAW).

Posted by: Lester Hunt on December 15, 2008 11:27 PM



I'd go with Merlin's "option #5," except instead of a Harley I'd buy a motorscooter and use the car money to buy the steroidal inflation hedge of precious metal mining stocks. As of last spring, those of us who bought at the turn of the millennium had about a 2,000% return by simply riding the HUI mining stock index, and now we're rubbing our eyes at the opportunity presented by the violent correction of 2008, wishing we had more free cash to take advantage. Due to hedge funds' and mutual funds' dumping the stocks to fulfill panicked investor redemptions, great companies (silver-haired managers, fat bank accounts, 401-compliant ounces in the ground) are going for a song, some selling for less than the value of the cash they have in the bank. As you can see, the dinner bell rang in October. http://tinyurl.com/HUI-index

The hordes of mainstream economists who didn't see the present financial debacle coming don't think the trillions of dollars currently being created out of thin air pose much of a threat to the value of the dollar. Apparently, banana republic currency management only causes high inflation in Spanish-speaking countries.

Here's
http://www.youtube.com/watch?v=2I0QN-FYkpw
Peter Schiff being heckled on CNBC in 2006 and 2007 for predicting things that all came true this year...also Ben Stein extolling the great bargains presented by the "low" stock prices of the investment banks, shortly before they all went teats-up...but, hey, is there anyone who wouldn't want to take investment advice from the man behind this http://blogs.suntimes.com/ebert/2008/12/win_ben_steins_mind.html film? Anyone? Anyone? Bueller?

Posted by: Poseidon on December 16, 2008 2:41 AM



Buy used. During a depression it's a bad idea to look like you have money.

Posted by: Jason on December 16, 2008 7:30 AM



While my own answer is 4, I am fascinated by those whose answers are based on sticking it to the UAW workers, not management. On the one hand we have executives making annual incomes well into the eight figures, which they "earned" guiding their companies straight for the rocks. On the other hand unionized manufacturing labor demanding living wages, health care and a secure retirement.

The executives of the Big Three have fought against better safety, better pollution control, and better fuel efficiency. They have taken the short term, next quarterly report, approach to decision making and are now suffering the consequences of that approach. Further, they've regularly pushed a "blame the victims" P.R. campaign against their own workers along with consumer and environmental advocacy groups and government regulation. They don't want government interference ... like tougher CAFE standards ... just billions of (borrowed) tax dollars so they can avoid the inevitable result of their failure to build vehicles designed for the 21st Century.

Posted by: Chris White on December 16, 2008 8:06 AM



Chris, I was beginning to get quite disappointed in the posts until yours. Thanks for being clued in to the obvious. I sit and listen to my coworkers whine day in and day out about how upper management in our company gets a 100% raise every year and we get 3. They then bitch that UAW members get good benefits and wages and how THEY are the ones causing all of the issues in the auto industry.

First off, only 10% of the cost of a new car is due to labor. The "average of $70/hour" for a UAW member is bunk made up by the management to make their case seem more valid. Thankfully, Brad Sherman was paying enough attention to put them on the spot.

The UAW simply demands, yes DEMANDS, that its workers be treated as human beings and that they get their fair share of the profits for the work they do. That's really not too much to ask.

And, to answer your question, I choose Option #6 (since Option #5 is now a Harley): none of the above. I'd never pay the premium to own a new car. I've never owned a used car where the repair costs ever came close to equaling what a new car would cost me every month.

Posted by: Upstate Guy on December 16, 2008 9:58 AM



Why exactly do UAW members deserve a fair share of the profits?

Don't misunderstand - the automakers current difficulties have been caused by lack of vision, no long-term technology strategy, poor executive management, and until recently, gutless negotiations with the UAW.

But why do the sainted auto workers deserve, no DEMAND, a share of the profits. If you exclude benefits, the average UAW worker earns $32.00/hour or ~$67K per year - straight time. Throw is some OT, as during the SUV craze, and its not hard to get to six figures.

Fair wage for unskilled labor, no?


Posted by: Antonin on December 16, 2008 2:17 PM



If japanese cars are so great, then why did I have to replace the transmission in my Honda at 90,000 miles? Honda and Toyota are putting out crappier cars these days too, and American cars are not any worse than their japanese couterparts.

BTW, a LOT of Honda's have bad automatic transmissions. If you bother to read anything on japanese cars on the net, you would know that. Buying foreign doesn't mean anything anymnore, just like buying american doesn't.

Posted by: L on December 16, 2008 2:47 PM



The UAW simply demands, yes DEMANDS, that its workers be treated as human beings and that they get their fair share of the profits for the work they do.

Ok. The profits that GM earns have been significantly less than zero for about 2 decades now. Who over at UAW do I bill for their fair share of those 'profits'?

The Big three 'made up' the $73 per hour number. The real number, according to the UAW, is about $55. Which translates into $110,000 per year for a job which generally requires only a high school diploma (and connections with the union) to get. Let's just say that the parenthetical bar to access is much higher than the educational one.

Basically the UAW is a monopoly supplier of labor for the Big 3 under the "right to union" laws in the upper midwestern states, and is earning monopoly rents nearing on $50-60 thousand per year for each and every one of their clients. (Based on comparing the $55 per hour for UAW against the $17 per hour for the manufacturing sector as a whole, adding a generous $8-13 per hour to manufacturing earnings for benefits.)

"Labor is only 10% of the cost of a car". Riiiight. The capital/labor split is 10/90, unlike the 60/40 split in pretty much every other industry. You are leaving out the cost of the labor used to manufacture the parts the Big 3 are buying from suppliers. They are also mostly unionized, and often UAW. There are probably at least 5 of them for every one employee at the home company. These jobs are the cascade effect UAW keeps jawing about - UAW is implying that bankruptcy for GM/Chrysler essentially equals immediate, total shutdown and scrapping of all assembly lines, complete, immediate shutdown and scrapping of all suppliers.

In reality, as half the airlines, Texaco, and a bunch of other companies can attest, business continues after bankruptcy, it is the stockholders who see immediate 100% losses. UAW's fear is that bankruptcy means the cushy contracts they've 'negotiated' will be voided by the courts in a bankruptcy, so they will lie, cheat, and steal to prevent that from happening. Large stockholders (like, say, upper management) also have reason to lie, cheat, and steal to stay out of bankruptcy. The rest of us, not so much to fear from it.

This also leaves out costs on the dealership side, but frankly the dealership side supply costs are part of a much bigger regulatory burden - it would take a (probably literal) act of Congress for GM to shed its 5000 or so excess dealerships, given the laws protecting the sacred status of those dealers in most states. (GM has 6000 dealers, dating to when they were like 40% of the US car market. Toyota, which sells more cars, has 1500. To match Toyota in cars/dealer, GM needs to shed over 4500 dealers. State law forbids the car companies from cutting off dealers, forbids the car companies from charging higher fees to dealers, protects the dealers' profit margins, and pretty much makes being an auto dealer a pretty cushy gig all in all.)

Posted by: rvman on December 16, 2008 3:27 PM



I have to agree that no matter what number is to be believed, UAW workers make damn good money, MUCH more that workers of equal schooling in other industries, and much more than workers in area that require 4+ years of schooling.

The labor issue is part of the problem, but I'd say not the majority part. Unwillingness to innovate and foot-dragging at any suggestion of improving either fuel efficiency or safety standards, coupled with mismanagement, are the major factors. As with the banks, I'm for letting the big three take the hit. As rvman states, bankruptcy does not mean these companies will just disappear. Stockholders will lose their shirts, but hey, that's the gamble. They can take it up with the boards and hopefully clean house. I believe the companies that would result from that scenario would be leaner, more efficient and ultimately better for the American economy.

As for the workers, well you know what? I've been laid off before, I've had to go back to school and get more training, I've switched industries. Hell, with the way things are going, that may very well happen to me again. People can't just roll over when something like that happens, and I'm certainly not in favor of artificially propping up an industry and its workers because they refuse to adapt.

Posted by: JV on December 16, 2008 4:03 PM



Jason "Buy used. During a depression it's a bad idea to look like you have money.
=== Amen.

Upstate Guy "only 10% of the cost of a new car is due to labor"
=== I've no idea how accurate the "$70/hr" figure is, but I've always assumed the people writing such numbers are referring to labor cost in the sense of Cost Accounting, aka "total cost of labor"...payroll, pensions, health care, OSHA compliance, legal expenses related to employees, training, etc. Divide a company's total labor cost by the number of employees, then divide that by the total hours worked, and you have an hourly average that can be compared between companies. Obviously the union shops' cost per hour is higher than non-union (and USA higher than non-Japan Asian), because the non-labor costs (raw materials, parts, utility bills, advertising, etc.) aren't that different between companies.

A living wage is a bit arbitrary (are Toyota workers in the South not alive?), and "a secure retirement?"...I don't mean to sound unsympathetic here, but I'm going to be brutally straightforward: when GM management promised retirement benefits, they made a promise that they ended up not being able to keep. Management changed GM from a car company into a financial firm that happens to make cars (the percentage of profit from finance came to dwarf the profit from carmaking). The finance part has crashed spectacularly, and the carmaking part is not going to survive the rapidly-shrinking car market of the next decade unless the federal government makes it into an automaking version of the Post Office (which, IMHO, is nearly assured). GM workers who are able to keep their jobs will pay for their "security" with rampant currency devaluation (aka "runaway inflation") which the money-cranking Fed will blame on all those greedy businessmen for raising their prices. The political shit will hit the fan when the massive underclass (including wide swaths of the middle class who will be wiped out by high inflation in an environment of massive unemployment) realizes nothing will change as long as the Ivy League political class remains in power, and that both the main parties are part of that same political class (different rhetoric, same results). No one can predict what happens when a third party (or dictator) gets the helm, but Jason was right about buying used

Poseidon "As you can see, the dinner bell rang in October. http://tinyurl.com/HUI-index
=== Of course you're right about inflation, but I think it's foolish to own all mining stocks without owning bullion. Also, sorry to be cynical, but what is your motivation for cheerleading Nautilus Minerals? Not saying it isn't in fact a bargain as you claim (all the good miners are), but the way you crow about it on your site is bound to motivate some naive people to bet their whole wad on it, and that's a potential recipe for personal financial disaster.

Posted by: James O. on December 16, 2008 4:21 PM



Once you go Jap, you never go back.

I'll go on buying Subarus, made, I hope, in Japan. I'm really not interested in taking the chance on a car made by stoned American workers (I've heard the worst days are Friday and Monday).

Posted by: ricpic on December 16, 2008 6:04 PM



RE: Fair wage for unskilled labor, no?

I always thought that wages, like prices, are whatever the market will bear. Why should "unskilled labor" be cheap? Why should an executive who runs his company into the ground still be rewarded with high wages, a generous pension and health plan, and even a golden parachute to console him for being an utter failure?

I am also amused when someone argues that you deserve your wages, while the guy standing next to you should have his wages cut as low as possible and all benefits denied him so that you can pay as little as possible for the products you like. Wouldn't it be fair to say that in a well run free market economy, the next guy should be able to everything he can to reduce you to penury if it will help him prosper?

As an aside, I ran across this little gem in the current online edition of the New Yorker. It addresses the issue of whether governments can intervene in innovation without hurting an industry's ability to make money http://www.newyorker.com/online/blogs/tny/2008/12/note-to-detroit-consider-the-r.html?yrail :

Note to Detroit: Consider the Refrigerator

In the mid nineteen-seventies, California—the state Chu now lives in—set about establishing the country’s first refrigerator-efficiency standards. Refrigerator manufacturers, of course, fought them. The standards couldn’t be met, they said, at anything like a price consumers could afford. California imposed the standards anyway, and then what happened, as Chu observed, is that “the manufacturers had to assign the job to the engineers, instead of to the lobbyists.” The following decade, standards were imposed for refrigerators nationwide. Since then, the size of the average American refrigerator has increased by more than ten per cent, while the price, in inflation-adjusted dollars, has been cut in half. Meanwhile, energy use has dropped by two-thirds.

Posted by: Alec on December 16, 2008 6:17 PM



"Why should "unskilled labor" be cheap?"

Because anyone can fill the role of unskilled labor. Of course I'm being unfair to the journeymen union workers who earn far more than the average UAW member.

The UAW has successfully negotiated substantially higher wages for their members than say, your average Wendy's fry cook, and have done so for years. Good for them.

But the days of unfettered wage increases AND fully funded pensions AND lifetime health benefits are gone. It's an unscalable system - much like Social Security and Medicare. Perhaps this is a little vignette of things to come?

In the meantime, does the thought of a 'car czar' scare anyone else? Seems to me, GM and Chrysler should be allowed to fail and the $14BB used to support to the workers who are affected - extended unemployment benefits and retraining - perhaps a quasi GI-bill for displaced factory workers.

Posted by: Antonin on December 16, 2008 8:44 PM



hehehe he said obama!

Posted by: Ramesh on December 16, 2008 9:47 PM



Why exactly do UAW members deserve a fair share of the profits?

Why exactly would they not?

Don't misunderstand - the automakers current difficulties have been caused by lack of vision, no long-term technology strategy, poor executive management, and until recently, gutless negotiations with the UAW.

Such as...agreeing to a voluntary employee beneficiary association (VEBA, look it up) which will reduce the costs of managing employee benefits from about $15/hour to $3/hour starting in 2010? Yeah, what a terrible thing the UAW did in that negotiation. But, let's say you're right and management failed to get good deals in the negotiations of late...they still deserve to be hung out for not doing their jobs properly once again.

But why do the sainted auto workers deserve, no DEMAND, a share of the profits. If you exclude benefits, the average UAW worker earns $32.00/hour or ~$67K per year - straight time. Throw is some OT, as during the SUV craze, and its not hard to get to six figures.

Again...and? You're suggesting that the only people who deserve to make six figures are those who come from families capable of sending them to college? Why should the college boy get to get to six figures in 40 hours, but the guy lugging heavy equipment around has to do it in 60? What a wonderfully simple way to ensure that the ignorant masses keep their place...don't pay them enough, they can't afford to send their kids to school, they can't get a well-paying job, rinse, repeat. In a place like Detroit, it's even easier since there's basically two jobs you can get: autoworker or automanager.

Ok. The profits that GM earns have been significantly less than zero for about 2 decades now. Who over at UAW do I bill for their fair share of those 'profits'?

No one. You bill the execs who decided to push ahead full bore with lines of Hummers and SUVs when gas was $4/gallon. Since you're more concerned with the semantics than the meaning...let's change my sentence to "DEMAND a portion of the revenue".

"Labor is only 10% of the cost of a car". Riiiight.

Not my number, but well documented. Read the documentation submitted by the companies to Congress. Beyond that, American cars are still generally less expensive than foreign cars. Most of that has to do with import taxes, etc, I know, but even with cheaper alternatives available, people still go with the foreign. Why? They're cheaper to own in the long run, something the leaders of the big three hasn't gotten yet. Lowering costs is not the answer to Detroit's problems: selling cars people want is. What happens in five years when you've taken away the wages of the workers and Detroit is still pushing out cars that aren't selling? Re-institute slavery to cut costs further and ensure the college boys still get their high salaries?

You are leaving out the cost of the labor used to manufacture the parts the Big 3 are buying from suppliers. They are also mostly unionized, and often UAW.

So, the auto industry's the only one that buy from union shops? Well, that explains everything! Their high costs have nothing to do with Ford owning a fleet of eight private jets to get their executives around, or GM's CEO needing to be flown home on the company dime every week to Washington or the execs continuing to get large bonuses despite zero profits or that GM produces the same models of cars under five different brands...it's because all of the suppliers are union! Occam's Razor be damned, you've figured it all out!

UAW is implying that bankruptcy for GM/Chrysler essentially equals immediate, total shutdown and scrapping of all assembly lines, complete, immediate shutdown and scrapping of all suppliers.

You start off by saying the profits of GM have been below zero for the last few years, and then imply that it's impossible that they'd go away. It appears you're new to the concept of business, so I'll let you in on a secret: businesses can't sustain negative profits for very long. If your largest (or in some cases only) customer goes away, what happens to your company? Is it likely to happen? No. Is it impossible that it won't? Also no. You have to consider as many contingencies as possible when creating a plan. The chance of it happening is low, but the impact is enormous so you have to figure out the amount of work necessary to mitigate that risk before you can dismiss it outright.

The rest of us, not so much to fear from it.

Yes, fingers in the ears screaming "la la la la" has always been an effective solution to risk management.

This also leaves out costs on the dealership side

Huh, so which is it? The UAW or the excessive number of dealers? I can't follow your train. It sounds to me that you get where the problems actually lie, you're just hellbent on blaming the UAW no matter how flawed it has to make your "logic".

I've been laid off before, I've had to go back to school and get more training, I've switched industries.

Now someone who's making sense: instead of giving the money to the big three, who will just use it to buy new umbrella stands for the executive washrooms, set it aside to retrain the thousands of people laid off so they can leave Detroit and get well paying jobs.

Because anyone can fill the role of unskilled labor.

Not true. You still need to have the desire to DO a job, too. You need someone with the physical strength and endurance to do the jobs that these folks do. I'd wager there aren't many people who've posted to these comments that could do the job of a UAW worker. Effete elite Eloi are always quick to dismiss the work of the Morlocks as simple...until they actually have to do it.

But the days of unfettered wage increases AND fully funded pensions AND lifetime health benefits are gone. It's an unscalable system

Someone tell that to the execs, then. The problem you're missing is that while everyone's focused on how much the union guys make, they're completely overlooking the salaries, benefits, bonuses, golden parachutes and perks of the execs who ran the companies into the ground. Until I know EXACTLY what those costs amount to, I have no interest in conceding that the UAW needs to give up anything. If the execs aren't willing to give up anything, then why should the workers? They've actually done THEIR jobs.

Posted by: Upstate Guy on December 17, 2008 10:28 AM



#4 all the way. Many are upset by poorly made US cars bought years ago but what this guy said up thread is quite true:

"BTW, a LOT of Honda's have bad automatic transmissions. If you bother to read anything on japanese cars on the net, you would know that. Buying foreign doesn't mean anything anymnore, just like buying american doesn't."
Toyota has had major engine sludge problems as well. A co-worker only got 70k from his last Camry so watch out.

I'll add that Volkswagen and Daimler and other badges have much worse reliability then Ford and GM but people still buy those cars without complaining about overpaid German workers.

The US vs foreign thing is weird in other ways.

You can buy an Accord assembled in the US with only 40% US parts or a Fusion assembled in Mexico with 80% US parts.
Which is more American?
Who are you sticking it to in this scenario?

BTW the 2010 Fusion on sale next spring will be the best midszed car available in the US. It's already passed the Camry and the new model will surpass the bloated new Accord in reliability and performance.


Posted by: zengolf on December 17, 2008 12:54 PM



"The problem you're missing is that while everyone's focused on how much the union guys make, they're completely overlooking the salaries, benefits, bonuses, golden parachutes and perks of the execs who ran the companies into the ground."

Not every exec is pulling down seven or even six figures though. What about the mid-level, exempt manager plugging away in accounts payable 60 hrs/week for $75K. Who has his back - the UAW? The company? Golden parachute for the administrative staff? Please. No corner office thee.

Labor is a big part of the problem - both in terms of costs and inflexibility to change to meet the need of the competitive landscape.

Let 'em go bankrupt and provide support to the workers - regardless of the color of their collar. Hold the dumb asses who drove these companies into the ground accountable - including the leadership of the UAW.

Posted by: Antonin on December 17, 2008 10:46 PM



"the execs who decided to push ahead full bore with lines of Hummers and SUVs when gas was $4/gallon."

Gas prices never broke $4 till this last summer, and never broke $3 till summer 2007. I haven't noticed any car companies introducing new lines of low-mileage cars in the last 18 months.

I'm somewhat appalled by the innumeracy of people who think that high (even grotesquely high) salaries for a few dozen executives is a bigger cost than high wages and benefits for hundreds of thousands of unionized employees. GM's top five execs received $11M in 2007. GM has 252,000 employees. If 200,000 of them are UAW, and they got an extra 10 cents/hour through the UAW's monopoly power, that's $42M a year.

And don't forget the 5,000 pages of work rules imposed by the UAW.

Which is not to say that management has no responsibility for the mess. Michael Barone has a good take on it here. It's basically Wagnerism (union thinking of the 1930s) versus Taylorism (management thinking of the 1920s). Taylorism assumed that workers were stupid and lazy, and therefore most productive when driven to perform repetitive tasks as fast as possible. Wagnerism assumed that management was abusive and exploitive, and therefore the job of the union was to stick it to the bosses as hard as possible: maximum pay for minimum effort, and no cooperation. The problem with sticking it to the bosses as a way of life is that the bosses are effectively gone: the entire market cap of GM is less than $11,000 per employee.

How to fix it? Idunno. I did like the response to the UAW's declaration that contracts cannot be changed till 2011: in that case, government aid can wait too. If GM is in danger of collapse now, then things have to change now, including the UAW's goodies.

Posted by: Rich Rostrom on December 18, 2008 12:51 AM



Not every exec is pulling down seven or even six figures though. What about the mid-level, exempt manager plugging away in accounts payable 60 hrs/week for $75K. Who has his back - the UAW? The company? Golden parachute for the administrative staff? Please. No corner office thee.

No one, and now you're seeing the point. Unions are there because in corporate America, you're a resource not a person. Well, despite the fact that everyone here thinks union people are just useless scum, they are still people and just because the job they do doesn't require vast amounts of training or brainpower, it's still essential. In fact, it's even more essential than the pencil pusher you mention: without those middle managers, the cars still get built. These people work hard (and potentially dangerous jobs) that you wouldn't, most likely couldn't, do. They deserve every penny they get and infinitely more respect. Frankly, I think corporate America would be doing a lot better than it is if everyone had the ability to stand up and say "this is bullshit, it's time to stop pulling decisions out of your asshole". But, thanks to at will employment, and the evisceration of the economy, everyone has a gun to their heads. Yessir, massa, I do what you say no matter what!

Gas prices never broke $4 till this last summer, and never broke $3 till summer 2007. I haven't noticed any car companies introducing new lines of low-mileage cars in the last 18 months.

Sorry, $3.87. You're right, it's so far away from $4 that it was totally unfair of me to inflate the price just to make a point. As for your second point: most of the foreign cars were already high mileage cars. Detroit, however, makes monstrosities...and a couple of crappy econoboxes. When GM came out with a hybrid, it didn't get much better mileage than a non-hybrid. But, at least it cost 50% more.

I'm somewhat appalled by the innumeracy of people who think that high (even grotesquely high) salaries for a few dozen executives is a bigger cost than high wages and benefits for hundreds of thousands of unionized employees. GM's top five execs received $11M in 2007. GM has 252,000 employees. If 200,000 of them are UAW, and they got an extra 10 cents/hour through the UAW's monopoly power, that's $42M a year.

Your numbers are off significantly. According to Reuters, Wagoner alone made almost $16 million in compensation in 2007. That's a 64% increase from the previous year despite posting a $39 billion loss. Henderson got $9.3 million, Lutz $9 million. Salaries aren't the only compensation these guys get. And, while Reuters is including aircraft expenses, since they total $700k which includes insurance and other benefits I doubt that covers the actual expense of owning the private jets and flying him back and forth from Washington state every week (where he lives. That's one hell of a perk.)

Now, let's look at your numbers in detail: 200,000 of the employees are UAW...sounds like a fair number. We know they make an average of $55/hour in salary and benefits (the number $70/hour is the automakers inflating these numbers by including the cost of managing that labor. You can't include that because regardless of the employee being union or not, you still have to pay that. And, the UAW has alleviated all but $3/hour of that anyway by taking over the management of their members benefits) we come up with $22.9 billion/year in costs. GM posted a $39 billion loss in 2006. Even if you took my earlier suggestion and reinstituted slavery to get the job done, you're still missing about $17 billion/year. The problem isn't the unions. The problem is poor management and poor decisions on what to build. Getting rid of the unions isn't going to fix that.

And, don't ever accuse anyone of innumeracy again.


Posted by: Upstate Guy on December 18, 2008 10:51 AM



Huh, so which is it? The UAW or the excessive number of dealers? I can't follow your train. It sounds to me that you get where the problems actually lie, you're just hellbent on blaming the UAW no matter how flawed it has to make your "logic".

It is the UAW, and the advantages state and Federal law grant to them. It is the dealers, and the advantages state law grant to them. A company as big as GM doesn't go down because of just one problem, it takes a bunch. Management at GM (especially, though all three had problems) has been abysmal. The labor contracts have been unsustainable. The dealership system is bloated and overpowerful. (This is true throughout the system - any time a car company has tried to start selling through other channels - internet sales, for example - the dealers have pitched a fit and forced the company to back down. When companies try to prune out the least productive dealers, the dealers run to the state legislature and get, essentially, poison pills to make it ruinously costly to do so. This is true for GM, Ford, Chrysler (who should have closed 25 years ago), the Japanese, the Germans - all of them.)

I don't have it out for UAW in particular - I would be supportive of unions if the legal framework they operated in was one where unions were treated as just another entity in the market - basically a cooperative or mutual agency which supplies labor to firms. If the firms want to source new labor from the union, from a temp company, from ads, on terms truly negotiated, then they should be able to. Very specifically, unions as currently constituted it the midwest are monopoly suppliers of labor, no different from the cable company, Standard Oil, Bell pre-breakup, or Microsoft, and should be treated as such when they exercise their market power.

You start off by saying the profits of GM have been below zero for the last few years, and then imply that it's impossible that they'd go away. It appears you're new to the concept of business, so I'll let you in on a secret: businesses can't sustain negative profits for very long. If your largest (or in some cases only) customer goes away, what happens to your company?

Who says GM is 'going away'? I don't. Yes, GM has been negative profit for a long time. At this point their debt levels are such that they cannot continue in their current configuration. That does not mean that GM should or will shut down entirely. In bankruptcy reorganization, the judge can order the elimination of existing unproductive assets (such as the extra thousands of dealers, and management deadwood - including those awful management perks the union guys are complaining about), the company can close factories to eliminate surplus line capacity and renegotiate contracts. GM's debt can be reorganized with a rational long-term repayment schedule, and then GM can come out of bankruptcy as a company with the capacity to produce good cars when the economy recovers and sell them for a reasonable profit. In the meantime, they can keep producing cars and generating cash flows, at least to the extent that they can sell them. Without bankruptcy, current management continues on, the dealer web continues on, and GM continues to bleed money. Without bankruptcy, GM has to stop producing so many cars anyway, and reduce their supplier purchases, which will do exactly the same damage to their suppliers that you fear bankruptcy will. Bailout without bankruptcy has all of the same downsides that bankruptcy does, and none of the upsides, and won't even prevent bankruptcy, it will only delay it.

Until the economy recovers? No, the causation there is backwards - Lehman Brothers, GM, Citi, AIG are all of a piece. The economy is bad because there are too many unproductive assets and unpayable debts, and won't recover until those bits are washed out of the system. See Japan from about 1990-2000 for an example of what happens when the government protects the unproductive assets from their fate.

The bailouts are flawed in finance, too - we just have fewer choices because bankruptcy reorganization can't work in that sector - the only meaningful asset of AIG, Lehman, Goldman-Sachs, or any other financial firm is its good credit. When that goes, they are dead, and will take down all of their clients with them. The bailout at least reassures people that these companies won't fail, won't become bad debt, and so keeps the financial wheels turning.

This summer, what happened was that people realized that there was just slightly more risk in the 'safe' mortgage securities they were buying - a few percentage points in bad debt - 95-98% of mortgages backing them will either be paid or recovered in foreclosure, rather than the 99-100% they though before. That slight increase in risk caused everyone to want to sell, which drove down the market price of these securities, causing more to want to sell, etc. Everyone's asset mix was higher risk than they thought, causing them to want to rebalance their portfolios. This meant no one wanted to incur new risk (i.e. make loans) and instead everyone one wanted to dump risk (by selling risky securities, calling or not refinancing loans, etc.), resulting in extremely high risk premiums (the part of the interest rate which is greater than what you can get on a completely safe asset) on all forms of risk. No one (including GM) with any sort of risk whatsoever could borrow at sane rates, and so anyone who didn't have a huge cash reserve started burning through cash to make payments on their existing debt rather than being able to refinance.

Posted by: rvman on December 18, 2008 11:22 AM






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