Big Three Bailout Fails

Chris Dodd:

“In the midst of already deep and troubling economic times, we are about to add to that by walking away.”

The sticking point? Unions had agreed to cut their wages to bring them in line with the Japanese–a major concession–but not until their contract ran out in 2011.

Senate Republicans wouldn’t bite, and the deal fell through.

…I wasn’t going to say anything, but this is too much.

What a bunch of idiots. This is not the time to let ideology get in the way of helping the economy. Republicans were actually going to get what they’d wanted for years–a major, major concession from unions–they’d just have to wait two more years for it.

The UAW understandably was wary of cutting wages during an economic downturn… yet the Republicans appear to have thrown a fit and walked away. I don’t understand their reasoning.

That’s just stupid. I can’t imagine the market is going to react well.

This probably won’t come back until 2009, when the new Senate and president are sworn in.

Update: And it would have killed the unions to move the cuts to, say, 2010? Stupid all around.

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20 responses to “Big Three Bailout Fails

  1. The $700 B bailout was opposed by far left Russ Feingold and far right Jim Demint. And I’m assuming they’re both in the same camp on the auto makers.

    GC… they’ve got to turn off the printing presses. Didn’t your parents teach you that money doesn’t grow on trees?

    On Nov 28, CNBC reported that $7.3 trillion had been printed this year. They’re inflating the money supply… and that’ll lead to higher prices as the dollar devalues.

    These actions will take their toll, it’ll just take some time.

    It’s pain now or pain later. I say pain now. The alternative (what you advocate) risks the collapse of our currency (the dollar).

    Unfortunately though, the horse is probably already out of the stable.

    The massive global redistribution of wealth that started with the outsourcing of blue collar jobs, then went to white collar jobs, is probably entering the next phase… the transfer of wealth (i.e. gold) from the developed world to the developing world.

  2. Right, but that’s not why the Republicans are opposing it. I could actually understand if they wanted to turn off the faucet. But it seems like it’s just more of the same old fight between conservatives and unions, and it really isn’t helping.

  3. I just fear that with the government essentially taking over the big 3, there’s going to be no end to subsidies ever. It’s going to start with demands that glass or steel be US made, even if those things can be procured cheaper from foreign sources. Then certain congressmen will lobby to have parts made by a particular company in their district. But what I think is really going to be the problem is that the government is going to get GM, F and Chrysler making all sorts of small cars, without any real regard if that’s what the market really wants. Sure, some people want those cars, but a lot of people like bigger, roomier cars. Even the foreign manufacturers are making large automobiles for the American market. Toyota Tundra, Honda minivans, BMW and Mercedes SUVs, etc.

    It’s $14 billion now, but come March 31, it’ll be more, and I just don’t see an end in sight. The only way to get these car companies profitable is to relieve them of their huge legacy costs, and that can be done by forcing them into Chapter 11. Not Chapter 7, Chapter 11. That’ll allow them to get out of some of these old contracts and start anew.

    The UAW understandably was wary of cutting wages during an economic downturn… yet the Republicans appear to have thrown a fit and walked away. I don’t understand their reasoning.

    What about all the other companies with union employment? Should they also get a bailout and not make any concessions? Many newspapers have unionized staffs. What about non unionized workplaces? Even the financial sector, which has gotten huge bailouts, has had a wave of layoffs. Bank of America announced 35,000 layoffs today, for instance.

    When the financial bailout was first proposed, there was plausible belief that the treasury department would actually earn a profit o its investment. Doubtful now, of course, but that’s what people thought. I don’t think anyone really believes that the auto industry has a chance to become profitable with this bailout.

  4. This whole Republican grandstanding is BS.

    Seriously, it’s f’ing ridiculous. If you want to oppose it on deficit grounds, fine, say that and be done with it.

    That’s not what they’re saying, though. Instead, they pull out this ridiculous $70+/hr average wage trope which is false. Demonstrably, absolutely false.

    I’m not saying you have to agree on the bailout, but the facts here are pretty clear. The number that gets bandied about is based on retiree costs. Those retiree costs were structured by GM in negotiations. The unions aren’t all powerful, and there’s some explanations of how those negotiations went that GM offered these retiree wages to avoid paying better wages back during that contract.

    Even then, the UAW has agreed to restructure those benefits and pay for the healthcare out of a trust, taking those costs of the books in 2011.

    So, this is BS.

    What’s the real reason that these Senators want these cuts? Because all of them represent states (primarily in the South, which has far less unionization) that have factories owned by foreign car manufacturers. These manufacturers get subsidies and tax breaks to bring their factories to the state and have serious lobbying efforts in those states to maintain a union free workplace.

    You can agree or disagree on whether unions are good or bad, but these Senators aren’t operating on any principle except putting their states (and, really, their own campaigns to stay in office) above the nation.

    Sujal

  5. And, just to offer something productive to the discussion, here’s what I’d like to see instead. I think there’s a strong case to have the auto manufacturers go through bankruptcy. The government should be the provider of last resort of the financing needed to make it through that Chapter 11 process assuming no private source can come forward.

    From what I understand, that was the concern about letting GM go into bankruptcy, that they wouldn’t be able to get DIP financing and would end up going into liquidation.

    I’m unaware of any articles or information on the downsides of this option (I’m sure there are some), but I have found several articles over the last few weeks talking about this option as a good one. It keeps the government out of controlling GM directly or owning any shares (aside from the bankruptcy court’s normal oversight) and allows the company to make bigger restructuring changes without having them dictated by the likes of Demint and lobbyists.

    I understand that perhaps there would be union cuts this way, as well as risk to shareholders (and a lot of our 401Ks, funds, etc. probably own GM stock), but there’s something to letting a known process do it’s thing rather than this micromanaging from D.C.

    Sujal

  6. One last link: Kevin Drum linked to a Times article that broke down that “$71/hr” number and broke it down. The key fact here is that wages only make up 10% of a car’s production costs. The wage difference ex-retiree benefits doesn’t really make a huge impact on the production costs. Even with retiree benefits, the estimates quoted above are about $800 per car.

    All of this is really only an issue if you believe that American cars aren’t selling well because of price competition with other cars. That clearly isn’t the case. Not enough people want their cars. It’s not the UAW’s fault that GM banked on SUVs and killed their electric car and hybrid research.

    Sujal

  7. [quote post=”2417″]Not enough people want their cars. [/quote]

    General Motors Corp., Ford Motor Co. and Chrysler LLC sold 8.5 million vehicles in the United States last year and millions more around the world. GM outsold Toyota by about 1.2 million vehicles in the United States last year and holds a U.S. lead over Toyota of about 560,000 so far this year. Globally, GM in 2007 remained the world’s largest automaker, selling 9,369,524 vehicles worldwide — about 3,000 more than Toyota.
    Ford outsold Honda by about 850,000 and Nissan by more than 1.3 million vehicles in the United States last year.
    Chrysler sold more vehicles here than Nissan and Hyundai combined in 2007 and so far this year.

  8. [quote post=”2417″]Right, but that’s not why the Republicans are opposing it. I could actually understand if they wanted to turn off the faucet. But it seems like it’s just more of the same old fight between conservatives and unions, and it really isn’t helping.[/quote]

    You can choose to think of it that way if you like, but without wage cut guarantees the deal, favored by liberal Democrats and — shall we call them ideologue unionists? – is just a give way of 15$ billion until 2011, when union contracts run out. The Democrats want to appoint a “car czar” to do what a judge would do in a bankruptcy legal proceeding. Why not let the judge do it. This has to do more with practicality than it does with ideology. Businesses do not go out of business in bankruptcy proceedings; they reorganize on sounder economic principles and get rid of the dead weight that makes them non-competitive. So on the one hand, you have a give away of $15 billion, and on the other you have an opportunity to reorganize a dying business and resuscitate it. Where is the ideology in these choices?

  9. One Senator the other day mentioned how they flew back to Washington on Delta Airlines- a company last year that filed for bankruptcy. Yes, they did lay off a few people, but nothing on the scale of what they could have done if bankruptcy re organization was not an option. Economically for the company affected as well as the economy as a whole, bankruptcy is definitly the more stable way for a transition.

    Look at what this process has boiled down to over the past few months: Some assert it is a choice between partisians bickering over union vs. non union forms of doing business. The stock market surely will dip today. In essence, we have relied on the tug-of war between elected life long politicians with strong ideologies and little business sense to decide the fate of our economy. This was not what the founding fathers envisionsed, nor any way to manage our market system. (which shouldn’t be managed by government planners at all).

    Now go to popular opinion. What are the letters to the editor saying? What are your friends and relatives saying? Everyone I’ve talked to says they don’t trust the government and even they can’t save an industry such as the auto makers, and if they did, the resulting hand-out spree will be disasterous. No one wanted this action. I hope that’s the end of action by Congress. Otherwise, let the potests begin.

  10. “What a bunch of idiots. This is not the time to let ideology get in the way of helping the economy. Republicans were actually going to get what they’d wanted for years–a major, major concession from unions–they’d just have to wait two more years for it.”

    Ideology???? If so exactly who’s ??

    Let me get this clear……….. Three CEO’s are stupid enough to fly their corp. jets to Washington a few weeks ago to beg for money to keep their companies alive, and we all had no trouble clearly seeing just how idiotic that was.

    Now a few weeks later those same CEO’s with out their jets (thankfully), and the head of the UAW are back in front of Congress. I assume with at least a framework of a business plan as requested, to show they are worth the government investing in them, to save them from extinction.

    Was the head of the UAW there to tell those members of Congress to invest the taxpayer’s money in them now, but not to count on union concessions from them for at least 2 years (if ever)?

    “Update: And it would have killed the unions to move the cuts to, say, 2010? Stupid all around.”

    Apparent answer… It would appear the unions more preferred to kill themselves this year, and not wait that long.

    With top to bottom ideology like this, I am at a loss to see what is really worth investing in here.

  11. Fed. Reserve still won’t disclose who, what and where $2 trillion was given to!
    http://www.bloomberg.com/apps/news?pid=20601109&sid=apx7XNLnZZlc&refer=home

    And Freddie and Fannie are about to come back and ask for more money.
    What makes anybody think that bailing out the Auto Industry is going to work?

  12. 50% of the homes which were “saved” in September are now back in foreclosure.

    Who would have guessed that?

  13. So when Bush authorizes the bailout you are all going to praise him? Yeah right!!! C’mon how the UAW…knowing how dire the sitiuation is, cannot agree to concessions now is as stupid as the CEO’s flying their private jets. So we now have to bail these idiots out and who in their right mind believes that they will spend this funding wisely? Anyone? Blame Republicans all you want but there is not a person on this board who would invest in bunch of crackpots like this.

    Also, let’s not fool ourselves. Americans aren’t buying these cars….so how in the world does this bailout change anything if concessions aren’t made now?

  14. AndersonScooper

    The American car companies got nailed by the triple whammy of $4.50/gallon gasoline, the liquidity crisis, and of course the current recession. It’s like they got hit by a Category 5 huuricane.

    Beyond the current catastrophe, there is no reason to believe that any of the big three can’t survive as a going concern.

    It’s mind-numbing to me that the Southern Party, (that’s what the GOP has become), chose to filibuster the bailout, largely for their region’s economic benefit. Is this the path to re-building their majorities? (Voinovich is now dead in 2010 and probably Grassley as well.)

    I don’t like bailouts either, but the alternative is super-risky giving our economic circumstances. If GM and Chrysler do go into Chapter 11, let’s hope the bottom doesn’t drop-out on the Midwest.

    And maybe if we’re lucky the Chinese will step in and buy our auto industry?!?

    Fuck Richard Shelby. Is it too late to let the South secede?

  15. ACR, thanks for the stats. I’m still not sure that answers the points I raised. Clearly, those sales aren’t enough. Do we disagree on that?

    The Times article I mentioned claims that the average sale price of a GM car is $2500 less than a Japanese car. Labor cost differential, even if you count it the dishonest way by including retiree costs, only account for about $800 per car.

    Al, the UAW agreed to further concessions last night, the Republicans just threatened to filibuster unless they got every one of their demands. Keep in mind that this bill passed with bipartisan support in the House. The Senate Republicans could stop this, so they did. In the House, we see what happens when they are forced to vote — Republicans supported the bill.

    The move by Senate Republicans is a middle-finger to the unions. If GM fails and takes part of the supplier network with it (they owe $10 billion to parts suppliers already), it’s also a middle-finger to the rest of us, including companies here in CT that supply parts to the auto industry.

    Sujal

  16. [quote comment=”39201″][quote post=”2417″]Right, but that’s not why the Republicans are opposing it. I could actually understand if they wanted to turn off the faucet. But it seems like it’s just more of the same old fight between conservatives and unions, and it really isn’t helping.[/quote]

    You can choose to think of it that way if you like, but without wage cut guarantees the deal, favored by liberal Democrats and — shall we call them ideologue unionists? – is just a give way of 15$ billion until 2011, when union contracts run out. The Democrats want to appoint a “car czar” to do what a judge would do in a bankruptcy legal proceeding. Why not let the judge do it. This has to do more with practicality than it does with ideology. Businesses do not go out of business in bankruptcy proceedings; they reorganize on sounder economic principles and get rid of the dead weight that makes them non-competitive. So on the one hand, you have a give away of $15 billion, and on the other you have an opportunity to reorganize a dying business and resuscitate it. Where is the ideology in these choices?[/quote]
    Agree except the $15 Billion is only required to last until January 20, 2009 when the unions will have a much more sympathetic environment for eternal life support. $15 billion won’t get them to 2011, not when GM alone is burning through $3-4 Billion a month and the car market is not coming back soon.
    In my opinion the R’s were correct in trying to get the companies on a competitive track ASAP. It’s the best “Taxpayer protection” there is. And, by the way, the unions weren’t the only ones the R’s were asking to take a haircut. Lenders, executives, and all the other “stakeholders” were on board except the unions.

  17. Sujal,

    “the UAW agreed to further concessions last night”

    Let me be clear…… First IMO to save these guys it will take a lot more than just union concessions. Frankly at this point I am not sure these guys can be saved, union concessions or not..

    IMO there are just too many car manufacturers out there who offer too many attractive alternatives to GM, Ford, and Chrysler Someone is going to fall by the way side. Can you name even a single domestic auto model made by the big three that we as consumers don’t have many non domestic choices with?

    With that in mind then think about this. Even if the UAW came back today and said to these Republican senators you want to blame for this mess. “We will agree to any concessions you want from us to gain your support, just please bail us out”. Would you really consider buying a car built by people who needed a gun put to their head to survive and save their own job? There used to be a joke not to buy a car made on Mondays. With this in mind I would add the rest of the week as well.

    That is what I meant by faulty ideology. It has invested the US auto market from the CEO’s to the UAW for so long now I simply don’t see how you change it in time to save it.

    I place no more or less blame here on Southern Republican senators or UAW members. We all played a role here. It should not have taken a crystal ball for any of us to understand that the general long term trend for gas price is upward. What we are seeing today should in no way let us forget gas prices a few months ago, because we will see those prices again, but Americans do tend to have short memories. It should not take a genius CEO to understand that the economy goes through cycles and it is just as important to be positioned to hunker down to weather a storm, as well as to lazily enjoy sunny skies.

    But even more importantly you cannot allow yourself to take a back seat to emerging markets for the future, because you need to make you money in the markets of the past. Like it or not, the days of Americans using small busses to drive around all day in are numbered.

    No, the problem here is not how a group of Southern Republican senators voted on this last night. The problem is how millions of American car buyers voted and will continue to vote, just like any partisan voter votes each time they purchased or will purchase a new car. They will continue to vote the party line. In this case it’s Toyota, Nissan, VW,& BMW etc.

  18. A Question: Where’s the money come from?

  19. GC said[quote post=”2417″]Right, but that’s not why the Republicans are opposing it.[/quote]true. Most of them were porked into the $700b bailout… and I bet some of them now realize they were drinking Paulson’s Kool-Aid, when they should have been applying some critical thinking skills.

    Your point is fair. I tend to like Coburn and I think he flipped between the Wall Street Bailout (supported) and the Automakers Bailout (opposed).

    I do think highly of Demint and Feingold though!

  20. AS –

    It wasn’t a Category 5 Hurricane.

    It was the endless construction of a skyscraper built at the edge of a sea cliff in an earthquake zone.

    Over the years, with their bludgeoning growth in costs while maintaining their output size, you knew the structure would collapse at any time. You just weren’t sure which forces would knock it down first. It was hard for me to believe that we could trust the executives – even if you were going to make me even to accept the notion of a bailout in the first place. But with their pay knocked down to $1 a year, we got that concern out of the way so that they’re focused. But it was the unions that ultimatly could not swallow the pill and have any economic sense.

    All along the way, the Republicans bent their principles. The Bush administration even bent over backwards, making a deal with the Democrats. Despite the stupidity of the automakers throughout this ordeal, they still forgave them for now bowing before Congress until they came back on thier bicycles. For their efforts, someone had to meet them halfway. And the unions couldn’t.

    I despise bailouts even to the point of organizing a rally this weekend against this one. But thank goodness someone was still too stubborn in this fiasco that we couldn’t swallow the last pill. So, speaking to your alleged partisianship… what else did you want from the Republicans to do? C’mon!

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