You can prop up these failures in Detroit, but you can’t make people buy their awful cars.

The automakers and their suppliers have a critical credit-based relationship. The argument is made (and I cannot judge it) that if GM goes bankrupt the suppliers will not be able to get the credit they need to sell on credit to GM. Likewise for Chrysler and Ford. So even bankruptcy can only work if there are some bailout guarantees.

As to the labor contracts: there are new contracts in place for next year. They can’t undo the retirement benefits (including medical care) for people who have already retired. This socialistic arrangement needs to be shouted to the skies, and the government (which created the union monopoly) should absorb some of it and let a bankruptcy court release some of the rest or assign it to the current workers, who should pay it or reject it by explicit vote.

After all, it is the Union that is killing American automakers.

Actually, lawyers and politicians have done more to kill the American automakers than unions. Hourly labor costs are only 10% of the cost of building a car for the domestics. The most expensive part of building a car for the domestic automakers is actually parts, the components they buy or make themselves. Government regulations and product liability costs round out the top three cost factors. Legacy labor costs may tip the balance in favor of the non-union transplant facilities, mostly in the anti-labor South (if the South is so friendly to business, how come all those textile mills closed?), but it’s the government that’s made it so expensive to build cars in the first place.

First off, whether you like organized labor or not, the Wagner act and creation of the NLRB in 1935 paved the way for the auto industry to be organized in the late 1930′s. Unions couldn’t have had as much power as they did without the assistance of politicians and government bureaucrats. With the postwar boom, by the mid 1950s the Detroit based companies were pumping out the cars. Like Bob Seger sang, “the big line moved… we met production…back in 55 we were makin thunderbirds”. The companies were making a lot of money. The the 113 day UAW strike against GM was very costly to the company and started a national recession. So the auto companies opted for labor peace to make money. Meanwhile tax laws made it better for both the companies and the UAW to negotiate over increased benefits, which aren’t taxed like wages nor matched with FICA contributions. Blame the politicians.

Today a big chunk of the cost of building a car is complying with government regulations of one kind or another. The cars must be safe and not pollute and they must get a certain fleet average fuel economy (which gave the Japanese companies an advantage because they didn’t make big cars and trucks). All the engineering to design crush sections and passenger cells, all the specialty steels that make it possible, the air bags, etcetera may be worthwhile things, but they cost money, in most cases add weight and reduce fuel efficiency.

Then there is product liability. The politicians, many of whom are lawyers, make product liability laws enforced by courts made up of, guess who? That’s right, more lawyers. Then the automakers have to hire even more lawyers to defend themselves against product liability lawsuits filed by, that’s right, even more lawyers.

While we’re on the subject of lawyers, those legacy health care costs are expensive, in good part, to testing, vetting, insuring, and defending every drug, every piece of equipment from MRIs to hospital electrical receptacles, every medical procedure and test, everything related at all to medicine against the possibility of a product liability, wrongful death or malpractice lawsuit.

So management and labor both have a role in Detroit’s current difficulties by screwing up on product and unsustainable labor contracts, agreed. But you can’t ignore the role that politicians and lawyers have in Detroit’s dilemma.

Makin’ Thunderbirds
Bob Seger

The big line moved one mile an hour
So loud it really hurt
The big line moved so loud
It really hurt
Back in 55
We were makin thunderbirds

We filled conveyors
We met production
Foremen didnt waste words
We met production
Foremen didnt waste words
We were young and proud
We were makin thunderbirds

We were makin thunderbirds
We were makin thunderbirds
They were long and low and sleek and fast
They were all you ever heard
Back in 55
We were makin thunderbirds

Now the years have flown and the plants have changed
And youre lucky if you work
The big line moves but youre lucky if you work
Back in 55
We were makin thunderbirds

We were makin thunderbirds
We were makin thunderbirds
They were long and low and sleek and fast
They were classic in a word
Back in 55
We were makin thunderbirds
We were young and proud
We were makin thunderbirds
We were young and sure
We were makin thunderbirds

Time for GOP to grow a pair.

bi-partisian support = taxpayer gets screwed, repubs get blamed.

Most of the suppliers to one of the big 3 supply the other two, and most of those suppliers have been stretched to the limit (financially speaking) by at least one of the big 3. If, for instance, GM filed for Chap. 11 or 7 and didn’t pay its payables owed to its suppliers, many of them would also have to file for Chap. 11 or 7 and would stop supplying parts and services to the other two (at least until they had debtor-in-bankruptcy financing and decided to not reject contracts). That would mean the other two of the Big 3 would be unable to timely get parts and services from a large part of their supplier base (as they share many of the same suppliers) and would probably have to declare Chap. 11 or 7.

I worked in the Detroit area for a supplier to the Big 3 for about 2 years before moving six months ago, BTW.

it’s a meaningless number regarding “the program”. People don’t know the what “the program” is.

Who wants the auto companies to go under?

All the majority number means is that the public would like to find a way to keep the Big 3 alive.

I am strongly opposed to the Federal Government owning a stake in ANY private company……
Let the companies fail and re-structure under Chapter 11 …….
SeniorD on December 9, 2008 at 5:41 PM

You hit the nail on the head. This is not the role of Government.

The GOP is so freaking spineless, they will look at that 46% poll and shit their pants.

angryed on December 9, 2008 at 8:06 PM

Congressmen are like diapers, the should be changed often and for the same reason.

Let’s say they filibuster it. The market will immediately tank, throwing everyone into a panic

And we know this for sure just how? Would it be they same way we knew everything else?

- Terminate the UAW contract and start over on labor costs. No more than the average of the foreign manufacturers wages and benefits adjusted for cost of living differentials. Inflation adjusted increases only for the next five years or until the company returns to consistent profitability.
- Cut senior management compensation packages. Leave their salaries alone but eliminate any possible bonuses, golden parachutes, etc.Bonuses can be reinstated based on actual financial performance. Terminate redundant management, 2 weeks pay per year of service, one year of health care or until they get another job
- Close any obsolete plants, pay off labor at some rational basis, no more than 2 weeks wages for each year of service, health care for no more than a year or until they get another job
- End the job bank program, no more pay and benefits for not working

Once they’ve tried that, then come back and, if they have made a reasonable effort to cut their ridiculous cost basis, we can look at some bridge funding to get them past the short term rough spots while they wait for the cost reductions to pay off. Loans only and to be repaid within five years of returning to consistent profitability. No government ownership stake, no government management, no government oversight of company operations other than monitoring financial performance and labor/management costs.

They are thinking of all the other jobs that just went away and never came back at any wage. The midwest has seen a lot of that in recent years. People are scared.

Sure, unions have priced a LOT of our industry out of the market. But cars are selling. Not as many as they would like and fewer from them then they want. But if all three went belly up, that wouldn’t affect demand by much. Other agencies would need to make the cars that Detroit wasn’t. Plants already build and set up would have value for this. More that way than as empty lots. When the creditors assumed control, they would need workers. Just not as many or as over paid.

In fact, at lower wages, they could afford to higher more workers. Union members would lose but non-union workers currently shut out could well gain.

TomLawler on December 9, 2008 at 7:03 PM

Good question, for awhile it was called a bailout, but now they have switched to a “loan”…I do not know what assets we are loaning against.
You are thinking of Chrysler, one company, in a robust economy…this is much different. I don’t trust our elected to use the right name or do the right thing.
Chrysler changed management, changed a lot of things, I do not see happening in this scenario…

much of its supply chain.
jim m on December 9, 2008 at 5:47 PM

Do you know what the “supply chain” is, or do you just regurgitate words you see and like?
I assure you they do not share their supply chain…

in our history we have given LOANS to the auto industry. with favorable results.

would i be in favor of giving a loan? sure.

it just seems to me that the WORD LOAN = BAILOUT

bailout has a bad conutation . the press calls it a bailout.

do i think that the auto industry should get special help. no. but if in fact if tax payers could make a little why not.

jim m on December 9, 2008 at 5:47 PM

So, you don’t see how you just contradicted yourself?

Count to 10 on December 9, 2008 at 6:25 PM

that is way above his thinking…he would never be able to grasp that logic. Hence he is a liberal…he proves it with every post.

If it was that simple I don’t think there would be a debate. I think the fear is that millions of people will lose their jobs in the middle of a recession, making the recession worse for everyone. I think that is what is worrying people. They are thinking of all the other jobs that just went away and never came back at any wage. The midwest has seen a lot of that in recent years. People are scared.