Save the AutoMakers Jobs but make cuts as painfully as if they had bankrupted

[Bruce Nunnally]

Reich's blog

There's more at stake for Main Street when it comes to General Motors and other automakers now teetering on the edge of bankruptcy, because two and a half million households depend directly or indirectly on them for their paychecks. But the best way to protect all these people is not to pay off the automakers' creditors, shareholders, and executives, with no strings attached. Recall that when the government bailed out Chrysler in the early 1980s, a third of its employees lost their jobs.

In exchange for government aid, the Big Three's creditors, shareholders, and executives should be required to accept losses as large as they'd endure under chapter 11, and the UAW should agree to some across-the-board wage and benefit cuts. The resulting savings, combined with the bailout, should be enough to allow the Big Three to shift production to more fuel efficient cars while keeping almost all its current workforce employed. Ideally, major parts suppliers would adhere to the same conditions.

[BodybyFisher]

I have been saying GO BANKRUPT in order to get rid of the UNION deals and onerous pensions, to bring them down to COMPETITIVE levels, it is the only way. But IF some agreement can be made for GM and FORD to unencumber itself from prior agreements in order to allow them to compete with the TOYOTAs of the world I am all for it.

I constantly see statements about GMs poor management. I disagee, I think that for a HUGE company GM has done a good job, did they stick with SUVs too heavily maybe, but they have made huge strides and they DO make fuel efficient cars. They NEED to get the BEANCOUNTERS out of the production line and FIX the quality of parts they get from their suppliers. Things like the Getrag differential and 3.6 OHC chains should not be issues caused by supplies.

But this is the problem right here and it needs to be fixed:

it's no wonder that General Motors and Ford and Chrysler are having financial problems. Their costs are 53% higher than Toyota and 132% higher than other manufacturing. The cost per hour to manufacture at the Big Three auto companies is $73.20, and that's total compensation per hour, selected workers, 2007-2008. At Toyota, it's $48 an hour, management and professional, $47.57, goods producing, $31.59. All workers, $28.48 an hour, average out all workers and it costs the Big Three auto companies $73.20 an hour, and a lot of this is they're paying people that no longer work for them, and these pensions and the unions --

[WarrenJ]

I have been saying GO BANKRUPT in order to get rid of the UNION deals and onerous pensions, to bring them down to COMPETITIVE levels, it is the only way. But IF some agreement can be made for GM and FORD to unencumber itself from prior agreements in order to allow them to compete with the TOYOTAs of the world I am all for it.

I simply don't see an alternative to this. The lawyers for both sides have negotiated the auto industry into near (okay real) bankruptcy. It's absolutely brutal for an auto assembler to take a cut from $40/hour to $32/hour, but its better than a cut from $40/hour to $zero/hour. Auto workers need to speak with airline pilots. Okay, not much help there; sorry.

There are some VERY tough times ahead for all of us. Likely tougher than you expect.

Regards,

Warren

[KHE]

If any of the domestic auto makers go into bankruptucy, it will result in a catastrophic chain reaction to the economy. Parts suppliers will go under, etc. The economy would take decades to recover from such an incident. I for one do not have decades to wait for a turnaround in the economy...

[BodybyFisher]

If any of the domestic auto makers go into bankruptucy, it will result in a catastrophic chain reaction to the economy. Parts suppliers will go under, etc. The economy would take decades to recover from such an incident. I for one do not have decades to wait for a turnaround in the economy...

Then some sort of an agreement has to be made to unencumber GM and Ford or they will flatline.

[BodybyFisher]

The world has changed. We/Congress have been trumpeting a GLOBAL ECONOMY for decades now. If we are going to compete in a global economy we have to expect that there will be inherent changes to our own economy.

We manufacture NOTHING now, its cheaper and easier to manufacture in China, Taiwan, Japan, etc

Corporations have send jobs to other countries where the wages and benefits are lower

The US is a litigious country suing at ridulous rates for liability

I also believe that our education system has failed us, when Bill Gates says he needs to go out of the country for talent

The bottom line its too expensive to manufacture and pay wages here when compared to other countries and we need to adjust.

Because of all of this low wage and low cost material being outsourced, our own economy has been brought down by it, and other countries economies have benefitted. Our standard of living has been damaged. We are not the only game in town. Agreements that were made with UAW years ago have hamstrung the car manufacturers. They either need to unencumber themselves or they will unwillingly go bankrupt.

I find it interesting that no one has discussed this, we are dying a slow death in this country, and nothing is being done. We are resisting the downward pressure on our economy because our standard of living has been hurt by globalization.

Here is basic math, what company would be more profitable and be able to put out a better product?, a company paying $73 in salaries or a company paying $48 per hour

[BodybyFisher]

This is an interesting summary of the problem from 2005.

January 16, 2005

Corporate treason

By Pete Fisher

In the very late 1970's into the 80's we saw a trend starting to develop in the automotive industry to move plants outside the US to compete with Japan and offset the high cost of Union Labor.

I remember a long time back an individual who was making an extraordinary amount of money in Detroit at a car plant. His entire job was to insert a piece of carpet into the trunk of the car as it went by and fit it to the glued surface. His wage at the time would have been around 20 dollars an hour which 20 years ago was pretty hefty. In all reality the job was probably worth 6 dollars an hour, as it required no skills other than being able to fit a square peg in a square hole so to speak. Detroit had a hard time competing with European and Asian manufacturers and started making cars in Mexico and Canada. Ford was using Mazda engines, GM was using Isuzu, Chrysler was using Mitsubishi, Peugeot, and VW engines to be able to compete with the mid size and compacts of the time. However, as they moved plants outside the US to escape high Union wages and benefits it was noticed that they could charge the same amount for the car and increase the bottom line profit.

When the EU started consolidating and forming a powerful economic and industrial entity, the competition became very tough for America. NAFTA was enacted to be able to pool the American Continent and strengthen our position, though many knew it had the smell of failure our hand was forced by Europe to compete globally. I know many blame President Clinton at the time, and it may raise some hackles here, but he really did not want to sign the agreement. I do believe however, that had he not been caught up in his own personal problems and had he stood his ground, it would not have been signed.

We have seen powerful companies like Motorola, G.E., Lucent, Microsoft, Honeywell and many others cutting American jobs and building plants overseas. I was the victim of outsourcing twice myself. The H1-B Visa program was running rampant as well, importing cheap foreign labor to replace Americans, and basically being used as a Bond Slave system, because those who accepted those jobs were forced to work for the sponsor company for years, or face being deported. It is a shameful abuse of human resources for the purpose of a larger bottom line.

The High Tech Boom busted, Telecomm went belly up after the Dot Coms, and we entered a Recession. People who were used to a nice life style tried to maintain that by running up debt on a tremendous level. And yet we see these companies still abusing cheap foreign labor by moving to China and India by the droves. Does it matter to a stockholder that thousands of people will lose their families and homes? For someone who made millions by selling out their own country, the pervasive " I have mine" mentality drowns out honor, love of country, and the future.

When Motorola dumped dozens of plants nationwide, they were still importing cheap labor from India, China, and Eastern Europe to replace those who had been faithful to the company for decades. It is yet another shameful and greedy practice to kick those who are already down.

Foreign companies within the same timeline on an unprecedented level have purchased many American companies as well. Siemens owns Westinghouse, Sylvania, and Staefa, Daimler owns Chrysler, LG bought Zenith, and on and on. American companies have also invested in foreign businesses as well, but hardly any that support the American labor force. China has not only abused the rate of exchange, but refuses to enforce the Patent and Copyright laws. It is quite common to see a GM, Toyota, or any other product being made under a Chinese name and sold much cheaper.

So what really happens to the customer base of these companies when they lay off Americans? We are the world's largest consumers of goods bar none. Immigrant labor does not buy nearly as much of almost any goods or product the average American does.

If Motorola or G.E. want to continue selling product here, the solution is not to make them cheaper. The real solution is to keep your largest consumer base employed and confident in their future. And in turn, their children and grandchildren will follow in their footsteps. But to lay off hundreds of thousands of workers and keep them in fear as to the future of their jobs, they lose big. Those same companies are not posting tremendous profits as in the days of employed Americans. They are not selling 500-dollar cell phones to the average Chinese or Mexican citizen. They are running on the fantasy that every quarter can be more profitable than the last, which forces them to find cheaper ways to manufacture year to year. And their profit still drops because the American can no longer afford to indulge as they used to. France should have learned this as they whittled their economy to the brink of danger by abusing cheap Asian labor for decades.

To complicate this, now even the banking industry ahs lost due to Asian banks offering lower rates, which in turn increases foreign owned interests in America. And the snowball effect will keep piling up our debt, our standard of living will drop, and our children will be owned or indebted to foreign entities. Our corporations have sold our children's future to the highest bidder without regard to the Pandora's Box they have unleashed on this nation.

Perhaps if every company that outsourced were forced by law to pay a minimum of 2 years salary, benefits, and school money to those displaced, the cost to commit this moral treason would be greater than the benefit. And even if not, those who were sold out could better their education and pay their bills while competing globally on the educational level. Without the taxpayers footing the bill. And if we push hard enough to bring back our manufacturing and employ our nation, we will see a tremendous surge of bringing down debt while significantly improving our consumer base.

Can we put the pressure on our government to make these changes? Can we enact laws to protect those who have been sold out to foreign labor and imported labor? Can we regain this country's' greatness and once more be a financial giant? I say we can. But it will take an Act of Congress to do it.

© Pete Fisher

http://www.renewamerica.us/columns/fisher/050116

[BodybyFisher]

By the way, I do not believe that the title of the above article is fair.

In economics they teach that the factors of production are Land, Labor and Capital. Businesses will naturally gravitate toward cheaper LABOR to survive and maintain profitability, its not an emotional decision, its an economic decision to be able to compete

Congress or the Fair Trade Commission needed to step up to cause or permit a level playing field. When foreign car manufacturers were permitted to build cars in southern states withOUT UNION labor, someone needed to see what impact that would have on our OWN car industry. Its unfair competition and antitrust and the US manufacturers were hamstrung with high cost union agreements, impossible to compete. By allowing this to happen Congress used a bandaid, allowing foreign car manufacturers to build here with a different cost structure, ie, non-union, which effectively GUTTED our legacy auto manufactures and here we are today... sucked dry

But, Congress will go after Microsoft when Netscape screams about antitrust violations.

http://www.developer.com/net/net/article.php/959651

Someone is asleep at the wheel

[WarrenJ]

The world has changed. We/Congress have been trumpeting a GLOBAL ECONOMY for decades now. If we are going to compete in a global economy we have to expect that there will be inherent changes to our own economy.

We manufacture NOTHING now, its cheaper and easier to manufacture in China, Taiwan, Japan, etc

Corporations have send jobs to other countries where the wages and benefits are lower . . .

Yup! That's about it in a nutshell.

Recovering from our profligate spending will be long, slow and painful.

And yes, we DO need to compete. We've done it before. We should begin anew now.

Regards,

Warren

[winterset]

Typically, I keep quiet on issues like this, but I need to get this confession off my chest. I feel no sympathy for Wall street. In fact, it would not have been my first choice to bail them out, rather I would have preferred the $$ be used to maintain / strengthen US industry that actually produces smething like GM, and other US technology companies. I am bitter because a company I worked for was torn apart by greedy wall street speculators who sold my company stock short till it want from abut $75 to $.50 We were a strong company with many talented US workers. Many had EE degrees, and many more had their Phd's. All treated like $hit when many were let go. Instead, the Wall street bastards made $$ off our backs. Now it's their turn to see how it feels to be sold short. Back then every time I read the newspaper, our credit rating was downgraded. my company would turn the lights off in the hallway to save $$ - that's how bad it got. I stayed employed, but many of our technical jobs were sent to India & China. I am fortunate that I still have my technology job, but my work environment shouldn't be this difficult. We have a small team in from china to learn our process, but many see them as our replacements. It is no secret that the lack of regulation on wall street created this mess. Time to let wall street get a taste of it's own medicine. Employees forgo bonuses, no pay raise, outsource their jobs to China, and let Goldman & Morgan Stanley fold. - Why should the pain only be felt by GM?

[BodybyFisher]

Think about banking

Manufacturers Hanover Trust

Chemical Bank

Bankers Trust

Republic National Bank

Nations Bank

Commerce Bank

Bayside Federal S&L

Washington Federal S&L

Marine Midland

Astoria Federal

Greenpoint Savings Bank

Republic National Bank

Washington Mutual

Bank of New York

All of these banks are out of business due to deregulation. Some 2600 banks are out of business through mergers. My industry, appraisal has been directly impacted by these mergers. Overlapped branches are closed. I am sure you all can add to the brief list of banks I jotted down. Not to get off the subject, but consolidations have happened over and over for the past 30 years in all of our industries. When is it enough? Is this the price of computers and technology?

http://www.iconocast.com/B000000000000025/Z3/News4.htm

[Ranger]

If any of the domestic auto makers go into bankruptucy, it will result in a catastrophic chain reaction to the economy. Parts suppliers will go under, etc. The economy would take decades to recover from such an incident. I for one do not have decades to wait for a turnaround in the economy...

All bankruptcy means is that the UAW gravy train will be derailed. Their contract and unrealistic perks and benefits will be renegotiated to a more realistic and livable contract. The auto makers will then be on a more level playing field with the foreign car makers. The big 3 will not go away, nor will the parts suppliers. They will simply build cars cheaper and be able to turn a profit. Like Warren said, From $40/hr to $30/hr is better than $0/hr. It will hurt and the UAW will not be happy, but it is inevitable and the ONLY way out. Been there, done that.

[adallak]

Time to let wall street get a taste of it's own medicine. Employees forgo bonuses, no pay raise, outsource their jobs to China, and let Goldman & Morgan Stanley fold. - Why should the pain only be felt by GM?

Rename Wall Street Great Wall Street.

[JohnnyG]

I have to agree with Mr. Reich, this is the most perfect union busting manuever ever concieved. Mr. Obama need not break his promises to the unions willingly, his hands have been tied.

I have never worked in a union environment, but I do have great respect for the sacrifices union workers have made to better their (and my) economic stature in our society. It may be unfortunate that some of the demands were unrealistic, but in the end, it is perfectly fine to hope that your quality of life should improve along with working conditions, safety, and retirement benefits. Just be VERY careful when someone tells you that sacrifice (as in giving it all back) is the PATRIOTIC thing to do.

Meanwhile, WalMart has devised their own bailout plan, and the wildlife around here will be suffering as a result. 50% increase in the price of wild bird feed in less than a month! I know a small family of deer that will be VERY saddened by that news, not to mention a 100 or so birds!

More importantly, no Mobil1 motor oil to be found anywhere in Wally World, particularly in the 4 quart bottles.

[thu]

The problem with the Detroit Three is systemic. It's not just the UAW or management or too many products. They have an organization that does business the same way it was done 20 or 30 years ago. That needs to end. Simply throwing 'aid' at them won't solve these problems. Simply cutting wages won't do it. Chopping off some product lines won't do it. Building more fuel-efficient cars won't do it, either. Detroit has been shipping fuel efficient cars for quite a while, they cut wages, and shut down product lines but they're still in huge trouble. Their problem is systemic - their problems seem to pervade their corporate structures.

They need to completely reorganize, to bring their business model into this decade - this means bankruptcy. This doesn't mean they disappear, it means they're allowed to shed inefficiencies. The Bankruptcy Court should allow/force the axe to fall anywhere. This will allow them to compete over the long haul, for decades to come. With Government Aid, they will not be allowed to do this. Government Aid is just a bandaid until the next slump comes along. In a similar vein, shortchange the bankruptcy process with compromises and you might as well forget it.

The biggest problem we face in restructuring the Detroit Three is political. It looks like Washington D.C. will meddle in this big time and make it worse.

They already have a business model to look at - the foreign manufacturers' operations here in the US. It seems to be working for BMW, VW, Toyota, etc.

[BodybyFisher]

See what Mark Levin says about this:

http://www.marklevinshow.com/wp-content/th...vin11132008.mp3

[WarrenJ]

http://www.iconocast.com/B000000000000025/Z3/News4.htm

Nice collection of videos at that site. Thanks Mike.