New from Detroit

[AdamSmith]

[caeron]

I'd heard detroit had gotten their quality up a lot in the last number of years. I actually was thinking about getting a GM instead of the Toyotas I usually buy next time around because I like the OnStar feature.

In the abstract, I do think bankruptcy would probably be better, but I'm selfish enough that I'm not sure I want to take the damage on wall street when they start failing....

[RA1]

Detroit technically is still far from perfect but they have improved a LOT in the past several years.

I had a GM product up until about 6 months ago which I bought new. It had one problem during the warranty period and that was a battery issue. The Toyota that I owned before the GM product had at least 3 issues during the warranty period to include a power window not operating properly, a noise behind the instrument panel and, apparently as always, a battery issue.

It seems likely and apparent to me that Detroit can produce viable products now but they have to get their costs under control. That very likely means bankruptcy as the UAW will not willingly give up what they call benefits but I call perks. Just like the executives must give up their perks. I am not picking on labor but I am picking on anyone and everyone who must contribute to get this ship arighted.

Best regards,

RA1

[Guest Conway]

It seems likely and apparent to me that Detroit can produce viable products now but they have to get their costs under control.

Bingo. BK appears to be the only solution for at least two of the big 3.

[TampaYankee]

It seems likely and apparent to me that Detroit can produce viable products now but they have to get their costs under control. That very likely means bankruptcy as the UAW will not willingly give up what they call benefits but I call perks. Just like the executives must give up their perks. I am not picking on labor but I am picking on anyone and everyone who must contribute to get this ship arighted.

What are perks? Health Care? Retirement Plans? I call them benefits. That is what my former company, an R&D firm, called them too.

I didn't notice a willingness of the Finance and Bank Kings to give up their excessive salaries and outrageous bonuses for their bail out. If they eventually do then it is only because they will somehow be forced to retroactively. I'll see it when I believe it. No one has asked them to give up their health care or other 'benefits'. They wouldnt even forgo their lavish junkets in desert resorts on bailout money.

Unions have made too many demands like work rules that demanded workers get paid for not working in certain circumstances. Bad decisions by them and by Management that resulting from a free bargaining process that was abused. The bad decisions need to be undone and both sides must ante up on that. But simple wholesale gutting of workers contracts goes too far IMO unless we want to end up laborwise little different than a third world country.

To totally flush their contracts and wave off commitments to past workers without a broader solution seems unjust to me and undermines validty of any future Labor/Management agreements. Union pensions may need to be renegociated more realistically but not wiped clean. Health care for active and or possbily just for retired workers may need to be off-loaded as part of a broader national health care initiative. That would help all of our businesses be more competivtive in the world.

The point is that this can't be done all on the shoulders of the workers and share holders. They are big players but the system has to change too else we WILL become a third word labor force. That is if we actually retain any manufacturing that requires a labor force which is a national security issue IMO.

That all of this happened hasn't been suprising. Anyone could forsee that free trade between countries with organized labor would never be competivtive with countries without orgaized labor when those latter countries became efficient in manufacturing. Sure enough, China and India eventually began eating our lunch -- and we gave them the money and blue prints to do it and a pat on the shoulder. All in the name of greed, IMO

This may eventually lead us to the demise of our trained labor force. But even worse it will lead to the demise of our manufacturing base. We are more than half way there now and standing at the cross roads.

Maybe we have arrived at the Age of the Demise of Organized Labor. Maybe Organized Labor cannot exist in a World Trade Environment where cheap unorganized labor is the rule. But who will look out for the rights of workers? Given what I have seen of the Bush Admin and Congressional Republicans in the last eight years and more recently, and the fact that GDP and business profits went up for seven straight years while worker pay declined and minimun wage remained static, I don't think we can count on them in the future.

[Guest Conway]

I didn't notice a willingness of the Finance and Bank Kings to give up their excessive salaries and outrageous bonuses for their bail out.

Participation in TARP requires limitations on executive salaries in the participating organizations. No ifs, no ands, no buts. As an executive at a financial institution that received TARP, can tell you that all of us who had executive contracts had to agree to restructure them before the TARP funds would be distributed.

[TampaYankee]

Participation in TARP requires limitations on executive salaries in the participating organizations. No ifs, no ands, no buts. As an executive at a financial institution that received TARP, can tell you that all of us who had executive contracts had to agree to restructure them before the TARP funds would be distributed.

I stand corrected. It's good to see that everyone is willing to share the burden to get the ship wrighted. However, in balance, I suspect that in terms of basic needs and security, that this hurts corporate executives somewhat less than workers facing loss of pensions and or health care. I grant that this is not painless for all executives as some are caught in difficult circumstances of their own.

[TownsendPLocke]

Labor-including all of the benefits(they are not perks)for ALL employees-present and retired-represents 10% of the cost of a new car.

The very bloated (and mostly non earned)executive salaries,the outrageous advertising and markting budgets,and the true waste these companies produce far outweigh these.

They have been bad,they are looking for someone to blame it on,the working man is the fall guy.

Moving production to Mexico-putting the workers who would have bought your products out of work and then rewarding the fella that orchastrated that with a huge goldem parachute-smart move GM and now you have the balls to come ht in hand to ask for a bail out

[caeron]

Labor-including all of the benefits(they are not perks)for ALL employees-present and retired-represents 10% of the cost of a new car.

It may be only 10%, but it's significant. First my data source courtesy of a quick google :http://townhall.com/Columnists/CalThomas/2008/11/11/breakdown

Detroit loaded hourly wage: 78.21

Toyota loaded hourly wage: 48

Difference per vehicle totaled: $1000

(from which we may infer there is about 33 hours in assembling a car)

That's a pretty big difference.

[caeron]

Found a link confirming the wage differences on AP. They do make the point that GM has many more retirees they're carrying.

http://hosted.ap.org/dynamic/stories/A/AUT...EMPLATE=DEFAULT

[TownsendPLocke]

There is also a huge discrepancy in the salaried executives between Japan and the US.

Japanese executives would be ashamed to make so much more than their workers-American car execs have no such shame.

The culture of greed which permeates the US auto biz is sickening.And there is plenty of blame to go around-not just the fault of Labor.

[TampaYankee]

It may be only 10%, but it's significant. First my data source courtesy of a quick google :http://townhall.com/Columnists/CalThomas/2008/11/11/breakdown

Detroit loaded hourly wage: 78.21

Toyota loaded hourly wage: 48

Difference per vehicle totaled: $1000

(from which we may infer there is about 33 hours in assembling a car)

That's a pretty big difference.

Simply an exercise in how to lie with statistics. Put more gently, one can gin stats to say pretty much anything one wants. Even the refererence cited as 'confirming' the hourly wage difference points out:

GM says its total hourly labor costs are now $69 including wages, pensions and health care for active workers, plus the pension and health care costs of more than 432,000 retirees and spouses. Toyota says its total costs are around $48. The Japanese automaker has far fewer retirees and its pension and health care benefits are not as rich as those paid to UAW workers.

One could just as easily construct an 'hourly wage statistic' that divides the total wage/benefits payout by the sum of the active and retired employes instead of just the active employees and get quite a different stat that would make GM look better than Toyota in all probability. So what? Neither of these advances a solution. No one is seriously arguing that corporate benefits promised to retired employees should come out of the pocket of active employees, are they?

It is true that GM has higher legacy costs. It is also true that the union bargained for some unrealistic work rules and maybe excessively plush benefits that add burdensome costs to production. Adjustments need to be made, but don't put the onus all on one side as 'constructed stats' would imply.

[caeron]

There is also a huge discrepancy in the salaried executives between Japan and the US.

Japanese executives would be ashamed to make so much more than their workers-American car execs have no such shame.

The culture of greed which permeates the US auto biz is sickening.And there is plenty of blame to go around-not just the fault of Labor.

That's hardly unique to the auto industry. The disparity of pay between workers and execs across industries in the US is really screwed up.

[caeron]

Simply an exercise in how to lie with statistics. Put more gently, one can gin stats to say pretty much anything one wants. Even the refererence cited as 'confirming' the hourly wage difference points out:

I think you're missing my point. It doesn't matter what workers are getting the labor costs. The differences are real, and crippling to the detroit companies. Detroit can't promise to take care of its workers forever if nobody else in the industry is doing it. That's the reality they're dealing with today and why bankruptcy is probably the right way to go. In effect, they have to break their contract with their retirees if they're to continue to exist as a company.

Kudos to the UAW for getting a good deal for their workers when the companies could afford it. Now they can't, so the deal's gotta change.

[TampaYankee]

I think you're missing my point. It doesn't matter what workers are getting the labor costs. The differences are real, and crippling to the detroit companies. Detroit can't promise to take care of its workers forever if nobody else in the industry is doing it. That's the reality they're dealing with today and why bankruptcy is probably the right way to go. In effect, they have to break their contract with their retirees if they're to continue to exist as a company.

Kudos to the UAW for getting a good deal for their workers when the companies could afford it. Now they can't, so the deal's gotta change.

I really didn't miss the point. I just disagreed with your framing of the diagnosis of the problem that basicly laid it at the foot of active workers.

Maybe we are ready to become a third world labor force. Don't expect the largess of corporations to watch out for employees if there is no alterantive labor standard to compete with. Don't expect government to do it either as I pointed out above the track record of the last eight years. Rather than nonunion corps making arguments why their benefits need not be as good as union shops they will be arguing that they cannot be substantially better than Chinese or Indian shops because of competitiveness. Maybe we are ready to become a third world labor force.

I doubt what we know as bankruptcy is a solution because of the effect on public confidence. Any regoranization and restructuring would have to have full government commitment to stand behind the companies. Else nobody will buy their cars.

If such a reogranization should come to pass and commitments to retirees broken unilaterally then I would advocate that the oldest retirees continue with benefits at some adequate level and younger retirees get preferred stock in exchange for earned retirement benefits lost. There is no way they should become designated as total losers to save the companies. If the companies cannot meet their promises then they owe the retirees the opportunity to share in whatever benefit accrues from them being sacrificed for better corporate health. The health benefit costs ought to be mitigated by a national health care reform program that makes health care more affordable to all.

There is no way we will ever have a level playing field while foreign government subsidies support foreign competitors while we do not provide similar subsidies. That is not my choice for a business model but it is the business model if we intend to compete. We have been inept at achieving a level playing field for trade hoping that the other side would see the light. They seem quite satisfied eating our lunch with a flashlight.

[RA1]

When the airlines, like United, declared bankruptcy they did indeed break the contract with retired employees. A personal friend of mine is getting about 25% of his promised and contracted for retirement. He is very angry with his past employer but neither he nor you or anyone else I know would refuse to ride on that airline citing safety reasons. In this case fairness and equity has been squashed into smithereens. But the airline could survive and it would not have without these concessions. The taxpayers lending money or giving money or any such to the airlines would not have perpetuated them.

I am not saying I know what fair answer would have been. Bankruptcy was not fair but has some chance of working. A bailout would have had little if any chance of working. I believe this to be true for the bankers, insurance companies and Detroit also. So far all we have done is pour some feel good money on the problem.

Best regards,

RA1

[caeron]

I really didn't miss the point. I just disagreed with your framing of the diagnosis of the problem that basicly laid it at the foot of active workers.

You did miss my point if you thought that was my point. My point had nothing to do with the active workers. It had to do with the total labor costs that Detroit bears versus folks like Toyota.

The active workers make about the same as those at Toyota plants. The problem is paying for the promises made to workers past.

[Guest Conway]

The negotiations that led to the promises made to those retirees were entered into and agreed upon by both labor and management. The problem is that both agreed to pension and health benefits that they couldn't afford at the time, so they chose to defer the costs. We are at the point that the workers affected by this are learning that both labor and management committed to an obligation that the company simply cannot meet from a cash flow perspective.

Its tragic. It is a brutal reality for thousands who didn't have a back up plan for retirementBut, it is the product of unrealistic thinking on the part of both management and labor.

[Guest Conway]

I doubt what we know as bankruptcy is a solution because of the effect on public confidence. Any reorganization and restructuring would have to have full government commitment to stand behind the companies.

I couldn't agree more. If the government wishes to contribute to saving the auto industry, it should guarantee the post bankruptcy DIP financing for all three auto companies. DIP (debtor in possession) is the financing that will provide the company with its post bankruptcy capital while a plan is struck for the pre-petition creditors. That will keep workers and suppliers paid while the industry reorganizes.

[TampaYankee]

He is very angry with his past employer but neither he nor you or anyone else I know would refuse to ride on that airline citing safety reasons.

Wrong analogy IMO. Would you seriously spend $20,000 -- $40,000 to buy a car from a company with no guarantee of your 5 year/50,000 mile warranty being honored or of replacement parts being on hand for repairs? I wouldn't.

So far all we have done is pour some feel good money on the problem.

That's half the battle and that was a good part of the reason they acted as fast as they did. The plunge of Wall Street and failure of banks could have been much worse if bank runs and wholesale stock selling continued unabated in runaway panic.

Lack of confidence causes the economy to sieze up. Nobody knows the fair value of Wall St. or how stable the big banks. Insurance companies and financial institutons got in bed with the banks in passing around toxic securities. Loss of the big players in any sector would bring the other sectors down. That would kill the ability of consumers to buy on anything but a cash basis or companies to have short term cash on hand to pay employees and buy materials, supplies, parts, etc to conduct their business.

The Fed moved to maintain confidence in the banks buy publicly throwing money at them. The equivalent of pouring water on a fire. It didn't result in everything desired to improve things but it very probably kept things from getting a lot worse. Some might consider that a success of a sort.

Consumer buying is the biggest engine in our economy. If people dont buy because they fear loss of jobs, or bank failures or Wall St crash or because they dont have access to credit then companies cannot make the store rent, product buys, and employee payroll. Broad consumer confidence is a key lynchpin to restoring the economy -- maybe the key lynchpin. Anything that improves confidence is very good medicine. That includes feel-good money if it really makes people feel good.

The perception problem is that events are easy to evaluate but nonevents are impossible to evaluate with any certainty. Who knows how bad circumstances would have gotten without action? Who really wanted to find out, with what history and economic analysis has taught us?

[Guest Conway]

Honestly, TY. I think that this crisis is well beyond damaging public confidence. Let's be honest. This isn't a recession. It is a depression that we are facing.

Public confidence in the economy and the ability of our government to manage it is already in the toilet. The danger in letting the operational and financial problems at GM, Ford and Chrysler go unchecked is that we're simply delaying the inevitable- that is the failure of the industry overall. This will result in the failure of supporting industries that create lots of jobs, too.

I heard recently that the Big 3 employ around 230,000 directly. However economists indicate that they support between a million and a million and a half jobs beyond the direct industry.

If we don't fix the root problem - the fact that their labor and financial models are broken- there will be no hope for the industry in the future.

The bankruptcy courts will force tough economic decisions on both management and labor that they're obviously not willing to make themselves. Remember, we are talking about a reorganization through bankruptcy rather than a liquidation. The idea is that, unlike the airlines, whose model has never worked, the auto industry has a model that does in the Japanese model that is employed in their plants here in the US .

The bankruptcy courts will simply allow the companies to shed both management and labor expenses that they cannot shed otherwise.

At the end of the day, that should make the US based auto industry stronger and leaner (like their foreign competition) versus weaker.

[TampaYankee]

Honestly, TY. I think that this crisis is well beyond damaging public confidence. Let's be honest. This isn't a recession. It is a depression that we are facing.

I don't disagree that we are peering into an economic abyss but...

I guarantee you that if people don't have confidence that they will have a job to pay for discretionary purchases or homes and investors don't have confidence that they can buy a secure investment of known value and integrity then this economy is going nowhere. This whether or not the auto companies survive.

They are a higher order issue -- a very important one for sure. But we were seriously in the tank and spiraling downward before the auto barons reached out for a lifeline -- their need prompted most immediately by the credit meltdown. Their failure would be a snowball effect worsening an already bad situation.

Public confidence in the economy and the ability of our government to manage it is already in the toilet.

I don't know how to quantify 'in the toilet'. Confidence has been shaken but I think most people are taking a cautious wait and see attitude to give Obama a chance to work some magic. To date Christmas shopping stats haven't been nearly as dismal as I had anticipated. People are not feeling good nor ready to ante up for life as before. Neither have they decided that universal armageddon is a forgone conclusion just yet. Things are tough and will get worse before they get better. In the end it all comes back to confidence but that requires tangible signs of economic stability such as the real floor of the decline being found.

The danger in letting the operational and financial problems at GM, Ford and Chrysler go unchecked is that we're simply delaying the inevitable- that is the failure of the industry overall. This will result in the failure of supporting industries that create lots of jobs, too.

...

If we don't fix the root problem - the fact that their labor and financial models are broken- there will be no hope for the industry in the future.

Obvious and granted. The issue is to decide on what alternate paradigm is desirable and how to transition to it. To adopt a business paradigm rooted in another culture without understanding how that culture supports the paradigm in society may have unintended consequences.

Put simply, if we discontinue the paradigm of business providing health care and pension benefits then it seems that one of the three must result: 1. employee pay is increased to cover the cost of their own contributions to these needs, 2) the government picks up the tab to free business from the burden, or 3. we decide that as a society we are not obligated to have health care and liveable pension benefits for anyone.

1. still places a burden on business labor cost and adds to the burden of individuals as they dont have buying power to obtain group discounts etc. 2. causes higher taxes across the board, including business, spreading the cost over the widest possible base, and 3. Social security was never intended to provide a livable pension, only partial support in retirement age. For most, SS benefits fall far short of a liveable pension. For active workers, 3. returns healthcare to 'everyone for themselves '-- pretty much the third world paradigm.

The bankruptcy courts will force tough economic decisions on both management and labor that they're obviously not willing to make themselves. Remember, we are talking about a reorganization through bankruptcy rather than a liquidation. ...

So you are confident to a certainty that auto companies in bankruptcy can maintain appeal to buyers that will sustain sales that make survival likely?

The idea is that, unlike the airlines, whose model has never worked, the auto industry has a model that does in the Japanese model that is employed in their plants here in the US .

These companies sprang up in the US paradigm established historically by Management and Labor that business provided employee benefits as part of doing business. Without that paradigm it is uncertain that they would have created it. Along the way both US Management and Labor created problems for themselves that needs to be corrected. The Japanese companies had the benefit of seeing those problems before getting on the playing field. Good for them and good for us. The question is not that changes are necessary but how we transition the American companies without figuratively lining up against a wall the retired employees and efficiently dispatching simply as abstract loosers in the game.

Also, the future of the American paradigm Japanese style or otherwise is in doubt. Ten years ago my employer deicded to draw a line in the sand on health benefits. To cap ever increasing costs they decided to cap their future contributions for health care payments to what they paid that year. It is not to hard to see where this eventually leads if general health care cost growth is not capped. It is a premier R&D noprofit that needed to cut the cost of overhead. I doubt that Japanese American auto companies or other companies are going to be better in the long run.

[caeron]

Its tragic. It is a brutal reality for thousands who didn't have a back up plan for retirementBut, it is the product of unrealistic thinking on the part of both management and labor.

I agree. It is tragic. Perversely, I think one of the benefits I have is that no employer of mine has ever made such promises to me. I've had to plan on counting on myself, and have built a fair nest egg as a result.

[caeron]

Its tragic. It is a brutal reality for thousands who didn't have a back up plan for retirementBut, it is the product of unrealistic thinking on the part of both management and labor.

I agree. It is tragic. Perversely, I think one of the benefits I have is that no employer of mine has ever made such promises to me. I've had to plan on counting on myself, and have built a fair nest egg as a result.

[caeron]

I think the debate here does highlight the need to address healthcare nationally. Both from a coverage standpoint, and from a cost standpoint.

I'm married because of healthcare. I married my best friend 15 years ago because I was appalled at the thought that she had no healthcare. It has ended up a magnificent, if non-traditional, marriage that has brought us both joy, but it's roots were in the fact that she had no coverage.

It turned out well for us, but it hasn't turned out as well for others. A friend's father died because he didn't have healthcare coverage and the state set necessary, but brutal cutlines on what it would pay for with its limited resources for those without coverage.

I don't want to give up the great healthcare we can get in the US to wait months to see a doctor, but we need to do something about this issue.