I do so hope that US newspaper commentators have found the old Motown band's name of some use in writing headlines about the auto industry lobbyists who seem to be doing well in persuading Congress to pony up billions of US taxpayers' money to support their ailing, low-prospects industry.
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The Detroit Spinners
I think the bailout prospects are dimming. The more I'm reading, the more my personal view has changed. I think some form of bankruptcy (Chapter 11, I think) is what's going to be needed to get out of the wage contracts, pension liabilities and long-term healthcare costs. The government is going to have to assume these eventually. Cost per hour at the big three - including wages, liabilities and obligations - is about $76 an hour. It's $36 to $38 at Honda and Toyota. This is untenable. The structure needs to change, and the bailout isn't going to do that. -
The Detroit Spinners
They were just called The Spinners in the US, but we did listen to The Mission UK, the English Beat, and I think also The London Suede.Comment
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The Detroit Spinners
I was persuaded by the bankruptcy argument too, but I've also read the following counter arguments:
Nobody will buy a car from a bankrupt company, so there won't be any income coming in while the company is restructuring. The idea is that buyers must have faith that the dealership will be there in the future to fix their car. I'm not sure I buy that. As far as I can tell, the future of these companies is alreay very uncertain. How could it be any worse?
The sort of loans that Chapter 11 companies usually get are not going to be available, so their only choice will be liquidation. That might be persuasive.
But I don't see the point of just giving an insolvent company money to pay its interest for a while longer.
I discussed this yesterday with a colleague who is from Detroit. She realizes that it's terrible, but she didn't seem willing to accept that the union is going to have to give up a lot in order for those jobs to continue to exist at all.
I'm not a union person and I didn't grow up in a union town, but I am sympathetic to their plight, I think. I understand why UAW is afraid this is going to break their union, but I don't see any way around that at this point.Comment
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The Detroit Spinners
Yeah,it's a shame, don't you think.Comment
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The Detroit Spinners
the detroit firms aren't the only ones spinning - james surowiecki deconstructed the $76 an hour claim in a recent column, pointing out that that figure includes all the benefits GM pays retired employees and other expenses unrelated to direct worker costs.Comment
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The Detroit Spinners
I think it was crucial for Ron Gettelfinger to be the there getting reamed by Congress as well, because I think the UAW has to be a huge part of the solution, whatever happens. The CAW guy was on the CBC yesterday going on about how it's not labour costs that are the problem, but 'protected foreign markets like Korea and Japan'. Oh, yeah, that's what the problem is. Those crazy Japs, not being able to buy bloated SUVs and oversized 22 mpg. sedans. Finger right on the pulse.Comment
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The Detroit Spinners
Garcia, absolutely. But those costs are still built into each car. And the off-shore based competition doesn't have them. Instead of defined benefit pension plans, they have defined contributions, etc.Comment
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The Detroit Spinners
We had Bush X, when everyone else had Bush.The Mission UK, the English Beat, and I think also The London Suede.Comment
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The Detroit Spinners
From CNN.com
Oh, 25 million? Hell, yeah, we've got that for ya. We thought you said...Reid and House Speaker Nancy Pelosi said in a press conference that the Big Three automakers -- Ford, General Motors and Chrysler -- had failed to convince Congress that they had developed a viable plan for the $25 million they are requesting in bailout funds.Comment
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The Detroit Spinners
"The CAW guy was on the CBC yesterday going on about how it's not labour costs that are the problem, but 'protected foreign markets like Korea and Japan'"
Did he really say that? Good God.
WOM is right that what matters for this discussion is the total cost of the workers, not just their wage. However, I think a lot of people have got the impression that there are autoworkers making $76 a hour, which would make them rather unsympathetic.Comment
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The Detroit Spinners
He did, indeed. I had one of my crazy-old-man yelling at the radio moments, too.
I think - but I can't quite quote him exactly - he even used the 'flood our market with low cost imports' argument, too. Notwithstanding the fact that the top-selling 'import' cars are all built on North American soil, and mainly in the US and Canada (see Corolla, Civic, Camry, Accord, et al). The Mexico thing is a big, red herring.Comment
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The Detroit Spinners
There's something like a million jobs that are dependent on the Auto industry, not just the carmakers, but all the associated industries like parts makers and suppliers. A lot of those jobs are in states like Ohio, so any major shutdowns in the auto industry are going to have a big ripple effect, political and economic. Any huge job losses will be a black eye for Obama, so some kind of government intervention is inevitableComment
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The Detroit Spinners
Absolutely. But their problems run much, much deeper than just a short term need for cash. Whether bailed out or restructured, the job losses will have to be massive. Relieved of the pension and healthcare burdens, a much smaller Big 3 could thrive. No doubt about it. The crucial point is getting them to make those big changes, and I think that has to happen through either bankruptcy protection, or the 'strings' attached to the public money.Comment
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The Detroit Spinners
In normal circumstances I'm basically a let 'em fail guy - those badly run companies have been kept afloat far too long and in terms of the bigger picture (ie climate change) are part of the problem. But in addition to the arguments Reed cites, there's also the one that throwing upward of a million people out of work, many of whom work in one already pretty depressed city, in the middle of the worst economic crisis since the 30s, might not be the best idea. Unless we've got some idea what we're going to do about getting those people back into work, we shouldn't be too hasty to bankrupt them.Comment
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The Detroit Spinners
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The Detroit Spinners
Bankruptcy wouldn't necessarily put all of those people out of work. I'm not an expert, but as I understand it bankruptcy isn't necessarily liquidation. Under Chapter 11, they could "reorganize" and write off some of their debts, equity would be flushed, and then the creditors would own the company and give it new management and try to make a go of it.
A ton of people are going to lose their jobs either way, but if the companies survive and, hopefully start making cars that people actually want to buy, the not as many people will be quite so screwed over the long haul.Comment
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The Detroit Spinners
Yeah, but the point of the arguments that you cited is that Chapter 11 isn't viable and Chapter 7 is the only way to go. I'm not familiar with the mechanics of debtor in possession financing, but given that perfectly solvent companies can't get credit at the moment I can readily believe it won't be available.Comment
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The Detroit Spinners
Well, I guess there might be some way for the government to help them do Chapter 11 rather than Chapter 7.
Everyone seems to agree that there needs to be a massive reorganization/restructuring. I agree with the Republicans that just throwing $25 billion at them isn't a good idea if they're oging to be right back in this situation again in the near future.
It seems like they're headed to a plan where the government gives them a bunch of money but also tells them what to do. If that's the case, why don't we just nationalize the fucker and be done with it.
I know Republicans (and others) will shit a brick at the thought of nationalizing the car industry, but presumably it would just be temporary.Comment
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The Detroit Spinners
Oh sure. I'm not saying just throw $25bn at them with no strings attached, but that said as long as we get the $25bn back, I do think just tiding them over serves some purpose.
It has been suggested that the govnerment provided the DIP financing for a Chapter 11, which may work but frankly, given how many times the airline industry has been through Chapter 11 without any noticeable improvement in efficiency, I'm not sure what the point would be.Comment
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The Detroit Spinners
Yeah, but airlines and cars aren't the same so maybe the outcomes would be different.Comment
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The Detroit Spinners
Of course, but you can't deny there are some pretty strong parallels between the recent histories of the US motor and airline industries. Legacy labour cost burden, reliance on protectionism and subsidy, reluctance/inability to adapt to high fuel prices, focus on domestic markets at the expense of global ones, etc.Comment
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The Detroit Spinners
Yeah.
I guess the difference might be that the airlines are hindered by the shitty obsolete air traffic control system and inadequate capacity of airports.
The American auto industry has, apparently, gone out of its way not to create more fuel efficient vehicles. The airline industry hasn't, to my knowledge, tried to make the airplanes less fuel efficient.
Another difference is that regardless of anything else, there is still going to be fairly high demand for air service to and from American cities.
A car can be imported. A flight from Chicago to Boston can't be.Comment
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The Detroit Spinners
Yeah, I'm not a fan of seeing them enter bankruptcy. I'm just fairly convinced that it's the only way they'll be able to make the necessary, drastic changes. I mean, I can't see the US gov't voluntarily taking over the pension and healthcare liabilities, but I'll put $20 on that happening before this thing's all over. There's simply no way to build cars profitably with that kind of rock hanging around their necks. And it'll also give them the chance to shake off a lot of bad UAW deals they've made over the years. And a bit of debt.Comment
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The Detroit Spinners
This is a very difficult problem and (I'm afraid) an example of the kind of situation that the Obama administration is going to have to deal with some regularity, as what was a bad situation under Dubya was simply allowed to get toxic through a combination of neglect, avoidance and bad policy decisions.
I'm not sure what the answer is, but am leaning towards either bankruptcy or highly conditioned bailout, even though it is far from certain that either would "work". A major challenge to any analysis is the fact that it is very difficult to take anything Detroit says at face value, given their track record of deception.
There are parallels between the airline industry and the automotive one, but there are also three important differences. The multiplier effect in terms of employment is significantly higher for the auto industry, and those ancillary jobs tend to be both relatively high-paying and geographically concentrated in a way those of the airline industry are not. Second, warranties and financing arrangements are massively more important in the auto industry than they are with airlines. Consumers don't finance plane tickets, nor are they covered by multi-year warranties. Finally, the track record for airlines successfully emerging from Chapter 11 is better; anyone re-reading the initial debates about the likes of Pan Am, Eastern and TWA would find them more than a bit similar to the current discussions about the Big 3.
That doesn't mean that Chapter 11 should be excluded at the outset, but it does mean that the analysis is more difficult than that for airlines.Comment
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