Well, the UAW doesn't want to accept parity with foreign auto-maker wages. The article states a $3-4 disparity, but it's really more than that due to the great benefits accorded to UAW workers.
While I generally like unions, in this case no matter how much bailout money the US auto-makers get, they're headed for bankruptcy unless they can bring their labor costs in line with those of foreign firms. UAW, if you're listening, you have two options: get off your rump and drive the wages up at Honda and Toyota (unionizing their plants) or resign yourselves to never having any say in anything ever again.
American auto companies cars cost, on average, $2,000 more to make than those of foreign competitors.
Until that difference is gone, they will never be competitive. They lose $2,000 of quality or features and are expected to be competitive? Yeah, right.
In any other industry this would force a company out of business, but for some reason we think the automakers deserve our help? If an iPod was $50 more per unit to produce than a Zune they would never be able to compete and the iPod would fail because they are losing $50 worth of quality per unit - whether that quality is gone from the software, hardware, or both, it would be impossible to compete.
health care costs per vehicle are between 1000-1700. We collectively, and the auto industry in particular, are at a big disadvantage until these costs are brought under control
While I know Toyota is staffed mostly by robotic ninjas, presumably they need health care once and a while, too. Japan enjoys a standard of healthcare right up there with the US.
Toyota also manages to pay American worker's healthcare expenses and still profit handsomely.
"Toyota also manages to pay American worker's healthcare expenses and still profit handsomely."
I think it's pretty well established that Toyota pays less for health care for their U.S. employees than the Big 3, and a large part of the reason for this is that the Big 3 are paying for health care for a lot of retirees who are no longer making cars. The NY Times had an analysis showing that most of the difference in "labor costs" between Big 3 and foreign makers was due to higher retiree benefits.
The benefits you're talking about are those that were promised as pension and healthcare obligations to already-retired workers. The difference between UAW and non-UAW wages and benefits for current workers isn't that large.
Exactly. If you remove the pensions that are lumped in with all the reported hourly rates, it is not that big of a difference, and what is there is in the healthcare benefits not hourly pay rate. I think the Republicans were just happy that their spin factory came up with a way they could pin an excuse on someone else for not passing the bill. I wasn't really in favor of the bailout plan (mostly after the idea of a car czar was introduced), but I think these guys need to be honest in why they were against it.
Seems to me, that the auto industry is paying for the mistakes, made by congress when it came to the Wall Street bail out.
The financial industry got a blank check for 700 billion bailout almost overnight w/o any questions, they produce nothing tangible, and there is nothing preventing another bank from replacing any of the big ones. Its an industry that scales easily.
The auto industry on the other hand, is getting grilled left and right over a measly 15 billion. The money comes with a ton of strings attached. Even though unlike the financial industry they produce a tangible product. And there are no other competitors waiting to fill the big boy's shoes, because it takes billions to scale.
So it seems to me that the Congress is being penny smart and pound foolish, they give away vast sums w/o a second thought, and then turn around and penny pinch when it comes to a tiny amount.
It's unclear why the financial industry bailout is relevant. If the financial bailout was a mistake, it's unclear why that mistake is an argument for giving money to GM. If the financial bailout was a good idea and implementation,it's unclear which reasons (and mechanisms) also apply to GM.
In other words, "he got some" is not actually a valid argument. (FWIW, that's true whether "some" is money or sex.)
The difference is our financial industry may be salvageable, and not trying is disastrous. Whether or not that bailout is a good idea is certainly debatable.
But it has nothing to do with a different bailout that, without some serious provisions to ensure long term viability, has no chance of working.
FWIW, most economists seem to be for the financial bailout and against the auto one.
Also the financial one is not a give away, it's an investment. They're taking equity stakes in bailed out companies and enforcing rules to ensure long term viability. The Senate wants the same exact thing with the auto one.
> FWIW, most economists seem to be for the financial bailout and against the auto one.
Most economists think that they understand the financial system and its effect on the economy better than they understand domestic car makers and their effect. Even if they're correct (about their relative knowledge), their ignorance about the latter makes their conclusion suspect.
"Follow the money" is a dumb rule. "Follow self-interest and self-perception" is a great rule.
The auto industry is not doing that bad. It's just GM and Chrysler that are bankrupt. Ford will survive on its own and so will Toyota and Honda. If they were all in danger of bankruptcy it would be another story.
The unions broke their own backs. Republicans (and Democrats) didn't make the big three into horribly managed, debt-laden, corporate pigs producing products that no one wants, but they both helped--but the ways they helped make them soft-headed and inefficient are probably things you approve of (like protectionist tariffs on imports, stricter immigration laws, trade restrictions of various sorts, etc.). The management and the unions at those companies worked hard for many years to destroy the US auto industry.
Neither bailout is a good or fair solution, but deciding that every broken industry ought to be able to extract limitless funds from innocent taxpayers in order to continue with business as usual, merely because one broken industry is getting a bailout, borders on evil. Two wrongs don't make a right.
Why are people so concerned about major industries collapsing? There will always be entrepreneurs to take their place. They will not be able to replace the industry overnight, but it will all work out and give a better result than trying to barter or bail out with people who are devoted to making crappy products.
The problem here is inherent in the car companies: it is simply a case of them making products no one wants. They either need to reinvent themselves or cease to exist so other, more capable people will take their place.
There are clever, motivated people who are going to notice these opportunities and capitalize on them. There always have been. I hate to sound pigheaded, but calls of "well... well... what if the world ends because we didn't bail these guys out?!?!?" are just FUD.
If they had zero debt they would not be in trouble so it's not just them but everyone who they owe money to (including retired people) that stands to lose money.
PS: This bailout if it worked is far less costly than taking over their pension plans would be.
everyone loves obama / democrats until a bill actually comes up that they care about. thank god for republicans! we're gonna miss you these next 2 years.
The following essay was cited over at reddit. Don't let "Marx" in the title put you off; it is well worth the read. Boiled down, a bailout buys time when it is desperately needed. Even if there is failure in a couple of years, that time would come as a bargain. Second, the "$72" figure doesn't include legacy health care costs. Foreign manufacturers in the U.S. benefit from long term social planning in their native countries. Of course, the author is more thorough and a lot more eloquent.
Thank god. Heres to hoping that Obama never gets around to bailing these industries out either so that they finally declare bankruptcy and let the market work out its own (significantly more efficient) solution.
573,000 jobs lost last month and people want to dance on the grave of a MAJOR national industry?? This not good news for people like me who worry things are gonna get a lot worse before they get better.
Anyway, with all that capital just floating around it should be a snap to recreate a heavy manufacturing based industry. Maybe those free market geniuses can make it as awesome as the financial industry or the health care industry.
What were you expecting? Things were always going to get worse before they got better. This is the restructuring of a global economy that had become far too reliant on debt. More companies and industries will go under; more jobs will be lost. Remember, the employees may not have chosen the company strategy, but they chose to be with that company.
I will dance on the grave of every company and industry that dies now because it means the restructuring is working. Nobody is putting them on life support. Nobody is saying, "It's okay you royally fucked up." They're dying, as they should be.
There are a lot of exciting opportunities to restructure things that have sucked for a long time. This is a good thing.
However, your logic doesn't make any sense. A bank can be totally solvent, but be wiped out by a bank run due to forces outside of their control. Similarly plenty of otherwise profitable businesses can be wiped out when the entire economy heads south. This is called throwing the baby out with the bathwater.
What I am expecting in governance that doesn't dig us into a deeper hole.
By the way, the worse the US economy gets, the worse the world economy gets. Do you really want a nuclear pakistan/india go off the deep end?
On the other hand, investment banks (which are legally different from banks) can be wiped out by runs very quickly if they take on too much leverage. Or at least that's what used to happen before the federal government decided the largest ones were too big to fail and bailed them out.
The banking system isn't solvent if people can lose their money based on competing on-demand claims to the same cash.
I honestly don't know why we don't shift to a time-deposit system. It would work nearly exactly the same in every way and we wouldn't need an FDIC as much or worry about bank runs.
Some of the apparent sight deposits already have some clauses that make them more like term deposits. I.e. I read the fine print on my savings account and that talks of certain limits and (mild) penalties for withdrawing too much money at once.
When the entire economy tanks, sure, it's going to take some businesses with it. There's a difference, though, when your business is so reliant on the poor choices that got us into this mess that it goes out of business practically over night when everyone finally realizes, "Wait, this isn't working anymore." The auto companies aren't much better off; the best was, what, 6 months to survive without a bailout?
There will be collateral damage. That's just part of the deal. As I mentioned, this is a global event so yes, I realize the worse the US economy gets the worse the World economy gets, at least relatively speaking. I would prefer that one of the nuclear countries not go off the deep end and trigger a nuclear war, but I have no reasonable belief that they will either.
Actually, from what I have heard/read (i.e. http://www.cnn.com/2008/POLITICS/12/11/congress.auto.bailout...) about the proposed bailout, was that it was meant to keep the companies afloat until March-ish. Without, the outlook is a lot grimmer than 6 months, given March is more like 3-4 months away.
I think looking at it only in terms of economic efficiency is a little bit callous.
I'm fine with bad corporations "dying." However, what about the actual human beings that will not have jobs, and their children? Detroit is already starting to look like a third world country. What will it be like by the time all three auto makers get through the bankruptcy procedure?
I think the argument for a "bailout" for the people who still support it is that it is simply cheaper to keep the auto companies alive a little while longer than what the government would pay out in benefits for all of the resulting unemployed workers. And that it is a more efficient "stimulus" than the government just spending money on other projects directly. Maybe we will have to pay those benefits eventually in any case. But as bad as things are now it might actually make sense to keep the auto companies alive, even for just another year or so, while the rest of the economy maybe starts to improve.
You can argue that we should be more libertarian about these things, and the government should not be involved in "social safety nets" or whatever. But that is not the government we have, and it is not going to be the government we have any time soon. Given that, the question of whether a bail out is cost effective from the federal government's standpoint is not as clear cut.
I'm perfectly fine with the government bailing out the people. They probably need help. So give them a nice severance package, relocation assistance, job training, actual jobs, whatever. But don't pump billions into keeping a failed company on life support for another year.
I would love to see this calculated quantitatively. I've heard that the bailout amounts to $50,000 per worker. That sounds pretty good... However, if the bailout is able to keep everyone in $70,000 other jobs for a year, that might be a better deal, even if it just means postponing the inevitable. I recognize that this is very complex, one should account for e.g. if the economy will be recovered in a year, and more able to take the hit of these industries going under, how much more value the workers might produce in new jobs, etc. It's beyond me to calculate, but I would love to see an analysis that presupposes that this is straightforward charity for those workers, and how to get the best bang for our redistributive buck.
I'd take $50k up-front over $70k for a year, since in the former I immediately get a ton of free time to think of something better to do, learn a skill, move to a better area, etc. In the latter I'll be no better off a year from now than I am right now.
Auto industry jobs will only be lost due to lowering demand, which won't change with or without the bailout. For one, American car companies won't disappear. Read up on Chapter 11. They'll be restructured. Some layoffs may occur, but they need to anyway, otherwise this bailout would only forestall the inevitable. The only way American car companies can compete long term is to get down to similar cost basis to foreign ones, which means their cars have to take a similar amount of man hours to build.
And if they did fold, people won't just stop buying cars. They'll just buy different cars that were made mostly here in America, which employee the same number of people to build that a viable American car company would.
It's easy to say bailout = jobs, but that's sadly just not true. In the long run it won't save any, and it will cost a fortune. If it's done right, it will ensure viability, which means loss of jobs. If it's not done at all, it will mean restructuring and/or a shift to Japanese cars which means the same loss of jobs.
It's not necessarily the same loss of jobs. The issue here isn't just the Big 3, but all of the secondary industries and suppliers that depend on the Big 3 as clients. If the Big 3 go bankrupt now, there is a not insignificant chance that this could cascade through the supply chains, and actually hurt the Japanese companies with American plants as well. The issue here isn't whether the Big 3 should fail - they have and they should - but whether they should fail right now.
Even accepting the hard argument that this bailout would merely forestall restructuring and eventual job loss, if that restructuring can be pushed to a time when the economy isn't in such dire straits, then the bailout could easily be worth it. The timing is clearly the most important factor. Consider Lehman. Lehman (and all of Wall St for that matter) was in a very similar position to the one the hedge fund LTCM was in 1998 - i.e., highly levered and insolvent, thus constituting a systemic risk. In 1998 because the rest of Wall St was healthy, the Fed was able to organize a private bailout of LTCM that prevented a, in hindsight, minor credit crisis from escalating. In 2008, since all of Wall St is essentially insolvent, the Treasury was unable to broker a bailout/merger and unwilling to bail out Lehman with public funds, leading to a catastrophic bankruptcy. The cost of being wrong about Lehman far outweighed what bailing it out would have cost, just as the cost of being wrong about letting the Big 3 fail at this moment could far outweight the proposed $14 billion (admittedly just a first offering).
I never understand this argument about the suppliers either. Lets say Americans would have bought 1 million American cars per year. But all of the manufacturers vanish in a puff of smoke. Now what do they do? They buy 1 million Japanese cars (made right here in America) per year.
Those cars are built with parts from the same suppliers, or other suppliers still largely based in America. Profits may shift from one supplier to another, but they don't decrease.
Check the front page of the NYT right now. Suppliers are near bankruptcy as well. Just like the Big 3, or anyone else for that matter, these suppliers can't get credit now. They need business (and payment for past business) from the Big 3 to remain solvent.
Your mistake is assuming that demand, in this case for cars, remains constant even if the Big 3 go bankrupt. If the Big 3 disappear, it's an enormous downward force on demand. Japanese companies can't immediately start producing more cars to make up for the slack from a Big 3 failure, so the suppliers would likely disappear. So we're talking about potentially millions of lost jobs. And that's a lot of people no longer in the market for cars, or really any other goods or services.
We're potentially facing a deflationary spiral, where the credit markets freezing up leads to companies failing/laying people off, which lowers demand, which causes businesses and investors to cut back on development and lay even more people off, and so forth. And as drop in aggregate demand creates deflation, individual's debt burdens increase. So we can expect continued foreclosures and increasing defaults on credit card debt and student loans, etc., leading to even more writedowns for banks, and even less credit available for business or consumers. It's a vicious feedback loop. We need the government to stop this downward spiral.
> If the Big 3 disappear, it's an enormous downward force on demand. Japanese companies can't immediately start producing more cars to make up for the slack from a Big 3 failure, so the suppliers would likely disappear.
It seems like this is confusing cause and effect. The big 3 disappear because of a major downward force in demand, they don't cause it. If demand were healthy, they wouldn't disappear in the first place, as people would be buying their cars and giving them cash.
I need a car within the next month. I was going to buy Japanese anyway, but say I wasn't. I can't imagine any scenario where I'd just say "Well, the American car makers are gone, so I'm just not going to buy a car." I'd go buy a Japanese or Korean car instead.
The Big 3 are disappearing right now because they can't receive credit, and consequently can't roll over their debts. Exacerbating this, demand for cars - even for Japanese cars - has plummeted as consumers are scared and are pulling back on all purchases, to say nothing of having difficulty securing auto loans. This in turn makes it even harder for the Big 3 to secure already difficult to receive credit.
The proximate cause of this potential bankruptcy is the credit crisis. If the Big 3 disappear because of the credit crisis, and suppliers go bankrupt as well, experts estimate that could mean the loss of 3 million jobs. Suppose you worked for a fairly well run auto supplier, and suddenly you don't have a job. Instead of considering buying a car - or any major good or service - you wouldn't be able to. If you worked in an industry either directly or tangentially related to autos - say auto dealers, gas stations, hotels, steel - you'd likely start to fear losing your job. Just the fear of losing your job would change your consumption habits. Fear becomes a self fulfilling prophesy, creating even lower demand, necessitating even more job cuts, lower prices, and even less demand. A Big 3 bankruptcy would lower aggregate demand, and have potentially massive consequences through the rest of the economy. An event can both be the result of supply/demand, and create new supply/demand - financial markets and the economy are a chaotic system. That's why it's so hard to predict exactly what the consequences of a Big 3 failure would be.
Also the suppliers are going bankrupt for the same reason. Has nothing to do with the Big 3 doing poorly, it has to do with the entire industry suffering.
Also, there are stories of Toyota and Honda paying for lots in California to store all of the cars they can't sell. There will be no lag.
It's not just a matter of a lag. The Big 3 owe auto suppliers around $10 billion for parts already delivered. These suppliers need payment soon to avoid their own bankruptcies - payment they won't receive with a Big 3 collapse. If many suppliers go bankrupt, presumably parts will become more expensive for all domestic carmakers, including the Japanese companies, leading to more layoffs across the industry. All these layoffs - a number potentially around 3 million jobs - represents a significant drop in aggregate demand within the entire economy, and puts even more pressure on state and local governments already struggling to raise revenues, to say nothing of unemployment insurance. The bottom line is demand is not constant. A Big 3 failure would push demand down in the form of people who can't afford things because they don't have jobs. That can cascade in unexpected ways.
I find it interesting (but not surprising) that nobody with clout is considering the possibility of a bailout for those suppliers, so that even if the Big Three deserve to go under the chain-reaction effect on the economy can be cut short.
I don't see how the suppliers are irreplacable. It is probably easier to start a business making auto parts to fill the demands than it is to start a business making cars.
They can be replaced, but they will not be replaced by US companies. The south spent about 50k / worker to get Honda and others to start building cars in the US but much of Honda's labor force is still out side the US.
You can't just juggle the variables like that because there are discontinuities and nonlinear effects. Industries interact with each other.
What is happening to auto is mostly caused by 1) the financial crisis making credit scarce and 2) a huge drop in demand (30-40%) that no industry could sustain
For a "elderly and weak" patient such as auto, this is too much. Fine. But what happens if auto goes down, which the OP is celibrating? What other weak or newly weakened sectors does it take down with it? Btw, chapter 11 is the best case, it could go chapter 7. We don't know.
Well, it wasn't caused by those factors, only accelerated. They've been struggling for a very long time. Toyota is sustaining the drop just fine. If GM had Toyota's good will, brand image, and cost basis, they would be too. They need that to compete in the long run.
And they've done a good job of working on lowering their cost basis over the last 5 years, along with the Unions, but they've still got a long way to go and are progressing slowly. Without serious oversight in the bailout it's just throwing money down a well.
Or so goes the theory. You can choose to believe it's wrong (and you may be correct, it's a complex issue) but it's disingenuous and mean-spirited to say that the people against it are happy about job losses. They're happy that a bill that they believe is throwing money down a well and only delaying job losses didn't pass.
haha. Well, I think its mean-spirited to celebrate the demise of an industry that employs 3 million people, with no mention of the human toll involved in these transitions.
And I think its disingenuous to claim that I said others are "happy" about job losses, when I said no such thing.
My two points were 1) this is bad for the economy short term, potentially leading to further trickle down effects, and 2) the response of "meh, its just optimization" to the human suffering is not indicative of a society I am proud to live in.
You can't artificially prevent "human suffering" through economic ignorance. I appreciate the point, but don't see the bailout and human suffering as the only two choices.
One other possible option is for the government to spend a fraction of this money to help people suffering by the collapse of the US auto industry as a buffer until (likely foreign) competition moves in and takes its place.
If you see this as simply the acceleration of the inevitable (as I do) the argument you are making for a bailout is akin to saying we should support any industry that is no longer economically viable just to keep the people from having to suffer job loss. This is not a sustainable long term strategy. At some point people must move on. If this means acquisition of new skills in order to most efficiently re-integrate into the economy than society should help people who unfortunately lost their jobs in attaining these skills, but it is the wrong decision to prop up failing companies in order to help their employees, because at some point this ceases to work. There are more efficient uses for capital that help more people in the long term.
"One other possible option is for the government to spend a fraction of this money to help people suffering by the collapse of the US auto industry as a buffer until (likely foreign) competition moves in and takes its place."
I think this is the relevant question. Is government money more efficiently spent propping up the auto companies a little bit longer, or giving it directly to all of the people laid off after the auto companies go under? As others have described in this discussion there is a real possibility of damage quickly spreading to other parts of the economy in a downward spiral if the automakers go down. So there might be a lot of people in need of that "fraction" of the money needed to keep the auto companies going a little bit longer.
The decision rests on how we weigh the specific costs and risks involved for each option.
Most are not celebrating the demise of the industry, except maybe Toyota shareholders. They're celebrating the non-passage of a bill that wouldn't do anything but slightly delay the demise of the industry, while costing a lot of money. They're not dancing on the grave of an industry, they're dancing on the grave of a bill. It's two very different things. I guess maybe you're not mean-spirited and are just not understanding the difference.
I think even they are worried about the possibility of their suppliers going under, and the damage that could be done to the economy in general by the Big 3 disappearing.
I don't know why you are speaking for other people. The OP I was responding to was clearly talking about the industry, and presumably those upvoting agree with the sentiment.
The sentiment was "thank god the industry is finally allowed to die", not "thank god we are not wasting money", which suggests more of an emotional dislike of the auto industry rather than a dislike of this piece of legislation.
The OP said he was glad the bill failed because he feels the market can work out a better solution. You brought up the whole dancing on the grave of people's jobs thing.
He wasn't saying he was happy about the loss of jobs. The loss of jobs is coming one way or another (or so the economists I've read seem to think). Chapter 11 gives them a chance to at least end up viable in the end, creating more jobs in the long term.
He is happy that we aren't throwing money down a well. Or that's how I read it.
What is happening to auto is mostly caused by
1) the financial crisis making credit scarce and
2) a huge drop in demand (30-40%) that no industry could sustain
If this were true, all auto makers would be going bankrupt. But, it's only GM and Chrysler. The well-run auto makers need to expand, the badly-run ones need to contract, and we need new entrants into the market. I don't want the industry to be destroyed, but change is inevitable.
I think it has to do with a deep-seated desire for complete self-sufficiency. The ability to create things and not just perform abstract mental work or do service jobs is a key symbol of that yearning.
The USA started out as a colony and had to fend for itself. That mindset has not left.
The executives and the union bosses, sure. But the people who are gonna suffer the most are the 1) run of the mill workers, 2) the contractor subeconomy, and 3) the rest of us
In a good economy, sure let them fail. Though I find the lack of consideration and compassion for the human pain this would cause pretty appalling. "Yea, lets optimize them away" is not an attitude we need more of in this country.
Perhaps for you. For others, its about putting abstract ideas and free market worship ahead of real people and real consequences to these abstractions.
You're running on the unstated assumption that the bailout will work. This is not safe to assume. Tossing people out on the street can still be more merciful than bailing them out, if the bailout fails and you still toss them out onto the street, only into a worse situation. Or, if you further distort the economy to bailout the poor auto workers, you may toss out millions of other people onto the street instead, only not in one recognizable group.
The idea that this bailout is free, harmless, and guaranteed to work is wrong on three counts. It's not a choice between "Save their jobs" and "heartlessly cut their jobs", it's a matter of figuring out where the pain goes and how to minimize it, and there are more stakeholders here than just the autoworkers. Raising taxes to save the autoworkers will drive other businesses out of business and drive other taxpayers over the edge into bankruptcy, and the fact that they are not easily visible doesn't make that less true. Failing to raise taxes means that much more debt, which has its own consequences. (Regardless, you can't get away from opportunity costs.)
I believe in free market optimization precisely because I believe it is the most merciful and the best for the autoworkers and everybody else in the medium and long run, and the more you dick with the short run by stealing money from the productive to pay for the unproductive, the worse the medium and long run get.
The solution is pretty evident: help out those who need it with some money from the government, health care, retraining and so on. I.e. "save people", not "save jobs".
Fake jobs kept afloat through government spending and therefore funds from taxpayers is even worse in the long run than jobs lost now because at least those people now out of work can find other gainful employment where they are actually needed. Over the long term (which in this case is anything over 3 years), its far far better that the big 3 go bankrupt now and fire a large portion of their employee base than for them to stay on a zombies on federal life support and continue to drain the economy forever. Remember, government financing isn't free.
Toyota/Honda/Kia/Hyundai/Nissan and friends could scale to replace them, especially given the current meager demand. Those guys already have lots full of cars they can't sell.
They won't have the same level of employment (or at least salary) because that level is what makes the big 3 unviable. But that contraction is due one way or the other, and the market will make sure it happens whether there's a bailout or not.
American car companies are simply paying employees more than they're worth. Guys are getting $70k a year to pull levers. You can't spend $15 billion to correct that.
Lotus builds the whole car (in England), and provides almost everything except the drivetrain, which Tesla ships to them. Most significantly Lotus provides the bonded aluminum chassis, which is still one of the lightest, strongest chassis ever built.
While I generally like unions, in this case no matter how much bailout money the US auto-makers get, they're headed for bankruptcy unless they can bring their labor costs in line with those of foreign firms. UAW, if you're listening, you have two options: get off your rump and drive the wages up at Honda and Toyota (unionizing their plants) or resign yourselves to never having any say in anything ever again.