51 Comments

1. Rob Murphy:

Let them rot.

And don’t forget that GM was the prime example behind “The Peter Principle” and an organisation whose management goal for several generations was to NOT increase marketshare because of all the anti-trust actions.

And here they are in 2008 still pushing SUVs.

What a joke.

No bailout.

Nov 8, 2008 - 2:35 pm 2. Gordon:

Where “you”=”taxpayer” and “game”=”autos/unions”:

If you’ve been in a crooked poker game for an hour and haven’t figured out who the sucker is … you’re the sucker.

Nov 8, 2008 - 2:39 pm 3. Jack Smith:

As unions go, the UAW is less thugish and corrupt than average, which says something about the others.

So this bailout will take money from many people who have no retirement plan other than a 401K that has tanked in the last year and give it to UAW members with gold plated retirement plans. Be a member of the UAW, stick it to the auto companies to the point where they go bankrupt and then get the taxpayers to reward your actions. Boy, is this a great country or not.
Jack

Nov 8, 2008 - 3:28 pm 4. Thrasymachus:

The fix is in. Obama was talking in his news conference about the need to save local governments from making big cuts- that is laying off unionized, Democrat supporting government workers. The unions will be taken care of, everybody else will eat it to do so.

I can’t help thinking, this wonderful new Canadian style health care we’ll be getting will exempt unions. County hospital treatment for the masses, Cadillac care for the connected.

Nov 8, 2008 - 3:36 pm 5. Zim:

We voted the fox into the henhouse, does it matter if he brings a few friends with him?

Nov 8, 2008 - 3:37 pm 6. Paul Milenkovic:

Where do I start?

Robert Farago has been running his “GM Death Watch” series of posts on his blog for several years now, and I guess GM is coming to the end — either bailout or bankruptcy — and Mr. Farago is now the prophet and hence the person to judge what GM should do or what should be done with GM.

I can make these remarks regarding my opinion on how to evaluate Mr. Farago as a source of information here under with the grace of Richard Fernandez’ tolerant comment policy. I cannot make these remarks on Mr. Farago’s Web site, either responding in comments or writing a guest article. I am speaking from personal experience having done both, and Mr. Farago maintains very strict control of content on his Web site.

Another thing Richard Fernandez lets me do with his graciously-supplied slice of bandwidth that Robert Farago does not is address commentary with another response.

“And here they are in 2008 still pushing SUVs.

What a joke.”

Yes, Mr. Rob Murphy, GM is undoubtedly still trying to sell the full spectrum of vehicles that their factories are tooled to make. No, Mr. Murphy, it is not a joke. Even if they wanted to sell a greater number of small cars, it costs money to retool their factories, and even if they made this switch, small cars sell for less money and GM would lose even more money.

As far as selling and making a profit on small cars, their Japanese and Korean competitors have informal trade barrier protected home markets for what are mainly small cars and therefore achieve economies of scale that are not available to domestic manufacturers.

On the subject of SUV’s, GM is seeking to meet market demand by making smaller SUVs, and such taller vehicles with cargo space to take items that don’t fit in a car trunk remain popular. On the subject of cars, GM makes the Impala, these days the common size for a “family car”, and talking to people who drive them, they get well over 30 MPH in highway driving and have better V-6 fuel economy than many competitors.

On the other hand, one gets to wondering why President-Elect Obama wants to bail GM out. Mr. Obama drives a nice Chrysler, they tell me, but it seems that his supporters drive anything but an American car or even a car. I see a lot of Obama bumper stickers on the sort of downsized SUV’s that GM is trying to sell, but they seem to be foreign makes — Subaru Forester, Honda Pilot, Toyota Highlander, and so on.

I am sure there are UAW people who voted for Obama, but the Obama supporters in my neck of the woods, the ones shopping at Whole Foods, living in the pricier housing districts, well, judging from their rides, I wonder what they want to keep GM around for — maybe GM cars are required for the lower rungs on the social ladder.

Disclosure: I don’t have connections to GM, but my father is a Ford retiree. Maybe if GM declares bankruptcy it will benefit Ford, maybe it will drag Ford down as well, I don’t know. I also have family connections to Michigan.

I don’t have an easy answer — maybe Chapter 11 will bring the reforms Mr. Farago talks about, perhaps a bail out will leave the tax payer (you, me) paying to no good purpose, maybe doing nothing will drag too much of the economy down, not just GM but their suppliers and on down the line.

Mr. Farago likes to “talk hip” and Mr. Murphy’s description of GM as “a joke” is the kind of “hip talk” that is encouraged on Mr. Farago’s content-controlled Web enclave. I am open to persuasion about what should be done about GM and I am receptive to all arguments on the issue apart from regarding GM “as a joke.”

Nov 8, 2008 - 3:56 pm 7. whiskey:

As a practical, political matter, Obama cannot afford to let Detroit’s automakers fail and put all those angry blue collar (mostly White) workers out on the street.

That’s asking for a million man march on Washington.

Of course Detroit, like Al Italia, or any other major employer in any industrialized nation cannot be allowed to fail because the political cost would be too high. This is called reality.

Detroit’s problems are endemic to a lot of American “big” institutions. So much revenue for so long and so little competitors that failures are hidden or brushed away. SUVs rescued Detroit for roughly twenty years as Japanese auto makers could not really compete. And Americans wanted bigger, roomier vehicles, that did not scream Mom-mobile like Minivans.

Detroit’s entire manufacturing process from design to implementation needed to be changed, but the constant bickering and adversarial relationships of unions and company management filtered through half a century or more of each side screwing the other made that impossible.

A “deal” that would actually make sense is for the UAW to give up a lot of work-rules and even some pay, in exchange for majority ownership and revenue payouts to it’s employees — the old Silicon Valley model. Not through IPOs and options, but rather dividend payouts. Employee owners work harder and make adjustments to get the job done since it’s THEIRs not just a job for a company constantly trying to screw you over. Since you are, in fact, the man. When you own something, you want to take care of it.

GM could come back — by offering more efficient cars and trucks, and plug-in vehicles, but that would require: lots of coal and nuke plants generating CHEAP electricity, massive injections of tax-payer capital, and a total revamp of their workforce into employee-owners. You get paid on a sliding scale depending on if the company makes money, and you get attention each month to revenues, expenses, etc.

There is no reason it has to fail. But I don’t see any of this happening. Obama is committed to Global Warming idiocy. Neither the UAW or GM management will budge. We’ll dump lots of money down the GM rathole and it will fail anyway.

Nov 8, 2008 - 4:04 pm 8. Grouchy Old Fart:

Let ‘em sink. the automakers made the deal with the UAW. Now they can’t make a car anybody wants for what it costs to make. We can’t go on rewarding failure. I’m buying Toyota next time.

Nov 8, 2008 - 4:11 pm 9. wretchard:

A commenter over at the Marginal Revolution argues that the public is hooked on government intervention, but that least the Democrats are honest addicts:

Conservatism is a schizo business at best, what with the rhetoric of ’small government’ on one side, and Republican administrations remaining politically viable by turning around and inevitably expanding government just to remain in office. Hence, the existence of things like Bush’s 700 billion dollar pill bill, which had the effect of shifting enough people to his side in the over 60 demographic that he won in 2004. Or the putting through bills that provide price supports for agriculture, without which the red states would be the purest blue. Conservative senator Saxby Chambliss, for instance, would be history if it weren’t for his carefully making sure Georgia cotton farmers benefited from the New Deal agricultural policies, and has touted this in order to survive in his election campaign. Funny, he didn’t tout showing his conservative courage and cutting off the Georgia cotton farmers. I wonder why? Social security, medicaid and medicare – the latter two crafted in the spirit of the New Deal – have somehow miraculously survived Nixon’s, Ford’s, Reagan’s, Bush I’s and Bush II’s administrations – I wonder how?

I ran into Farago’s site while trying to understand GM’s plight, which was brought home to me by the observation by a friend some weeks ago that what was once the mightiest company in the world — GM — is now grotesquely dwarfed by Australia’s BHP and he half-seriously suggested it was committing voluntary suicide to be rid of the UAW. What struck me in the course of researching the problem was the relative scarcity of discussion on the subject. I’m sure it’s out there, but it’s down deeper than the half-hour of research I can do to chase down a single angle. But my short impression is that the auto industry’s problem is tangle of management, labor and political failure. It can’t be allowed to fail for political reasons and would probably be propped up even if John McCain had won. But it is unlikely it can be saved either. So we keep taking the useless pills simply because we can’t stop.

Nov 8, 2008 - 4:14 pm 10. slade:

What do global warming and health care have in common?

Too hot to handle.

Western civilization will melt long before the polar ice caps.

Nov 8, 2008 - 4:16 pm 11. dla:

It’s a huge falsehood to say that “we can’t afford to let GM fail”. Yes we can. And we should.

If we’re talking loans, which GM has to repay, then I don’t mind. We did that with Chrysler and extended their life another 20 years.

If we’re talking about removing regulatory obstacles that make GM uncompetitive, I’m for it.

But lets face it, government intervention has never saved an industry. Rail, Steel and now Autos.

If the Government gives anything to GM then there should be lien on GM’s assets that will cover the cost of the pension.

The US auto industry isn’t sacred and neither are the parasite Unions.

Nov 8, 2008 - 4:25 pm 12. E. Nigma:

Just to comment on Whiskey’s assessment above regarding “profit sharing”. This was proposed to the UAW rank and file by GM many years ago, and they rejected it. It’s a good idea, just not in line with the UAW mindset.

I think it is inevitable that the Feds will come up with some bailout of GM (and maybe Ford, too). I also think that unless there is some massive restructuring of the management and labor agreements, that it is doomed to fail.
The way that unionized auto plants work is a nightmare, if you’ve never been inside. There is actually plenty of productivity when everything is running, but the labor and health costs, and legacy costs of retired workers is staggering.
An alternative example is the steel industry. During the late 90’s and earlier in this decade, a bunch of steel makers went “bankrupt”, to shed their pension and legacy costs from agreements made with USW in the 60’s and 70’s, before foreign steel makers started to eat their lunch. The re-organization was an “inside job”, and now many of the former bankrupt mills are (or were, before the present economic unpleasantness hit) operating profitably.

The auto companies are too few and too visible to do what many of the medium sized steel companies did, so maybe they could be spun off into smaller units to try and stay economically viable. GM spun off Delco (became Delphi) to reduce the bargaining power of the union and separate the contract costs, but they can’t seem to evade the harsh collectivist union sentiment.

Or maybe we could hasten “card check” at the non-unionized Japanese auto factories in America.

Nov 8, 2008 - 5:40 pm 13. RWE:

Neil Cavuto had a good idea the other day.

All requests for bailout from Uncle Sugar should be accompanied by “and all senior management of the company are quitting with no golden parachutes allowed.”

I think that Union management should be included in this requirement.

And failure to submit this firing list with the bailout request should result in the automatic appointment of a special prosecutor.

As for buying Toyota, I do for myself, for the last 35 years, but I bought my Mom Chrysler products for the last two cars she owned. The one I bought her in 1988 was not that great, but better than the Ford she had before. The one I bought her in 1999 was much better. Last year she expressed interest in a new car and we went to the Chrysler dealer.

I was horrified. They had gotten rid of the Stratus and replaced it with a somewhat larger car. But incredibly, they had gotten rid of the Nova and replaced it with the SUV-like Caliber. Instead of getting smaller and more effecient they went the other way. What in hell were these people thinking?

After swearing them off 30 years before, Mom bought a Toyota.

Nov 8, 2008 - 5:42 pm 14. Dan D:

Farago is a grandstander, and as much part of the problem rather than part of the solution, as he rages against the fates and the weather.

The automakers are stuck in a hopeless regulatory nightmare. Farago thinks GM is led by idiots because they continue to have too many brands, and produce the wrong products at too high a cost. Does anyone really think that GM management doesn’t understand those points as well as many others? Of course they do, the problem is they operate under constraints that artificially raise the cost of correcting the issues far above what they could recover from future revenues.

Dealer franchise agreements are heavily regulated by the states, local dealers being successful rent-seekers and political contributors. GM spent billions buying out and closing down a few hundred Oldsmobile dealers when they eliminated the brand. Closing Pontiac, Hummer, GMC, and SAAB would cost more than GM’s market cap BEFORE the recent sharp decline, leaving nothing left for worker severance and retirement.

Crazy CAFE regulations, dealership, domestic content rules, union rigidities, and especially a schizo country that says it wants companies to compete in free market capitalism, but acts like what it really wants is German-type Social Market full employment…

There may be a way out short of bankruptcy, cash flow assistance tied to severe actions to permit dealer closings and massive workforce reductions and repeal of Corporate Average Fuel Economy craziness. But the political will to face up to the consequences is not there, and Farago notwithstanding, it simply is not possible for GM (and Ford and Chrysler) management to get the needed results while still operating in the constraints placed upon them.

Nov 8, 2008 - 5:53 pm 15. jkftl:

It’s well and good to say, “Let ‘em sink!’ But what do we do with the estimated 2.5 million employees? Maybe not ALL of them will be discharged, but enough to add several percent to the rolls of unemployed, and their subsequent financial distress further accelerating whatever collapse happens. So what do we do???

In 1967 I was in a Army holding company comprised of guys just about to finish their active duty terms. One day, one of the group revealed he had just received a term extension and orders for Vietnam. Sitting around the barracks that night someone asked him, “So what are you going to do?” His response; “Party Hard!!!”
Then there’s that inscription over the gladiators’ quarters about “Eat drink and be merry…”

Nov 8, 2008 - 5:57 pm 16. slade:

During the late 90’s and earlier in this decade, a bunch of steel makers went “bankrupt”, to shed their pension and legacy costs from agreements made with USW in the 60’s and 70’s – E. Nigma

As I’m sure most here know, the pension liabilities were dumped on the PBGC, another GSE that is now facing bankruptcy.

Nov 8, 2008 - 6:08 pm 17. NahnCee:

Are GM’s union auto-workers mostly white? I would have guessed mostly black because tht is where the South’s blacks have been immigrating for generations, and we keep reading stories about white flight out of Detroit leaving only blacks.

I read somewhere recently that the unions keep their demographic numbers secret so that no one really knows any more what their make-up is. I wonder if that’s true.

If the remaining auto workers *are* black in addition to being union, then hell yes, the fix is in. This is Obama’s core constituency waiting for the promised free tank of gas and mortgage payment.

Nov 8, 2008 - 6:40 pm 18. E. Nigma:

slade,

That is absolutely correct, regarding the PBGC. There is no good outcome and we will be in one hell of fix very soon.

*****************
Another problem is that because of the per capita employee costs, it is very difficult to make a small car (domestically) at a profit inside a UAW union shop, that can compete on cost point with a Japanese or other import (or domestic made version made in a non-union shop). That’s why the auto companies hung with mid-size and big pick-ups and medium-large SUV’s. They could make a good profit margin on those types of vehicles.

Saturn can make a small car at a small profit, but they have a different sort of union agreement than the rest of GM. GM has also been willing to make and sell small cars “at cost” at Saturn to build a loyal buyers base for GM cars in the future.

Nov 8, 2008 - 7:01 pm 19. Leo Linbeck III:

I have a good friend who is a money manager, and a really successful one at that. He is a very skeptical person, and reads financial statements for fun. Just the kind of guy you’d want to invest your money.

I asked him about 10 years ago whether he owned any auto stocks. Only one, he replied: Toyota.

I then asked him about GM. His answer was simple and to the point:

GM makes cars they sell at a loss to make money financing them to pay for their retirees’ benefits. There’s nothing left for shareholders, so why would I want to be one?

GM is an excellent example of what happens when a company is a monopoly (or part of a small oligopoly). They become immune to market signals, they become more focused on their internal issues than their customers, and their investment decisions become politicized. GM, Ford, and Chrysler are simply the Fannie and Freddie of the manufacturing world, without the government guarantee.

Or, come to think of it, you can drop that last clause.

L3

Nov 8, 2008 - 9:49 pm 20. Aristide:

Is GM being bailed out? Or is it really the UAW?

Nov 8, 2008 - 10:06 pm 21. Leo Linbeck III:

whiskey,

A version of the model you describe was tried by United Airlines. It didn’t make a difference. Doesn’t mean it wouldn’t work for GM, but it is reason to be skeptical.

GM’s problem with the unions is that they will outlast any management team, and eventually get what they want. Kinda like a Democrat-controlled Congress with a Republican President.

GM’s failure results largely from the failure of previous executives in standing up to unsustainable union demands.

There’s a wonderful scene in Oscar Wilde’s An Ideal Husband that comes to mind. Sir Robert Chiltern is being blackmailed by Mrs. Cheevely. When she reveals that she has in her possession a letter that will ruin his reputation, she says,

Sooner or later we all have to pay for what we do. You have to pay now.

GM’s time to pay is now. Sad, but ultimately predictable.

Cheers.

L3

Nov 8, 2008 - 10:14 pm 22. Leo Linbeck III:

jkftl,

It’s well and good to say, “Let ‘em sink!” But what do we do with the estimated 2.5 million employees?

The harsh reality is that most of those people no longer have a real job, that is they no longer provide a service that adds more value than they earn. The sooner that they are set free to pursue some different career path, the better – for both them and GM.

I’m very sad about this, particularly because they’ve probably been led to believe by their managers that they’re playing an important and useful role. But they’re not. They need to find a company that does create value. It may mean moving to a new industry. It may mean starting their own business. It may mean moving to a new city. It may mean starting at a lower wage. It may mean going back to school. But they need to find something else to do. And they can, once they have to.

To spend 8-10 hours each day doing something that you know adds no value is awful. We all need meaningful work to do. It’s a basic human need. To stay in a job that doesn’t provide it rots your soul.

L3

Nov 8, 2008 - 10:29 pm 23. Leo Linbeck III:

E. Nigma,

Another problem is that because of the per capita employee costs

It’s been a few years since I really studied GM’s situation, so my information might be dated. But my understanding was that employee costs are not the problem at GM; the problem is their production system. Toyota (and to a lesser extent Nissan) employs lean production techniques, and GM is largely still a mass production system.

http://en.wikipedia.org/wiki/Lean_production

Lean manufacturing is relentlessly focused on eliminating waste from the production process. The Japanese words for this waste are muda, muri, and mura, and Toyota is religious about getting rid of them. To accomplish this, they are constantly redesigning their production process, almost always as a result of direct feedback from line employees.

Lean can only work when there are little or no work rules. Think about it this way: a production process is defined by work rules. Freeze the work rules, and you freeze the production process. Limit changes to the work rules, and you limit changes to the production process. Force regular negotiation around work rules, and you increase the cost of changing the production process.

Traditionally, auto unions have used work rule changes as a rationale for increasing wages. Hence, they are very reluctant to give them up. But so long as work rules are explicitly contracted, lean production is extremely difficult to implement.

Again, it may be dated, but when I looked at it, Japanese labor cost was as high as American labor costs. The difference was in labor flexibility.

FWIW. Cheers.

L3

Nov 8, 2008 - 10:45 pm 24. Taxpayer:

This is hardly a surprise – I can recall articles 10 or 15 years ago in Fortune and Forbes describing the ongoing decline of the US auto industry. Its been pretty much a “head in the sand” mutual suicide pact between management and the UAW for a generation.

They should be allowed to die, but I expect there will be $100 billion taxpayer dollars wasted first.

I bought my last US branded auto in 1982, and have never looked back. Toyota / Honda / etc. just build a better product.

Nov 8, 2008 - 11:11 pm 25. NahnCee:

So if the government does step in to bail them out, and save those 2.5 million jobs will GM keep on making SUV’s that no one will buy?

I’d rather see bail-out money put into training those employees to do something else, OR put it into forcing GM to change their tooling so that *all* they produce is either hybrid or electric cars. I could get behind a government bail-out if the end result was a swarm of well-built inexpensive oil-free cars in two or three years.

Nov 8, 2008 - 11:41 pm 26. Rubber Ducky:

General Motors not only survived the Great Depression, it did so without ever running in the red for one single year. They were in the black for every one of them.

Such a feat is inconceivable today; GM is simply denied the means to acheive such a thing. Rapid, extensive cost-cutting measures are needed right now to stem the tide of red ink, but this is no longer allowed. Still lumbering under the New Deal labor model, GM lost the flexibility in dealing with the current crisis a long, long time ago.

The CAFE restrictions destroyed the platform that made Detroit famous: the 4-door V8 family sedan. These were our fathers’ Buicks, Pontiacs, Oldsmobiles and Chevrolets. These restrictions also exploded the cost of development of new vehicle platforms, insuring that the difference between all of these various intra-company brands would inevitably become reduced to differences in trim and styling (i.e., transparently derivative). Through a loophole unforseen by Congress regarding the applicability of those standards to light trucks, the innovation of the minivan and the SUV emerged to become the profit center of the entire US auto industry.

In order to survive today, GM, Ford and Chrysler need more freedom on cost cutting than their unions will allow. Make no mistake the cost cutting they need would be quite painful and extensive across their entire worker base. They also need dramatic regulatory relief in order to shorten both the design time and cost of bringing new vehicles to market. Currently it takes over a billion dollars and 3-5 years to move from drawing board to showroom. This situation stiffles innovation and risk-taking, always encouraging what is seen as the “safe” play (and until recently this has always meant rolling out the next SUV or light truck). The latest version of the CAFE standards require immediate suspension and repeal. The Big Three are facing an existential crisis, this is no time to be committing them to pie-in-the-sky MPG requirements that rain down additional costs they can’t afford right now (if ever). The estimated cost of this year’s “Energy Bill” to the US automotive industry: $100 billion dollars.

Every component of what I mentioned in the last paragraph won’t sell in today’s political environment. Every one. Only two alternatives exist, then, for the Big Three: bankruptcy or bail-out. Count on the latter. They may allow one to die, probably Chrysler, due to random cruelty and an august “sense of measure!” But really if we are bailing them out we should just be bailing them out.

During any bailout politicians will no doubt extract a price from these companies. I can’t see how this price will not be ludicrous and misplaced. It will probably require more labor concessions, not less, or a more constrictive approach to allowable emissions among the fleets, etc.

Ironically, fundamental change is exactly what the American auto companies need right now, at the labor relations level, in the regulatory environment, and at the drawing board. But the odds are that this change will be hardly denied, or even entertained for one moment.

Nov 8, 2008 - 11:45 pm 27. Rubber Ducky:

L3, I think your point on lean production and flexibility on work rules is important and does have a big role in GM’s problem, however GM’s labor cost per vehicle is significantly higher than Toyotas. By a lot. The disparity is only growing, too. Toyota is planning to index factory pay on a scale of sliding percentages based on local wages, and they are using temps on their assembly lines more and more. In fact in Asia they have complete temp factories exporting here. You can’t run a union shop and compete on labor cost with a temp shop.

A vertical-integration model of scale like GM’s with its legacy New Deal labor arrangements cannot compete with a lean production system that outsources its labor, parts and delivery and sets their suppliers up for a competitive downward bidding pressure on costs.

It really makes me laugh, and also want to cry, when I see the dude driving by in the Prius with the Obama sticker on the bumper. Between GM and Toyota, GM’s the one with the corporatist, socialist arrangment (and it was largely imposed on them). Toyota’s treatment of workers and suppliers can be fairly called exploitative in comparison – they are the evil, nimble capitalists.

I sit there as the conservative in my Ford 500, built in Chicago no less, as one who will not entertain buying anything but an American brand for one minute no matter what. The Obama dudes drive by me in their Priuses and great concern for the working man. It really is something! haha

Nov 9, 2008 - 12:21 am 28. slade:

Stupid question on CAFE standards: why is that a problem for the Big Three and not the foreign manufacturers? Regulatory cost barriers to retooling and producing new models are different from CAFE standards, are they not?

The issue of the union-management business model is more difficult. Eliminating labor representation just leaves me with a sick feeling. The short version is the early morning pep rallies complete with blood-pumping exercises and sing-alongs versus what used to be the healthy competition between labor and management. For awhile it effectively balanced conflicting objectives while conferring mutual benefits. Those objectives will always be divergent in the absence of a mechanism to distribute “ownership” throughout the ranks. Despite past failures (I didn’t know it had been tried – one wonders how hard), it seems not inconceivable that the some form of ownership proposal might be received differently by the rank and file in an environment where options are more limited and more stark.

Regarding per capita labor costs, my reading of the most recent union disputes is that they hang up on health care. Long-term pensions can be renegotiated. Wage cuts are a given. The unions will play ball this time. The stakes are higher.

The only option that is not – and should not be – on the table is taxpayer money without significant restructuring – both the business model and the compensation packages. This can be done without destroying the unions. If they go, I can promise you, they will be back, like The Terminator.

Leo writes:

To spend 8-10 hours each day doing something that you know adds no value is awful. We all need meaningful work to do. It’s a basic human need. To stay in a job that doesn’t provide it rots your soul.

Lean manufacturing is relentlessly focused on eliminating waste from the production process

Again, it may be dated, but when I looked at it, Japanese labor cost was as high as American labor costs. The difference was in labor flexibility.

From soul to waste management to flexibility. The circle isn’t complete. I don’t have the right words so it will probably come out wrong, but the ideal integration of soul and material has not yet been achieved by either the American union model (heavy on soul) or the Japanese model (heavy on material). The Japanese model was all the rage in the 1970’s, but the “fit” over here was, fitful.

Nov 9, 2008 - 5:19 am 29. feeblemind:

I really don’t believe the automakers’ problems matter at this point. It is all about saving UAW jobs. More ‘aid’ for the auto companies will result in higher kickbacks….errr…contributions to dem coffers. It will become a feedback loop. I fear that ultimately the Big Three will be nationalized. Then Harry and Nancy can determine the product line. Doesn’t matter if the cars are sellable. What matters is the Union getting more every year and delivering votes and tribute to the dems in return.

Nov 9, 2008 - 7:53 am 30. bvw:

Who came up with the advice to investors and publicly traded stock companies that it was better if the funds allocated to dividends be kept in the company for capital growth?

Dividends are capitalism spreading the wealth around. While capitalists got away from big dividend payouts of net income, and became misers dividend wise, their greatest competition — the government — was and continues to be liberal with its dividends. And the investors in Government — that is, voters — love the dividend.

If, if, if … the common and only acceptable standard had been that manufacturing, or transportation HAD to throw-out a huge part of net income into dividends, then the gyroscopicly accelerating union-management axis of dynamics would have less income stream mass to be accrued over its event horizon. In addition — a BIG additional benefit — would be that in order to capitalize a growth for business the financial management of the company would have had to involve the highly distributed decision making network of the public stock market. Highly distributed networks make decisions quickly, and by rapid feedback can come to make very good decisions.

But today we are come to what seems to be difficult spot. Almost like a layer of magma/basalt forming over the precious metals of invention and creation — Marxism is here. Central socialism is upon us.

Nov 9, 2008 - 9:10 am 31. slade:

@bvw

I think, if I understand your point, that keeping potential dividends in-house for capital growth compromised the ability of the industry to respond to rapidly changing market demand – the kind reflected in the stock market. IOW, another bad financial decision made by management – one that supported the growth of capital over wages.

On another note, any successful negotiation between management and the UAW that preserves the union as a viable construct requires direct confrontation rather than the passive-aggressive behavior of lily-livered chickenshits.

Nov 9, 2008 - 9:31 am 32. steeple:

unfortunately, the US auto makers have been dead men walking for 25 years now. there should be some thought given to how to transition the employees affected out into something better; it can be done. L3 is totally correct about the emotions of working for a company that ultimately is not adding value to society; that’s what profit is supposed to measure.

change is one of the hardest things for humans to manage, but complacency with holding on to the status quo is one of the most destructive things that we can do to our country. creative destruction is not painless, and I realize that it is much easier to say when one isn’t directly affected.

Nov 9, 2008 - 10:16 am 33. bvw:

Slade — yes, that “that keeping the potential dividend in-house for capital growth compromised the ability of the industry to respond to rapidly changing market demand” was my third point.
The second point was that having that net profit available “in-house” made it a object of desire by the Unions, and at the same time something available to be given away by the part of management doing the Union negotiating. And my second point had two parts, the first part just restated, and the second part stated by inference and allusion.
To speak of the Unions alone is incorrect. It is always a dynamic system, the Union is only half, the other half is the portion of management dedicated to dealing with the Union as “the Union” (separate from work force and worker issues). That joint dynamic becomes so strong that one might take away “the Union”, and the management habits would almost instantaneously provoke a new one to happen. And the more monies streaming under contract from the company’s income to the Union — the more powerful the managerial cohort doing that management — their world-view and habit then becomes the modality of the whole company.
And my first point was that capitalism made a big strategic level mistake by getting away from big dividend payouts. It hobbled itself in the meta-ownership market. In that market money is only part of the currency — the other currencies are votes and various forms of public pressures. By so doing, Capitalism gave Central Socialism an advantage. Vote-owners sought out the good dividends. American Socialists in government are happy to pay out all sorts of regular dividends and special dividends. They understand that political power is found in the barrel of pork, in the dividend stream paid out. Voters get a great dividend yield from Government.
Capitalists have to beat that yield.

Nov 9, 2008 - 10:20 am 34. slade:

By so doing, Capitalism gave Central Socialism an advantage. – bvw

Voters get a great dividend yield from Government. Capitalists have to beat that yield. – bvw

So the growth of capital opened the door to centralized socialism because it implicitly devalued “votes and other forms of public pressures” which sought their “dividends” elsewhere – largely from government.

I’m gonna have to think that through. Sounds a little bit like post-modern Red. But it’s noteworthy that current crisis pivots on wages/benefits versus capital. Maybe let Leo or Dave take a whack at it.

Nov 9, 2008 - 11:11 am 35. dannyfrommiddletown:

What an interesting discussion!

It seems bankruptcy is best. Remember bankruptcy doesn’t mean all the jobs have to go away. It means business reorganization.

As has been pointed out (Rubber Ducky, et. al.) many adjustments are vital to bringing the automakers back: arrangements for dealer closings to prune brands, union work rule changes, pension contributions, etc. A bankruptcy allows these things to be revisited under the gun of “Which would you prefer, something or nothing at all?” Congress might also be induced to suspend regulations (CAFE) for a major industry trying to get back on its feet.

However, it has also been pointed out that Obama and the dems can never be seen as allowing Detroit to go bankrupt. Hence, no quick solution. Best possible scenario:

1. Republicans aid in passing a short term loan to buy time for more analysis and to get the ball squarely in Obama’s court.
2. Obama will be forced to facilitate a 50 – 100 billion bailout.
3. This keeps the companies going for another 3 years by which time they fail again – now forcing real solutions to their problems rather than mere political expediency.

Nov 9, 2008 - 11:20 am 36. RWE:

Looking back now, I think that 9/11/01 was really the day the world changed forever.

The people who lost relatives at the WTC demanded to be compensated. As one widow put it “My children should never want for anything.” You can bet that her children would have wanted for something, sometime if her husband had lived but after he was dead – and in an Act of War – they should become Paris Hilton’s financial clones.

Charities provided massive compensation, as did the Federal Government. Now traditionally losses incurred in Acts of War are not covered by anyone. Instead the WTC losses got covered even when there was no coverage. After a while we found out that the Red Cross had decided to divert part of the WTC charitable contributions to other needs, and that some of the Federal money was going to compensate New York limo drivers who lost business.

The Day The World Changed Forever – and everyone became entitled to a bailout.

Nov 9, 2008 - 11:58 am 37. Rubber Ducky:

slade, the CAFE standards do affect the Japanese manufacturers, but the effect is positive. CAFE destroyed the profit center for American Big Three and moved it to the minivans and SUVs. Camrys, Accords, Civics and Corollas are favored under this regime, while things like the Oldsmobile Cutlass became dead men walking; enter the F-150’s morph from work truck to tricky truck. Attempts by the Big Three to compete in other segments have never been happy. The Geos and Saturns could never run the same numbers that the GMC’s were running. In fact for a good long stretch of time GM lost around $500 on every small vehicle it sold (but it sold them anyway because fleet requirement on MPG).

Note that in markets outside of North America GM and Ford are blazingly successful, and they do make exactly the kind of small, efficient cars overseas that we say they need to make here. Problem: they can’t make them here and still sell them for a profit. They can’t compete in these market segments here, in North America alone. Why is that? CAFE, the UAW, and the regulatory regime here simply do not let them. Big, wrenching changes are need to allow them do so, and these changes are just allowed to them.

Nov 9, 2008 - 12:45 pm 38. NahnCee:

If someone could figure out how to handle the automaker unions, then maybe those lessons could be used on the teacher unions to break their hold on the education process in the United States.

They’re turning out expensive marxist graduates when what the world is looking for is smart capitalist graduates so that teaching should also be going into the bankruptcy dump.

Here in California, Arnold has also been fighting with the prison guard unions. I’m not sure what the details are, other than that the guards are demanding 37% pay increases which makes me think that whatever ARnold is proposing in return is probably more just.

Reagan broke one union. I wonder if that’s do-able again.

Nov 9, 2008 - 2:14 pm 39. slade:

Thanks RD. By that explanation, the proposed $25B ain’t near enough to keep GM, let alone Ford and Chrysler going for the 3 years minimum required to restructure their business model and retool their factories.

FWIW I like the idea of restructuring the Big Three into smaller independent units under government aegis – essentially a federally sponsored bankruptcy. Pensions and wages must be renegotiated as a prereq

Nov 9, 2008 - 3:46 pm 40. slade:

Thanks RD. By that explanation, the proposed $25B ain’t near enough to keep GM, let alone Ford and Chrysler going for the 3 years minimum required to restructure their business model and retool their factories.

FWIW I like the idea of restructuring the Big Three into smaller independent units under government aegis – essentially a federally sponsored bankruptcy. Pensions and wages must be renegotiated as a prerequisite to receipt of federal monies.

The unions can either participate – or not.

Nov 9, 2008 - 3:48 pm 41. bvw:

Slade — “So the growth of capital opened the door to centralized socialism because it implicitly devalued ‘votes and other forms of public pressures’ which sought their ‘dividends’ elsewhere – largely from government.”
Does capital ever grow? Be careful in considering what capital growth means. I do not like to consider “capital growth” as a meaningful term or concept. Do you mark to market when there is no intention to sell a part of capital plant or other assets? How do you adjust for inflation? When is capital measured? Why? Too many questions involved to resolve “capital growth”.
I’m strictly talking a year’s, or a quarter’s net income. Where does it go to? A good percentage — so I philosophically suggest — should go back in cash to the owners by share. It makes for current proof of ownership.
If it doesn’t go to the “masses” — the capitalist masses, who are the share owners — who then does it go to? To management. Management, however, is NOT the owner.
When the capitalist zeitgeist comes to giving management the nearly complete right to that current profit stream, rather than make those “proofs of ownership” called dividends, owners get divorced from the true sense of ownership and management take pwnership — the hacked form of ownership.
What happens with absentee owners of property? What happens to those properties?
The masses cry to be owners. Dividends are the proofs of ownership, more real than any paper certificate of stock or land title or bill of sale. Transfer payments look just like dividends, and create a sense of ownership.
To compete and survive against growing government — against the natural attraction of some form of a centralized government run economy — capitalists must pay out significant portions of current net income in dividends.

Nov 9, 2008 - 4:28 pm 42. tomw:

Ford had profit sharing, but then and put all their eggs into the Explorer and F-150 basket. They let the sedan market go completely, and allowed their mid-size truck design get !old!.
The Toyota, Honda, Nissan, BMW, Subaru, and all the rest of the import factories have YOUNG employees with no retirees eating up their profits. The ‘tail’ is wagging the dog of the big 3.
I remember Iacocca saying, vaguely, “We don’t have any $23/hr jobs. We have a lot $13/hr jobs, though. He did turn ChryCo around, and paid back the loan early.
GM recently passed their retiree medical benefits off to the UAW, along with a BIG check, so they removed the $1300 in retiree med costs from each car they sold.
The Hapeville (Atlanta) Ford plant closed, though it was the most productive of all their North American plants in terms of labor hours per vehicle. They assembled the onetime best selling Taurus/Sable there. Too bad their most efficient employees were shown the door. GM’s Doraville van plant is shuttering its doors in the near future.
And Hyundai is building a new plant near the Ga/Al stateline. The bad, or rather compliant management allowed the UAW to dictate how the plants were run, and their short term interest was high wages and increased employee headcount. Both of which were the slow-acting poison for the automobile industry in the US.
To my mind, their only hope is radically re-negotiated contracts, and less generous benefit cost-of-living increases.
Their best solution would be to get legislators out of their business…
tom

Nov 9, 2008 - 4:43 pm 43. slade:

To compete and survive against growing government — against the natural attraction of some form of a centralized government run economy — capitalists must pay out significant portions of current net income in dividends. – bvw

Got it. Thanks for posting. You caught me cold with this concept – turning capital into dividends as a counterweight to “growing” government – at least in union-management business models that characterize Detroit – or possibly others as well? I need to assimilate this.

Nov 9, 2008 - 5:06 pm 44. newscaper:

I’m afraid Michigan and its denizens can go to hell, in the handbasket they made.

I’m in Alabama, a ‘right to work’ state, and in the last several years the big Mercedes plant went in near Tuscaloosa in the NW, Hyundai in the center just south of Montgomery on I-65, and massive new plant (Kia IIRC) is under construction off I-85 in the east near Auburn-Opelika. One of my wife’s best friends from high school has husband who is a machinist, and his non-union pay is good enough for him to commute 3hrs a day (roundtrip) from Auburn to the Hyndai plant. He is promised a job closer to home once the Kia plant is open.

Yes, new car factories are being built in the US, just not in big union states.

Also, about 40minutes north of here (I’m down in Mobile) German steel maker Thyssen-Krupp is doing a new $3billion mill.

Nov 9, 2008 - 8:49 pm 45. NahnCee:

How do the Japanese keep the unions out of their plants?

Nov 9, 2008 - 11:08 pm 46. TomGrey:

First, GM should go into bankruptcy.
Second, from the ashes, resold w/o debts, a new car company, or 5, can buy the brands.

Perhaps the pension fund should convert their unpaid pension debt into shares of the new company, along with other debt holders. Equity gets wiped out.

Nov 10, 2008 - 6:30 am 47. slade:

HahnCee -

I don’t know the answer to your question so I’ll fake it. But I *think* it is worker mentality. The modern plants present safe work environments, no children, no black lung disease, no 100-hr work weeks, so the need for labor representation is marginalized. My argument above is that it will come back, but that’s a moot hypothetical.

What I don’t know is the fine-print in the management by-laws that might prohibit union organization. I expect there is something discouraging in writing somewhere.

The financial news seems aligned in their opinion that “Detroit North” must follow the business model of “Detroit South” as described by several posters above. I agree. I’m also thinking that bankruptcy is the preferred option, with taxpayer money given directly to the dislocated employees to spend however they see fit.

Nov 10, 2008 - 6:54 am 48. slade:

NahnCee

Nov 10, 2008 - 6:56 am 49. slade:

Postscript:

Never speak or write before your first cup of coffee.

Obviously the biggest obstacle is the Right-to-Work statutes common in southern and western states that prohibit agreements requiring union membership as condition of employment.

Nov 10, 2008 - 7:38 am 50. slade:

How do the Japanese keep the unions out of their plants?

That’s globalization for ya – I immediately read that question in the stateside context, not international. How they do it in Japan? Again, since I still don’t know the answer (all the more obvious now) I’ll continue to fake it. My reading of native Japanese is that they would rather fall on their samurai swords than do anything that would suggest less than total support for the management of their company.

Not exactly your Scots-Irish mentality behind union history in this country.

And now back to my corner where I will practice not speaking for awhile.

Nov 10, 2008 - 9:05 am 51. Ms. Know:

Confused here, I thought the idea of the left-wing illuminati was to help those struggling to save their homes, which they shouldn’t, but now it’s about the automakers. I hear credit card companies are next.

Nov 15, 2008 - 9:09 am

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