« Intel's Sophie's Choice | Main | This Thread is Ajar »

December 12, 2008

Comments

Let's see how the Dow reacts.

If I remember correctly, back in the fall when the House Republicans were holding up the bank bailout, the Dow took a wicked nosedive and, as much as anything, that seemed to get them to finally act.

The White House's silence has been deafening.

Watching Anderson Cooper's program last night, some of his financial pundits said Paulson could conceivably use TARP money to come up with the $15 billion the auto bailout had been whittled down to, seemingly a pittance compared to Wall Street's rescue.

Through the grapevine, I have heard at work my owner is worrying about getting a big end-of-the-year sum he is owed by General Motors.

Without it, our dealership -- which has already downsized to levels we never thought we would see -- would disappear and so would 300-some jobs.

And that's just one dealership out of thousands throughout the country.

Two weeks before Christmas, watching Jimmy Stewart in black-and-white this year in "It's a Wonderful Life" could be quite eerie.

Sebastian would disagree, but I predict if GM goes under in the coming few weeks -- taking its suppliers and dealerships and God-knows-what-else with it -- we will all be in for a merry little Depression.

We pay his salary, don't we?

Interesting question. If one considers that the successful Republican is the one who keeps Democrats from accomplishing anything worthwhile (lest Dems get credit and relegate the Medieval party to permanent minority), then McConnell becomes an unqualified success and worth every cent.

Re: No to the auto bailout.

Has anyone else been disgusted by Senator Shelby?

Each time he takes the microphone, the Alabama Republican seems more pompous and heartless than the last.

I wonder if he would be so zealously against an auto bailout if his home state housed plants that made American cars.

From hilzoy's WSJ link: "Only a handful of Republicans in the Senate had been willing to support the rescue package. Some raised concerns about government intervention in the marketplace. Others demanded the bill be strengthened to exact concessions from the industry."

Some raised concerns about government intervention in the marketplace.

I wonder how the writer kept a straight face typing out that sentence.

(Editor's note: I see from the story that the bailout had been pared down to $14 billion. Does that even count as government intervention these days?)

I don't support this bailout as formed. At least one of the three is going to have to go into some sort of total windup mode. The government can facilitate that transition if we want, but it has to happen. There is no way that all 3 can survive as ongoing entities and frankly even with the bailout I don't see any of them being profitable in the next 5 years.

I would much rather support spending the same money on getting the GM workers into a useful manufacturing job and then trying to bridge the other two. (This is assuming that Chrysler is actually pseudo-healthy, which may be a bad assumption).

Sebastian--

The idea that we can just get GM workers into "useful manufacturing jobs" isn't as easy as it sounds-- because you're gutting the manufacturing sector when you take out GM and its suppliers.

Honestly, at this point, I no longer care that they won't be profitable in 5 years. We're panicking about the need for economic stimulus, and keeping people in their jobs is probably a cost-effective way of doing that.

Plus, y'know, blowing this could cost the Democrats the rust belt in 2012/2016.

I know how this will be played by the "liberal" media: "The Dems refused to compromise on a tiny detail and thus destroyed millions of jobs. Is that the bipartisanship that the liberal n|gger promised? Another proof that Demon rats are in the pockets of special interest groups like that sinister UAW." Remember Rush "This is an Obama recession" Limbaugh?
And the worst about it: It's likely going to actually work.
Btw, did the senate GOPsters actually filibuster it or was there a true "no majority"?

You know, the when the patient is hemorrhaging blood from every major orifice is not the time when you discuss the long term effects of obesity.

Hartmut, from what I'm reading, it was 7 votes short of a cloture vote. Or in short they had 53 votes. I haven't seen any statements on who stood where.

Sebastian, what useful manufacturing jobs? And where in the nation? Where are we going to move them to where these jobs are? And if so, who's going to fund this massive population shift?

Re: Hatrmut's statement. WGN in Chicago morning reported that the deal failed "because the UAW would not take pay cuts." That was the only explanation. Period. End of discussion.

Pathetic.

Well, on the bright side, the GOP has just volunteered to be the scapegoat for the Greater Depression (I disagree with Hartmut).

" now they decide to prove that they care about fiscal responsibility screwing unions (and hence workers). In the middle of the worst downturn in half a century."

(Not to say that the original claim isn't quite accurate in itself, but it's not coincidence that the holdup is over UAW concessions right this minute and not a second later (or 18 months down the road, when hopefully both individual families and the economy as a whole isn't quite so in need of every penny of wages . . . )

Does anyone know what effect this will have on pension funds? If you kill off an industry this big, it will have to affect institutional holdings, which will then mean reduced pensions not only for retired GM (and possibly \Chrysler and Ford) employees, but also a good number of others.

There is no way that all 3 can survive as ongoing entities and frankly even with the bailout I don't see any of them being profitable in the next 5 years.

Maybe we could sort that out next year. After we've absorbed the current million plus layoffs.

I would much rather support spending the same money on getting the GM workers into a useful manufacturing job and then trying to bridge the other two.

They have useful manufacturing jobs. They make cars.

Where are you going to find a couple hundred thousand other "useful manufacturing jobs"? Any other part of the manufacturing sector looking for thousands of line workers?

Is there any other part of the manufacturing sector?

All of these folks are going to end up retired early, on the dole, or embarking on new careers as baristas and Wal-Mart greeters.

You know, real value-added jobs, jobs you can send your kids to college on.

Just want to point out that $14 billion is a bit less than five percent of what we've spent on the financial markets so far, and about two percent -- two percent -- of what we've signed up for.

And that $700 billion in cash is only a drop in the bucket compared to the freaking half of the GDP that have been promised in guarantees.

There isn't going to be a GDP that will support the level of promises we've made to Wall Street. The banks are going to eat the whole damned economy.

This ain't going to go well.

Thanks -

WGN in Chicago morning reported that the deal failed "because the UAW would not take pay cuts."

that's how NPR reported it, too.

As to Shelby, Toyota's ADRs traded on the New York Stock Exchange will be down 10% today. Honda's,too.

In normal times, and if we had a bonafide safety net in this country, I would agree with Sebastian that one of the big Three and maybe two should declare bankruptcy.

These are not normal times. To repeat what others said above, what manufacturing jobs? What retail jobs? Maybe the UAW workers can sell bonds on Wall Street. Ya think? How long does it take to teach a guy to lie and cheat?

Republican Jim DeMint (we need another election quickly, too many Republicans still savaging the country), who is a laugh a minute, said last week, I think, that there would be (actually he said there already was) riots if the bailout went through.

Here's what I hope now that he got his wish.

I hope there are rioters massing in his little southern hamlet and I hope they have a map to his house. Drag him out of his house, dip him in batter, and, after the vat of hot oil is brought to a rolling boil, fry his morally uptight butt to a golden brown and serve it at the UAW picnic.

This little vengeance game the American people are purportedly playing with those who still have high-wage jobs with benefits in this country is going to backfire.

We're going to start killing each other for the scraps.

We're racing each other to the bottom. Republicans know it. That's why they bought all of those effing guns leading up to the election. They know who they want to kill.

I'll see you there.

Is there anywhere on the Senate's site that shows who voted for this, and who didn't? The news reports are saying 52 or 53 to like 35. So there must have been a bunch of people abstaining, and I wonder who they are. And who the 6 or so Democrats are who weren't voting.

Why doesn't Reid make the GOP do a real old-timey filibuster? I mean, hell, if you're not going to do anything anyway for the short time left before the new Congress, why not a spectacle?

By the way, my toilet's leaking.

I'll pay Joe the Plumber $6.68 an hour to fix it. I hope that guy and his family starve.

Then he can kiss my ass.

Why doesn't Reid make the GOP do a real old-timey filibuster?

a question for the ages...

my hunch is that he won't make them do a real stand-up filibuster because he's a pathetic schmuck.

The GOP has long had the goal of busting the UAW. They have finally succeeded.

Who's next?

Why doesn't Reid make the GOP do a real old-timey filibuster?

Because maintaining senatorial courtesy is more important than keeping the economy from plunging into a depression. Plus the GOPers get rather gamey when they're forced to read from the phone book all night.

Market opens in 30 minutes...

Has anyone else been disgusted by Senator Shelby?

My take on Shelby is that he loves his home state so much that he wants the whole country to be just like Alabama.

There's a good chance he'll get his wish.

if we had a bonafide safety net in this country

In Michigan you can get up to $362/week for 33 weeks.

Then you're done.

Thanks --

"I support the bailout. I don't think I would if these were normal times, but they are not."

Not to be churlish -- because I do appreciate that you recognize the importance of this challenge -- but I do want to point out if these were normal times, the automakers would not be asking for money. Did Rick Wagoner look like he wanted to be there? He was in the midst of a perfectly nice little restructuring when the credit freeze drove auto sales off a cliff and dried up his revenue stream and every private lender had a "closed" sign out front. He had plenty of problems to work through, but the things that made this a crisis were not of his doing.

We need to ask ourselves what we want our country to look like at the end of this crisis. Yes, the bubble has to burst. Housing prices have to come down, consumer debt has to reach sustainable levels, and Wall Street has to quit printing Monopoly money in the form of crazy made-up financial instruments. All of that will be painful. Do we want to come out at the end having lost our domestic auto industry as collateral damage? If we lose the jobs, the wealth, and the technical knowledge, we're going to be in trouble in more ways than people realize.

We've thrown away much of America's manufacturing sector -- it seemed so dirty and old-school -- but the truth is that making real stuff is the only real source of wealth.

"I wonder if he (Shelby) would be so zealously against an auto bailout if his home state housed plants that made American cars."

And I wonder if he and his constituents realize that the existence of the UAW is the only thing that pressures Hyundai, et al., into paying them more than Tyson would pay them to slit chicken throats?

Hartmut, while I agree with of much of what you say, do you really feel it was necessary to include the particular racial slur that you did? I understand that you meant it as coming from the mouth of a hypothetical racist, but it's an ugly word and did not in my opinion strengthen your comment.

Sebastian posted: "I would much rather support spending the same money on getting the GM workers into a useful manufacturing job and then trying to bridge the other two."

Along those lines: Our dealer trade guy was downsized in August. (With sales being down, less volume means less trading from one dealer to another for cars; so the Chevy manager got another duty added to his job description.)

Everyone knew he would not make it as a salesman, but since he's been here for 15 years, out of a sense of loyalty, the owner gave him a chance. Now -- after failed attempts to land a job elsewhere -- he is our parts-truck driver, which is one step above a part-time job.

So "Dan" went from a $60,000 salary, plus bonuses, to a job that won't come close to paying half that.

More downsizing:

This time last year, we had a progressive internet department that consisted of four people.

One by one, they have all bit the dust. No more internet department -- managers handle sales lead.

The manager of the internet department, who has served in numerous capacities over 25 years with the company and was making close to six figures, is now a service writer. I don't know what happened to the other three workers.

CNBC was interviewing Bob Corker this morning and the senator from Tennessee became incredulous when the interviewer asked if the Republicans were ready to take the blame if the economy collapses.

Corker put any potential blame for such a calamity on the feet of the UAW.

Elections matter. If race-baiting didn't work in Tennessee, I would have been listening to Harold Ford Jr. and not a union-busting Republican.

Nate, this seems to be the vote. Most of the 12 not voting are among the senators who aren't coming back.

"That financing would have involved loans, not gifts."

Right. Loans that the CEOs admitted they had no plan on how to pay back. The big 3 lose roughly 2k on every car they sell, they have significantly higher labor costs than foreign auto makers, and they are behind the curve on new product lines... I won't even mention the private jets.

The Big 3's problems have nothing to do with the credit crunch. Recent reports have confirmed that bank lending is again robust. The Big 3 can't get private loans because their products suck, not because money has dried up. Share prices have been on a steady decline for years. See, for example, GM's stock price over the last five years. http://finance.google.com/finance?q=gm.

Much has been made about the volt, but don't forget, it's not as if other car manufacturers are standing still. they have new product lines that, if history is any guide, will be superior to the big 3's... then what? more money? we don't need another AIG.

As of the time of this comment, market is down about 1.5% and GM is down about 10%. Not horrific. Looks like this one was already baked in the cake.

And I wonder if he and his constituents realize that the existence of the UAW is the only thing that pressures Hyundai, et al., into paying them more than Tyson would pay them to slit chicken throats?

Good point, whyaskwhy. Here's my revenge fantasy: instead of John Thullen's dip 'em and fry 'em scenario, the UAW organizes* the workers in plants in Shelby et al.'s states and along the way, defeats their re-election bids.

* I know, I know, "right-to-work" states. I live in Louisiana, so I know from "right-to-work"!

in semi-related news, the world's largest pork 'processing' plant, in Bladen County NC, just got itself a union, after a 16 year fight.

so, even though this is only 4500 people, it's not all bad news for organized labor today.

Yeah, but when the pigs get a union, we'll be able to sleep at night.

John Thullen asked: "Maybe the UAW workers can sell bonds on Wall Street. Ya think? How long does it take to teach a guy to lie and cheat?"

The answer.

i think we've found a

... found a solution.

(wtf)

I would much rather support spending the same money on getting the GM workers into a useful manufacturing job and then trying to bridge the other two.

What manufacturing job? Our economy is over 70% services. The only thing we make these days are dollars and we spend the rest of the time selling cheap chinese crap to each other.

whyaskwhy said... Not to be churlish -- because I do appreciate that you recognize the importance of this challenge -- but I do want to point out if these were normal times, the automakers would not be asking for money.

I don't quite agree. I think that GM or Chrysler would have ended up on the skids in due time, even without the monumental financial cluster-f*** we're facing. And if the economy was normal, either one could have been left to die.

The problem is that the economy is already staggering. Are we really prepared for the outcome of that many jobless, not to mention the associated unemployment, social services, and federal take-over of the pensions? What will that end up costing the taxpayers?

As to the GOP, well it's just another case of not taking responsibility for what they wrought, and padding their friends wallets. They've gotten pretty good at screwing up and then blocking fixes. Think Iraq.

There's not a peep from the GOP about holding down compensation and dividends for the financial industry. There wasn't a peep from them when one of their own put a secret hold on the nomination for Inspector General to oversee the bailout. Not until they saw a chance to go after the UAW did they stir. They are worse than useless, they are intentionally damaging to our nation.

And yes, Reid should grow a pair and force them to filibuster for real. Make them stand their and put their obstructionism on display for all to see.

"Loans that the CEOs admitted they had no plan on how to pay back. The big 3 lose roughly 2k on every car they sell, they have significantly higher labor costs than foreign auto makers, and they are behind the curve on new product lines..."

Not true, Unfrozen Caveman. Independent Wall Street analysts rated GM's plan, which included repayment, as credible. Guaranteeed? No, of course not. If the nation's total car sales stay at 10 million total, more than the automakers are toast. If they recover to 12 million, GM stays afloat and at 14, they're quite profitable, and that's a level that most consider likely (the 17 million the industry has been running was a bubble number that won't come back).

And no, they do not lose $2K on every car. Historically, they have had higher costs equal to about $2K on each vehicle, which is a good part of the reason they focused on the high profit SUVs and trucks that many Americans -- living in a $1.20/gal country -- wanted to buy. The larger profit margin covered their higher costs.

Those higher costs are not permanent. Part of the costs are retiree costs, and those will diminish naturally. The domestics have had a triple whammy: they have had to support a retiree pool with a volume generated from the days when it took 6,000 people to run a plant instead of 2,000, and from the days they had a larger market share, and with a benefit package that made sense in the '50s and '60s but doesn't now. But what were they supposed to do -- put them on ice floes? As those retirees die, the new pool will be much smaller and have less generous benefits.

The 2007 UAW agreement provides for a two-wage system and other givebacks that GM calculated would put them close to labor cost parity with the transplants by 2010. So the labor costs were already on track to close.

And I'm not even going to get into the financial benefits the Japanese transplants reap by having a home market, which is the 2nd largest auto market in the world, virtually closed to non-Japanese automakers by government regulation, not to mention the national health care.

Behind the curve on products? In terms of cars, that has been true in the past, but again GM was in the midst of creating the systemic changes that would change that. Their global product development has already created global platforms that will be efficient and high-quality. The first product, out of the European design center, is the 2009 Chevy Malibu, which has the best fuel economy and highest initial quality in the midsize segment. The upcoming small car, the Chevy Cruze, which will be built in Ohio, will be on the next global platform out of the Asia design center and promises to be as good as the Malibu, And North America will design the trucks that will be sold around the world, most of which are already the most fuel-effecient in their class. So going forward, GM has a system -- not a single model -- in place to solve their car product problems

And stock price represents one way of valuing a company but is not the final word on a company's worth. It's kind of like a good used car -- Blue Book may say it's worth only $5K but if it would cost you $10K to replace it, then that car is worth more to you than $5K. Because the domestic car companies have claimed victory too soon and too often in the past, their stock price is going to follow success, not predict it.

IF they don't become collateral damage of this liquidity crisis, there is good reason to to think the car companies will be solid. And certainly good reason, for the sake of the whole economy, to make a bet the size they are asking for.

The one very small bright spot in this disaster- I noticed that Republican "moderates" Collins, Snowe, Specter and Voinovich all voted for cloture. Harry Reid has been letting them get away with posturing as moderates who are open to some progressive measures, but then voting the hard-core Republican line on procedural votes (including cloture). Since most voters don't understand the procedural votes, and Reid doesn't "out" them, they get away with this.

When Obama appointed Rahm Emmanuel, I was very hopeful that this meant that this would no longer be allowed: that "moderate" Republicans who vote against cloture would be outed to their constituents as the senator who made sure that you don't get health care. This vote makes that seem more plausible.

On the Democratic side, we lost Baucus (surprise!) but kept Landrieu. This is very helpful- it suggests that the Republicans will not be able to fillibuster health care despite Democrats not getting to 60.

Whyaskwhy, current retiree benefits do seem to be a topic that comes up often. Do you know if the UAW even has the power to renegotiate terms on current retirees, or are those benefits contractually guaranteed and only subject to change in the event of bankruptcy?

The big 3 lose roughly 2k on every car they sell, they have significantly higher labor costs than foreign auto makers, and they are behind the curve on new product lines... I won't even mention the private jets.

Could you break this down? It is one thing to say that, at current production levels, GM's loss divided by vehicles produced is $2000. It is vastly different to say that each additional vehicle they sell adds $2000 to their loss. Which is it?

Sign of the times:

Republicans scapegoat UAW workers; yes, it's the working man's fault.

Meanwhile, AIG continues to fnck taxpayers.

LFC, I don't disagree that GM and Chrysler and Ford (despite the semi-rosy glow generated by what is, in the long run, a huge amount of debt) have serious obstacles to overcome regardless of the liquidity crisis. And any one of those obstacles could emerge as killers. Chrysler, in particular, is really in danger. Poor Chrysler. Between Daimler and Cerberus, it's been like poor Black Beauty moving down the food chain of uncaring owners.

Your larger point is right -- in a healthy economy, losing one of them in a relatively controlled way would be tolerable and maybe even helpful. But to have everything come crashing down at once would be a disaster. The one silver lining to this crisis is that necessary changes will come even faster than they were and that might be ultimately strengthening.

A little perspective.

The bailout that didn't pass was for $14b. The second article says $10b will be consumed instantly to pay suppliers. ALL automakers are losing money in the current quarter because no one is buying cars. Therefore, it is clear that the $14b is only enough to keep them alive until a second bailout arrives in January. This is not the bailout - it is the bridge.

If the union won't make concessions now to cross the bridge why expect them to make concessions later?

Chrysler, in particular, is really in danger. Poor Chrysler.

I think Chrysler became a niche car company that depends too much upon fad products like the PT Cruiser. (That's not a car that will sell well for a decade plus with annual tweaks like the Toyota Camry or Honda Accord.)

For a limited car company that knows how to get a foothold in its niche, look at Subaru. They tried to break out of small 4WD vehicles and they couldn't compete against the likes of Toyota, Honda, and Nissan. They fell back to a more limited line that is practical, and they've seem to have done pretty well.

Looking at GM, they seemed to be on the right track with Saturn, but they seemd to have ended up losing their quality when they folded it back into the main company.

"Independent Wall Street analysts rated GM's plan, which included repayment, as credible."

link please. i'd like to see who these analysts are. my guess is these are the same industry hacks that have been appearing on CNBC saying things like "one in 10 jobs in the US will be affected" by a big 3 bankruptcy.

plus, when the CEOs first appeared before congress, they had no plan whatsoever. that doesn't exactly instill taxpayer confidence in management.

"in the midst of creating the systemic changes that would change that."

Why on earth weren't they making these changes sooner? And why should we expect them to follow through. Sure, the purported "car czar" would have the ability, if benchmarks are not met, to withdraw funding and trigger a bankruptcy, but if you think anyone would actually be the guy responsible for a big 3 bankruptcy, I have a CDO to sell you.

also, as i said above, the other carmakers aren't standing still. if the past is any (and it probably is), the germans and japanese will innovate more quickly and more cheaply than the us automakers. again, then what? more money? nationalization?

"Malibu... Cruze"
So out of 8 brands and scores of product lines, GM has two cars that are ok. can these two cars generate sufficient revenue to pay back a $25B (or more) loan in 5 years?

"And stock price represents one way of valuing a company but is not the final word on a company's worth."
How about sale price? Cerberus bought Chrysler for a fraction of what daimler paid less than 10 years earlier.

"They have useful manufacturing jobs. They make cars."

No. You are completely wrong. You are seduced by the fallacy of 'something' coming out at the end of the pipe without bothering to analyze what that something is.

They make cars that people don't buy and which then have to be sold at a loss. That in fact is NOT a useful manufacturing job. If the ONLY input were their labor it might be mildly defensible to just let it go. But it isn't. There is steel that goes into the cars. That steel could be used for bridges and is driving up the price for your transportation projects. There is plastic which could be used for all sorts of things which is driving up the price for everything else you want to do. There is the price of electricity to run the machines that is driving up the price of electricity. There is the pollution that is being made at the plant which is going to have to be dealt with. There are scarce resources all over the economy that are being sucked into the failing car industry instead of being employed somewhere useful. It would quite literally be better for us to pay them their salaries to stay home because at least they wouldn't be wasting all the other precious resources. And it would be FAR better for us to pay their salaries AND try to find them a useful job.

I'm not trying to screw over these workers. I want them to work at productive things. I'm not willing to just throw them out of work at GM and let them starve. Pay them. Pay them well. But do not pay them to keep GM alive.

Along those lines: Our dealer trade guy was downsized in August. (With sales being down, less volume means less trading from one dealer to another for cars; so the Chevy manager got another duty added to his job description.)

Everyone knew he would not make it as a salesman, but since he's been here for 15 years, out of a sense of loyalty, the owner gave him a chance. Now -- after failed attempts to land a job elsewhere -- he is our parts-truck driver, which is one step above a part-time job.

This is awful for reasons exactly the opposite of what I think you are trying to say. He has been employed in a business which was clearly going under 15-20 years ago. Instead of starting 15-20 years ago in a job that would have been productive for the economy, he has been spending his time with the patient on recurring life support. Instead of gaining skills that would let him work in a productive sector, he has been gaining experience in an unproductive one. And now, when what everyone knew was a failing company for essentially my entire lifetime finally is really going down, he can't find another job which he could have found 5 or 10 or 15 years ago because he has so much wasted labor investment in this one.

Think of it like a housing bubble in industry. We all knew this was coming. It has been predicted for decades.

russel-- "All of these folks are going to end up retired early, on the dole, or embarking on new careers as baristas and Wal-Mart greeters.

You know, real value-added jobs, jobs you can send your kids to college on."

All these people are going to end up retired early, on the dole (what do you think it is when we are propping up GM) or whatever anyway. The question is do we lose ADDITIONAL money having them make money-losing cars on the way.

The Democratic Party bailout solution does nothing to avoid any of that. It doesn't lead to a healthy GM/Chrysler/Ford car industry in the end. It specifically mandates that we avoid the layoffs that are going to be necessary for the companies to ever be profitable. They make more cars than people want to buy from them. That means they HAVE TO SHRINK. We are going to be paying for these people's salaries anyway. Why pay for their salaries AND waste resoures on the cars. Just pay for their salaries for 2 years and help them find new jobs. Jobs which are not wasting resources in the economy.

The Republicans are being idiots for blocking the bailout without doing the right thing, which as hilzoy indicates is "They did not, for instance, seem to consider extending the kind of financing that would allow GM and Chrysler to go through Chapter 11 bankruptcy rather than liquidation. That financing would have involved loans, not gifts. It would have allowed an orderly reorganization."

But THAT is the right thing to do. The Democrats should have proposed that and additionally a very generous unemployment benefit and funded job relocation/job search program for those who are laid off so that their unemployment doesn't cause additional economic problems.

THIS bailout just extends the car companies failures another year or two (and once we do it I think it is a fantasy that Democrats will let them fail 2 years from now. We are going to hear all the exact same arguments PLUS the stupid sunk cost fallacy of "we already spent 50 billion dollars (don't think that we are really stopping at 14, that is a fantasy too) so we have to keep throwing money in it"). The bailout is already big at 14 billion enough to pay all the directly impacted workers their entire salary for a year and a half. Do that and wind up GM in a government funded Chapter 11.

Propping GM up is just supporting the bubble.

It's 4k per car. I stand corrected.

GM profit/loss in 2007: -$38,730,000,000 (-$4,055 per car)

"But to have everything come crashing down at once would be a disaster."

Argh. We don't have to do that. Chapter 11 makes an orderly winding down. And IF it is true that they have viable business sections, those will all survive and continue operating after a Chapter 11.

The only problem with that is that allegedly (it hasn't been tested because politicians and GM are so against it) the normal Chapter 11 short-term operating loans may not be availabe because of the credit crunch.

Now THAT is something the government can fix. The government could provide that short term financing to allow things to unwind in an orderly fashion. It would be at least a full order of magnitude cheaper and it would let the good parts of GM survive while the bad parts would fail. We could do that PLUS pay all of the workers who got laid off of the bad parts more than a year's salary and it would still be cheaper than the bailout.

The irritating thing to me is that doing the right thing is ALSO cheaper than doing this thing. But because of an emotional "GM must live" response we get to do worse AND pay more.

The great thing is that for all of the people who are justifying it with "GM has some great things", the more great things GM actually has, the cheaper Chapter 11 gets--because those great things survive and don't have to be paid for.

If the union won't make concessions now to cross the bridge why expect them to make concessions later?

I don't see anyone claiming that the union wasn't willing to make concessions. They were not willing to concede *everything*- but there is a big difference between being willing to concede something, and being willing to concede everything...

Me, I dont think that the GOP was negotiating in good faith- like the old Department of Homeland Security debate back in '03, they wanted negotiations to fail bc they think they have a win-win scenario:
1)everything is Ok, and they tell the taxpayers how they saved money that the Dems wanted to waste propping up failed companies
2)everything crashes, and they tell the taxpayers that the Dems control Congress and the WH and that the depression is the Dems' fault.

I notice, Sebastian, that -- perhaps being distracted by being busy for blaming btfb's co-worker for not choosing a better job 20 years ago -- you failed to answer repeated questions about just where these hundreds of thousands of manufacturing jobs are into which you want to move people. Can you maybe tackle that for us?

General Motors had offered buyouts to all of its 74,000 U.S. hourly employees. [5] Those workers could have elected to take a lump-sum payment of $45,000 or $62,500, depending on their job description, and retire with full benefits. [6]

Republican Sen. George V. Voinovich of Ohio, a strong bailout supporter, said the UAW was willing to make the cuts - but not until 2011.

http://nomedals.blogspot.com
is were citations are posted

The President just indicated that Treasury may intervene and bailout the big three with a chunk of the $700 billion bank slush fund, so the Senate's resistance to the bailout may be academic at this point.

Barney Frank summarized the auto bailout in one word today though: http://acreofindependence.com/2008/12/12/barney-frank-on-the-bailout/> welfare.

I am against the bailout, I do believe we are subsidizing failure (although like Hilzoy I agree that I own a share of Congress that I wish I could shed as well!). If the government does intervene, I would only want it to do so in a manner that gives these corporations a fighting chance to be competitive, profitable entities in the future, and so far I haven't seen any proposals to indicate that will happen any time soon.

So that's all this money is, then, Welfare that is being passed through decaying, failed enterprises, and eventually making it to American workers' pockets; why not just cut out the middleman?

Carleton
You: "They were not willing to concede *everything*- but there is a big difference between being willing to concede something, and being willing to concede everything..."

The article: "The sticking point, apparently, was that Senate Republicans insisted that the workers' pay reach parity with foreign competitors in 2009, while Democrats, the UAW, and the car companies wanted the process of bringing wages down to be completed by 2011."

All parties seem to agree that parity in wages is necessary for long term viability. Why wait?

Here's something I'd like to see: a list of all the people who are now saying that auto worker retirees must give back some of the benefits they received over the years, and who also say that we have to honor the golden parachutes of the financial executives, since they are contractually obligated payments, and we can't just void signed contracts.

I hope the GOP wasn't counting on Ohio being a swing state in the future.

But THAT is the right thing to do.

I'm actually more or less in agreement with you on this. I don't think the market is there for the auto industry as it currently exists, and to the degree that I'm able to get my feeble mind to follow along in economic matters, it seems like a managed restructuring would be a good idea.

The industry as a whole would continue on a basis that could sustain itself, the cost and risk would be spread across creditors and investors as well as labor, etc.

The only thing you've said here that I take exception to is "find another manufacturing job for them to work in". Those jobs are gone, and have been for a while.

My analysis is the same as fledermaus'. The US economy is based on borrowing money to sell each other crappy stuff that was made somewhere else.

One of the biggest exports heading to China from west coast ports is scrap cardboard, which they use to box up stuff to send back to us.

If US auto manufacturing goes away as a source of decent middle class manufacturing jobs, those folks will not be able to find other, similiar jobs to go to. They don't exist.

If the union won't make concessions now to cross the bridge why expect them to make concessions later?

They've made concessions. How many more should they make?

Thanks -

Republican politicians don't have any trouble propping up dying industries that give money to them. The timber industry has been dying for years at great expense to the taxpayers. Ditto cattle industry. Ditto sugar.

The philosophical belief motivating the Republicans in Congress seems to be more hatred of unions or maybe a desire to screw blue states that didn't fall for Palin's "common touch" the way the Rovites thought they should.

Which leads me to wonder: why is it exactly that Republicans hate unions so much? It just seems to be an anathema with them that anyone out here in the real world would be making a comfortanble wage outside the employer class or the advanced degree holder class.

I remmeber years ago when Ronnie the Actor was acting as President one of his Cabinet officers, someone with a name like Schultz, criticized supply side economics onthe grounds that the impoverishment of the American worker was bad economics and politics in the long run because without disposable income those folks would not be able to do a lot of discretionary spending which means they would not be buying the stuff which the companies owned by rich Republicans were producing.

And I could see that right here in Tacoma Washington where the Longshoremen and Teamsters, notorious for drugs and a party lifestyle, kept the rest of the businesses in the city humming: new cars, new motor boats, latest in entertainment technology, houses,,,spending money that kept other people employed and kept other businesses going.

Did they "deserve" their high wages? Pronbbly notin terms of the degree of difficulty but corporate CEO's don't deserve theirs and I don't see any Republicans bitching about it.

I think that it is a class thing. Republican p[oliticians and many Republican vogters just can't stand the idea that a person with little education who works mostly at a skill taught on the job can make enough money to own a house on Brown's Point.

All parties seem to agree that parity in wages is necessary for long term viability. Why wait?

Why start with the unionized factory workers? Right now, if you do the accounting honestly, UAW workers cost the companies about $55 an hour. Toyota and Honda have labor costs are about $49 an hour. The math says that the unionized workers make about a 10% premium on what the non-unionized workers make.

Last year, the head of Toyota received about $1 million in total compensation. Rick Wagoner received about $14 million. That's about a 1300% premium on the competition. Do you really want me to believe that its the factory workers that are causing GM to be on the brink of bankruptcy? That the Republicans are going to the mat over blue collar wages with nary a peep about executive compensation shows where their loyalties lie.

They did not, for instance, seem to consider extending the kind of financing that would allow GM and Chrysler to go through Chapter 11 bankruptcy rather than liquidation.

First question: Huh? Who or what are the source(s) for your claim that, without the federal bailout, GM and Chrysler will go through a Chap. 7 liquidation rather than a Chap. 11 reorganization (either of which, by the bye, would be worse than the UAW's constituencies than the Senate Republicans' proposal)?

Second question: Will you put your stomach where your mouth is?

Here's the bet: If there is no financial deal, and if GM files for a Chapt 7 liquidation, I'll buy you dinner at a nice restaurant of your choosing in Indianapolis, Indiana, whenever you happen to be in town or the area. Alternatively, if GM files for a Chapt 11 reorganization, you'll buy me dinner at some nice place of my choosing in Baltimore next time I'm in the area. (Heck, if we're in Baltimore, maybe CharleyCarp can come too.) Any other result is a push.

Whaddaya say, Hilzoy?

Here's another question. Would the US auto industry be viable if its major competitors actually participated in free trade? What if we had national health service, Japan and China dropped tariff barriers, and they stopped intervening in the forex markets to keep their currencies artificially low? How would all of that change the situation.

The answer to that question is what I think should determine the desireability of a bailout.

Caveman: Why do you find it hard to believe that one in 10 would be affect by a Big Three bankruptcy?

Also, to the anti-rescue crowd, have you read hilzoy's links?

Doing this on memory -- since I read them at 3 a.m. when I could not sleep -- Ford's CEO mentioned how his supply chain would dry up instantly if GM went out of business.

I've made this point before, but Sebastian has never addressed it: If our Chevy brand goes, our Hyundai store would not be able to survive on a prominent corner lot without such an anchoring flagship.

An American carmaker goes under and the effects are felt as far away as Korea. What about the new and monstrous GM dealerships that have just opened in Russia?

Here's the bet: If there is no financial deal, and if GM files for a Chapt 7 liquidation, I'll buy you dinner at a nice restaurant of your choosing in Indianapolis, Indiana, whenever you happen to be in town or the area. Alternatively, if GM files for a Chapt 11 reorganization, you'll buy me dinner at some nice place of my choosing in Baltimore next time I'm in the area. (Heck, if we're in Baltimore, maybe CharleyCarp can come too.) Any other result is a push.

The question isn't whether or not they start in Chapter 11. The question is whether the end result of Chapter 11 is a Chapter 7 filing. I would be shocked if GM goes directly to Chapter 7. I would be surprised if it ever emerges from bankruptcy without a government bailout.

@caveman: Recent reports have confirmed that bank lending is again robust.

Cite please. There were a lot of "reports" in 2007 confirming the strong fundamentals of the US economy. Also I'd like a testable definition of "robust" if possible, in case I need to chart "robustness" between 2004 and 2008.

Hey, here's a thought. TARP was sold as a way to improve lender liquidity, so that lenders wouldn't drag down the real economy by refusing to lend money to folks like the big three, right?

We can at least find out whether Hank Paulson agrees with you by watching to see whether he asks for that other $350b. If he passes on the $350b I'll concede that lending is "robust" again. If he asks for it you either concede that lending is still weak or that TARP was sold using false pretenses. Whaddaya think?

"I notice, Sebastian, that -- perhaps being distracted by being busy for blaming btfb's co-worker for not choosing a better job 20 years ago"

See the thing is, by framing it like this you miss the point entirely. I'm not blaming his co-worker at all. The incentives set up around him made it very attractive for him personally to stick with that failing job. Be that as it may, if the incentives had been better [we hadn't been politically propping up the Detroit 3 for 30 years] the incentives would have almost certainly been such that he would have A) been working in a more productive job and B) wouldn't have spent years gaining non-tranferable job skills in an unproductive one. The story is an excellent illustration of why it is bad to spend 30 years seriously deforming a market like we have in the auto industry. Because in the end, people will make rational choices based on the way we deformed the market, and it will turn out to be an enormous, painful, and unnecessary waste for them.

"you failed to answer repeated questions about just where these hundreds of thousands of manufacturing jobs are into which you want to move people."

They are all over the place in businesses that are making money (which indeed are even still all over the place). And some of them probably won't be manufacturing jobs. Some of them will be in other areas working for profitable businesses. Some of them will work for Toyota. Some of them will work for Honda. Some of them will work making tools. Some of them will probably end up in almost every area of the economy imagineable.

The main objection I predict you will make to this don't make sense in the context of this bailout.

They won't make as much money

answer: they already don't if we are bailing their companies out, their companies weren't admitting it. So they are either going to make less money where they are, or they will make that less money somewhere else, or their companies go under. And paying them the difference for 2 or 3 years while they find productive work would be cheaper than the bailout as it is currently stated, much less the real cost of the bailout once we get to Q1 2009 and Q2 2009 and Q3 2009.

//Why start with the unionized factory workers?//

The point is everyone has to suck it up. Now.

Keep in mind the context is that the industry (companies and workers) is coming to the rest of us and asking us to suck it up and bail them out. They want us to bail them out now and again in January and in exchange they'll suck it up in 2011. Nice. And aren't those republican senators heartless?

Bailout shmailout, what's up with Tot-Mom?

Crap, I responded to one of Phil's jokes again. Please ignore the response.

Sebastian, please be specific. Hand waving and saying that there are jobs they could move to doesn't cut it. What are those jobs? Why do you think that Toyota and Honda would be hiring these people, given that you also think that there is overcapacity in the auto industry? Doesn't the latter contradict the former?

The point is everyone has to suck it up. Now.

If this is the case, why didn't the Republicans balk because everyone was making more than their Toyota counterparts? Why did they exclusively target the factory workers?

I thought the Big 3 CEOs agreed to work for $1 if they were bailed out.

Ch. 11 with government DIP loans is really the only shot they have at ever returning to profitability. Congress handing them money and mandating that they use it to make their least profitable vehicles at over-capacity is laughable. Give em $14B and they'll be back in 4 months asking for $30B, and then 4 months after that...

All without the factory closings, dealership closings, management restructing and layoffs that are sadly needed. Congress is too stupid and capricious to know how to manage the turnaround. Bankruptcy courts on the other hand are specialists at doing this.

"The point is everyone has to suck it up."

Does this include the AIG employees who are getting end-of-the-year bonuses after all? What is their hourly wage?

"Why do you think that Toyota and Honda would be hiring these people, given that you also think that there is overcapacity in the auto industry?"

I don't think you understand what 'overcapacity in the auto industry' means if you think this is an objection.

It is also the same answer to the "my Honda dealer couldn't survive if it weren't next to the Ford dealer".

There is significant overcapacity in the auto industry. But it isn't 100% overcapacity in GM. It is probably more like 50%. So if GM fails, those jobs which are not industry overcapacity will almost certainly go to every single other non-failing auto maker. Or if you go through Chapter 11 like a normal company those people may end up working for whatever company is the successor to GM. That is why the worst case scenarios being drawn by GM are total crap.

As for the rest, you are engaging in central planning mania of the worst kind. These workers will almost certainly NOT go all to one place. There are tens of thousands of profitable companies right now. There are additional thousands of companies which will be profitable in the next year or two. (None of them are GM or Ford).

Each one of these can and will hire people. Each hire will tranform these workers from a net drain on the economy that they have been at a loser company like GM into a net gain for the economy by working for and furthering projects which allocate resources more efficiently than GM. Profitable companies have been drained in talent, drained in competition for resources, and now further drained in additional tax money by loser companies like GM who happen to have political power.

You talk about how horrible it will be for our economy if GM goes under becuase it employs so many people. That is exactly backwards. The horrible thing is that an awful company like GM has been sucking up resources and talented people from good but smaller businesses for decades. You should be sad for every one of the tens of thousands of employees who considered a job at a good business but ended up at GM instead. It is a disaster on the economy that we have propped up the Detroit 3 for so long already.

The question isn't whether or not they start in Chapter 11. The question is whether the end result of Chapter 11 is a Chapter 7 filing. I would be shocked if GM goes directly to Chapter 7. I would be surprised if it ever emerges from bankruptcy without a government bailout.

Huh? Parts of GM are highly profitable. (E.g., its Thai operations, GM South America is up 15%, and it has been clear for a while that GM could improve profitability by divesting itself of several of its brands (GM has too many brands).

We may see a very different company - or may not - but I don't think even your scenario is plausible for the vast majority of the GM family companies.

After reading this, I wish I had Sebastian's crystal ball about all of those new jobs.

wonkie asked... Which leads me to wonder: why is it exactly that Republicans hate unions so much?

Because their biggest campaign donors pay them to hate unions.

The GOP stands for power concentrated in the hands of a few. Think union busting. Think about wanting a tax structure that rewards wealth and penalizes work. Think the entire Bush administration. Power is to be concentrated to a few, and only those few that also support the GOP.

The power of the mob can be used (think Palin's rabble rousing or the way they've used right-wing religious groups) for specific ends, but real power can't be allowed to actually devolve to the people.

Come to think of it, the GOP sounds awfully elitist.

See the thing is, by framing it like this you miss the point entirely. I'm not blaming his co-worker at all. The incentives set up around him made it very attractive for him personally to stick with that failing job.

Is there a reading of the phrase "Instead of starting 15-20 years ago in a job that would have been productive for the economy . . " which means something other than, "He should have picked a different job 15-20 years ago?"

"you failed to answer repeated questions about just where these hundreds of thousands of manufacturing jobs are into which you want to move people."

They are all over the place in businesses that are making money (which indeed are even still all over the place).

Surely, then, rather then hemming, hawing and handwaving, you can name, say, five of them?

You talk about how horrible it will be for our economy if GM goes under becuase it employs so many people. That is exactly backwards. The horrible thing is that an awful company like GM has been sucking up resources and talented people from good but smaller businesses for decades.

if only people could see 15 years into the future so they could know that their industry is going to hit hard times in a decade. then they'd be able to get themselves into a new career before the trouble started!

for example, i should've known that C++ programmers would stop being in high demand sometime in the late 08's and should've learned C# in college. instead, i've been out there sucking up resources this whole time. what a dick i must be.

As for the rest, you are engaging in central planning mania of the worst kind. These workers will almost certainly NOT go all to one place. There are tens of thousands of profitable companies right now. There are additional thousands of companies which will be profitable in the next year or two. (None of them are GM or Ford).

Name them. Again, this is handwaving. Consumer spending dropped 10% year-over-year in November. Where do you think that the new profitable jobs are going to be? Why do you think that any undercapacity resulting from the demise of the Big Three would involve hiring American workers?

You are missing the point of a lot of the arguments. Your position is true, under normal circumstances. We would be better off letting bankruptcy have its way with GM.

These aren't normal circumstances. Letting GM go bust right now would be catastrophic. There is no "somewhere else" for these workers to go find jobs. You are engaging in neo-Hooverism. It's not the same manifestation of it that finding fiscal discipline right now is, but the effects are the same. Right now, the negative consequences would be enormous.

Part of the difference between us is that I'm more liberal. Another part is that my training is in finance, and you are arguing economics. Right now, the former is a better paradigm. Economics, as a discipline, is all about equilibria. Everything will find its market clearing price. If there's slack capacity, something will move in and use it. Under normal conditions, this works.

Again, though, these aren't normal conditions. Finance is based on risk, rather than equilibria. Things not only can overshoot what the economists say they should. They will do so, and, as we say, the market can remain irrational longer than you can remain solvent.

Push GM into bankruptcy, and you cause two different problems that will lead to overshoot. The first is that, as has been pointed out, they are going to take a bunch of suppliers with them. The other car companies also rely on these suppliers. Bankruptcy is going to cause problems for the entire American car industry, not just whatever companies go bankrupt. This is an additional problem with your idea that Toyota and Honda will pick up any resultant slack by hiring here. If their supply chain is disrupted, they will do no such thing.

The second problem is that we are in a position where there is a positive feedback loop on negative economic developments. If you throw all these people out of work, you are going to kill consumer spending even more than it already has. There's a multiplier effect, since, as this happens, people start to save more, which means that spending falls even farther. Absent some other company that is going to do a lot of hiring, it's difficult to escape this effect.

Now is a bad time for orthodox economic arguments, even ones that I would usually agree with.

Bankruptcy courts on the other hand are specialists at doing this.

Not to scare the horses or anything, but even a well-managed chapter 11 scenario would be pretty dicey. The point of a chapter 11 is to decide who needs to get screwed in order to preserve the going concern. In this case both the supply and the distribution chains would have to absorb significant disruptions.

So is there enough slack in the system for GM to survive that? Once the chapter 11 starts most of the supply/distribution chains will grind to a halt and the first thing we'll see is a lot of smaller liquidations. How many and how bad and how long to stabilize? Its not possible to know. But it wouldn't be the first time a court approved a chapter 11 plan only to discover that it broke the company's supply (or distribution) chain in the process.

Huh? Parts of GM are highly profitable. (E.g., its Thai operations, GM South America is up 15%, and it has been clear for a while that GM could improve profitability by divesting itself of several of its brands (GM has too many brands).

We may see a very different company - or may not - but I don't think even your scenario is plausible for the vast majority of the GM family companies.

So what? The individual pieces of GM wouldn't be going into bankruptcy. The whole company would. That there are individual components that are profitable would not prevent Chapter 7. The question is whether or not assets are greater than liabilities for the whole, or whether or not changes can be made that would result in assets being greater than liabilities.

In Chapter 7, those individual components would just be sold off to satisfy creditors. They will be owned by someone else. Now, notice that all of the segments you listed are foreign operations. If those segments are bought by someone else, and keep running, it wouldn't help the American auto industry at all. Their profitability makes no difference to that question.

So, what we've got here is ---

1) Republicans killing this because everyone BUT them wanted a wage change over three years, not one. Bluntly, that's a BS excuse by the GOP. That wouldn't kill ANY bill, much less one at a time like this. Heck, any competent economist would note that if you're going to do this three years would be BETTER, since you don't want to cut so many wages in a recession.

2) Plenty of people seem to think that there's hundreds of thousands of "jobs" just sitting there, waiting for those idiots at the Big Three to quit and take them up. I can just imagine all the empty factories, sitting there in Detroit, just waiting to be filled with workers so they can make...something undefined...for people to buy with the money they don't have.

3) A surprising number of people apparently really WOULD like to see a Depression in their lifetimes, given their eagerness with which to apply negative economic stimulus in an already faltering economy.

It's 4k per car. I stand corrected.

GM profit/loss in 2007: -$38,730,000,000 (-$4,055 per car)

UC,

This does not answer my question. To do this sort of calculation and claim that GM loses $4K per car is just silly.

Heck, any competent economist would note that if you're going to do this three years would be BETTER, since you don't want to cut so many wages in a recession.

GOP on Taxes: ANY tax hike during a recession is a disaster because it reduces the amount of money available to be spent and/or invested.

GOP on Wages: Slash them instantly during a recession, reducing the amount of money available to be spent and/or invested.

This certainly explains why their fiscal standard-bearers are the likes of Phil Gramm, Donald Luskin, Kevin Hassett, Larry Kudlow, etc. We dodged a huge bullet by electing Obama over McCain. No matter how bad it gets, remember that it could have been worse ... MUCH worse.

This does not answer my question. To do this sort of calculation and claim that GM loses $4K per car is just silly.

What, you expect people to understand the concept of a marginal cost?

FWIW, here's an inside view at the Capitol of how the bailout vote went in the Senate.

It's 4k per car. I stand corrected.

GM profit/loss in 2007: -$38,730,000,000 (-$4,055 per car)

You do realize math can't be used that way, don't you?

"if only people could see 15 years into the future so they could know that their industry is going to hit hard times in a decade. then they'd be able to get themselves into a new career before the trouble started!"

Argh. The trouble was obvious 30 years ago. And 20 years ago. And 10 years ago. And 5 years ago. And last year. And earlier this year.

I'm not blaming the person. He made perfectly good choices based on the circumstances. My point is that for 30 years we have deformed the whole process surrounding the stupid Detroit car companies so that good choices for individuals end up being atrocious for the economy as a whole.

"Name them. Again, this is handwaving."

Titanium Metals (materials), McDermott International (construction), Metal Management, Tesoro, Terra Industries, General Cable, Hub Group (transportation), Precision Castparts, Frontier Oil, Monsanto, Joy Global, Carpenter Technologies, Scnizter Steel, Terrex, Holly, Cummins, Freeport Copper, Manitowoc, National Oilwell Varco, Flowwever, XTO, Rush Enterprises, Mosaic, Transocean, Nucor, Greif, Harris, Alliance Steel, Paccar, BorgWarner, FMC, Valmont Industries, Gardner Denver, Energizer Holdings, Deere & Co, Burlington Santa Fe, CH Robinson, Toro, Rockwell Automation, Barnes Group, UTI Worldwide.

All of these are large companies. All of them have profitable business models. Almost all of them have been expanding in the last year and all of them are likely to be doing well 1 year, 2 years and 3 years from now. Most of them make captial goods which means that at least some of the autoworkers skills should be transferable, especially if the government helped with channelling training.

Some of them have had minor problems in the recent downturn, but they have much brighter futures than even the most healthy of the Detroit 3 as they currently stand.

And when the Forbes Platinum 400 comes out in two weeks, look at it and pick out the large capital goods companies.

Successful companies with good jobs exist. Encouraging GM workers to stick it out with GM instead of finding a match in these and hundreds of other good companies is just bad for the economy and ultimately bad for the worker.

The trouble was obvious 30 years ago. ... I'm not blaming the person. He made perfectly good choices based on the circumstances.

those three sentences do not mesh.

if the problem was obvious 30 years ago, then nobody who's taken a job with a car maker in the past 30 years could have possibly made a "good choice", by your argument.

which American industries are going to go under in the next 15 or 20 years, and which aren't ?

You talk about how horrible it will be for our economy if GM goes under becuase it employs so many people. That is exactly backwards. The horrible thing is that an awful company like GM has been sucking up resources and talented people from good but smaller businesses for decades.

Wall Street firms have been "sucking up resources and talented people" for decades, too. It seems The Market is not very good at allocating resources, on the scale of "decades".

I don't give a damn about GM, Ford, or Chrysler as corporations. They got as big as they are because The Market, in its wisdom, made them the winners over outfits like American Motors, Packard, etc. Bigness is goodness, said The Market.

So vast amounts of capital, both physical and human, got configured by The Market into a system that can produce cars and not much else. Disassembling that structure is just as possible as disassembling a house: lots of lumber and copper and tile there that can be put to other uses. It's a disruptive thing to do, short term, but maybe the best thing to do in the long run. Left alone, The Market will surely do it right this time, eh?

--TP

GM profit/loss in 2007: -$38,730,000,000 (-$4,055 per car)

Ahem:

For all of 2007, GM lost $38.7 billion, the biggest loss ever for an automaker. The loss, equal to $68.45 a share, is about the same amount as a noncash charge of $38.3 billion that the company took in the third quarter to write down deferred tax assets, meaning that GM almost broke even otherwise after losing $2 billion in 2006. Excluding special items, the company lost $23 million, or 4 cents a share.

...

Automotive revenue was $46.7 billion in [Q4 of 2007], up $3 billion from a year ago.

Also they sold off a bunch of GMAC. I'm no accountant but that sounds to me like an uncooking of a previously cooked balance sheet predicated on an improvement in cash flow. Accountants please comment.

This isn't in any way a defense of the GM business model. Just pointing out that Caveman's "this has nothing to do with the credit crisis" is pretty easy to debunk.

which American industries are going to go under in the next 15 or 20 years

Banks and brokerages :D

Republicans killing this because everyone BUT them wanted a wage change over three years, not one. Bluntly, that's a BS excuse by the GOP.

Of course it's an excuse. If the UAW had conceded in this particular pension issue, there would've been another 'deal killer' ready to do. Shelby et. al. didn't want a deal. They just wanted someone else (the unions) to take the blame for the political failure. Heads I win, tails you lose.

Successful companies with good jobs exist.
How many, Sebastian?

von: if (a) there is no bailout, whether from Congress or from the government, and (b) the government does not provide debtor-in-possession financing, or some similar sort of deal (e.g., I've read reports that the Obama team is looking at a sort of streamlined Chapter 11; that's what I mean by 'similar' -- something designed to aid them into/through Chapter 11), then I predict that (c) they will be in Chapter 7 by -- well, I don't know; what I want to say is 'reasonably quickly', but I have no idea what the time scale for these things is. By the end of 2009? At any rate, I'm not looking to bet that they will end up in Chapter 7 before the heat death of the universe, or anything.

I am not willing to bet that GM does not file for Chapter 11, since, as noted above, they could try that and fail. My bet is: wherever GM starts, it ends in Ch. 7, and reasonably quickly, absent a bailout, prepackaged ch. 11, or government DIP financing. If you take those terms, we're on.

Also: my understanding is that GM does not have the power to shut down brands without paying off all those brands' dealers, because of state franchise laws.

Bernard asks, "It is one thing to say that, at current production levels, GM's loss divided by vehicles produced is $2000. It is vastly different to say that each additional vehicle they sell adds $2000 to their loss. Which is it?"

Part of the problem with using this number is that it isn't a literal number, and I'm not even sure how accurate it still is. But the number --whatever the number is -- is a way to keep running track of competitiveness with the transplants, but isn't applicable to any single model. In other words, the cost for GM to build a new design in a new factory may be the same as Toyota's except for a labor differential and the legacy costs. The opposite might be true for an old design in an old plant. But by coming up with an average, you can see where you stand overall against the competition and make business plans accordingly. And why you need to sell a Tahoe for $10,000 profit than a Cobalt with $800 profit.

LFC -- My understanding is that the retirees' benefits are not contractually protected. That's why their health benefits were able to be reduced in the 2007 agreement.

J. Michael Neal -- Rick Wagoner received $1.8 million last year, not $14.4 million as is usually reported (see p. 31 of the GM Restructuring Plan on its Website at http://media.gm.com/servlet/GatewayServlet?target=http://image.emerald.gm.com/newspublisher/support_file/12-02-2008/38/081202%20Congressional%20Submission%20Final.pdf.

SEC regulations require the proxy list all possible compensation, which did total $14.4 million but that included unpaid bonuses and under-water stock options. $1.8 million isn't peanuts, but it's certainly low compensation by US corporate standards. And keep in mind that Japanese executives receive an enormous amount of services -- drivers, memberships, personal expenses -- that are not reported as compensation.

And Sebastian -- "They make cars that people don't buy and which then have to be sold at a loss." That's just not true. GM made big money all through the '90s on those big SUVs that we want to pretend no one ever liked. Well, the truth is, a lot of people really liked them, and the profits from those vehicles paid the legacy costs and funded the modernization of NA operations and the globalization of GM so that today it has the kind of global footprint an automaker needs to be viable. That all cost a lot of money, and they made it themselves with vehicles you may not like but were highly popular with many buyers. They still had problems to confront but they were making progress, even if the stock price didn't reflect that.

And along those lines, pray give me examples of how the US has been propping up the US automakers for 30 years? As far as I can see, we left our market wide open to any foreign carmaker while all of their markets were semi-closed. State and local governments across this country gave tax money to foreign carmakers to build new plants at the same time they told the domestics to drop dead when they asked for the same tax breaks to upgrade their existing factories to make them competitive. Congress created the kludged up CAFE laws to "improve fuel economy" without having the nerve to balance both sides of the equation by increasing the price of gas. Consequently, miles driven per capita has risen right along fuel efficiency, as people used the money saved by increased fuel economy to drive more, to live farther from work, to drive to outlet malls instead of local stores, etc.

I can't think of a single way the US government has propped up the US auto industry. They have made plenty of mistakes, and they will admit to that, but they have also had a unique challenge in remaking 100-year-old businesses alongside newcomers who had none of the same burdens that came with a history. It's always easier and cheaper to build a new housing development than to revive an old neighborhood, and it's the American way to walk away from the old and start fresh. What's been the cost to our society, though?

The point is everyone has to suck it up. Now.

Shelby is from AL. Corker, from TN. McConnell, from KY.

All three of those states consume more federal dollars then they pay in. Alabama is peanut farmers and Hunstville, where the DOD dollars -- your tax dollars and mine -- flow like wine. And I do mean flow.

I like peanuts well enough, but I'm not sure AL is pulling its weight.

Michigan, conversely, pays more than it gets back.

I really don't care to hear those guys telling the rest of us what the American taxpayer will and will not tolerate.

Next time they come around asking for an ag subsidy to help out the beleagured peanut farmer, or cotton farmer, or rice farmer, maybe we should tell them to suck it up. We can buy all of that stuff cheaper overseas.

Their people can all go find better jobs doing something productive, instead of sucking off of the federal teat.

It's a two-way street, dude.

Thanks -

The article: "The sticking point, apparently, was that Senate Republicans insisted that the workers' pay reach parity with foreign competitors in 2009, while Democrats, the UAW, and the car companies wanted the process of bringing wages down to be completed by 2011."

All parties seem to agree that parity in wages is necessary for long term viability. Why wait?

That isn't what you said. You said that the unions weren't willing to concede on a single point, so there was no reason to think they'd be reasonable further down the road.
But they are, in fact, making large concessions.

You want to switch to a new argument about the timeframe stuff- fine, but you may want to say that your original point was wrong.

As for the new point- the early part of a recession is a bad time to cut wages, both for the workers and for the economy. It's better for all concerned if we can put that off for a year or two I think. What's the advantage of rushing these cuts?

Cleek: "those three sentences do not mesh.

if the problem was obvious 30 years ago, then nobody who's taken a job with a car maker in the past 30 years could have possibly made a "good choice", by your argument."

No. Depending on how the system is formed, individuals can make good individual decisions that are systemic disasters.

"which American industries are going to go under in the next 15 or 20 years, and which aren't ?"

I didn't claim to know ALL of the industries that are going to go under. I claimed that it was obvious that there was serious trouble with the Detroit 3 automakers at a huge majority of the years of my entire lifetime. Do you think that the fact that some people were talking about the housing bubble in 2002 means that they, at this very moment, ought to be able to tell you which commodities are going to be in a bubble over the next 30 years or else they are otherwise discredited? Do you deny that the Detroit trouble has been pretty obvious for at least 25 of the last 30 years? The stupid Chrysler bailout was in 1979!

TonyP:

"It seems The Market is not very good at allocating resources, on the scale of "decades"."

The market would have let at least one and probably 2 of the Detroit 3 die off in the 1977-1981 period. The reason they didn't is "The Government" and the fact that between the unions on one side and the fat cats on the other, they are politically well connected to whomever is in power at the time.

"How many, Sebastian?"

I just gave you 39 and that is frankly the tip of the iceberg. Even in a downturn economy there are lots of profitable businesses. The sad thing from my point of view is that while the Detroit 3 were limping along in the good years, most of those people could have been working in either fantastic or pretty good businesses instead of those monstrosities. But they did because we have silly romantic notions about Henery Ford building the American Dream (which is to say cars) in the the city of Detroit. And the funny thing is, how many car-skeptic liberals buy into the false mythology anyway.

"That's just not true. GM made big money all through the '90s on those big SUVs that we want to pretend no one ever liked."

"And along those lines, pray give me examples of how the US has been propping up the US automakers for 30 years?"

You want to deny that the government has been propping up automakers for 30 years but you use an example which disproves your point.

SUVs were part of the prop up. The were ridiculously exempted from the CAFE standards from 1975-2007.

The comments to this entry are closed.

Blog powered by Typepad