Can we save Detroit?
Promoted for discussion by Brendan
Nancy Pelosi has asked the Big Three automakers to present a plan by December 2 .
Pelosi, D-Calif., laid out her expectations for an auto bailout plan, emphasizing that "it must be innovative, accountable and viable."
The decision to call the House back into session next month does not depend on the quality of the plans offered, she said, but rather on the automakers meeting the deadline.
The Big Three can provide a plan jointly or separately, and they have three options to pursue, she said. They can use the $25 billion for advanced technology assistance; for credit assistance to their finance arms to allow them to sell more cars; or as a cash infusion to free up liquidity.
I like the sound of that. All we need is $25 billion and a plan, and Detroit will be healthy again. Because that is what she is assuming with this statement. As if the Big Three have been waiting for Washington to tell them this simple solution to their troubles.
Democratic leaders demand the companies demonstrate financial viability and accountability, but appear to be giving Detroit wide latitude on explaining how they would use bailout money to reverse their disastrous financial slide.
"It's another opportunity for them to say to the American people 'give us your money because we'll put it to good use,'" Pelosi said.
"This isn't to be life support for three months, it's about viability for a long time to come," she said.
I would venture to guess that these companies have been striving to demonstrate financial viability for some time now. Their success in doing so is reflected in their current stock prices.
So what, exactly, happens when that $25 billion is used up? I don't see much hard analysis of that very likely outcome. Instead, we get just a lot of wishful thinking and naive statements, and a huge price tag.
I am not unsympathetic to what failure of these industries mean. But I think this congressman put it pretty well
"What we're doing is asking the Speaker of the House and Sen. Reid to decide whether or not these auto companies are viable. That's not the way this ought to work," Rep. Tom Price, R-Georgia, told FOX News on Friday.
He and other lawmakers are advocating for the auto industry to fall into Chapter 11 bankruptcy, which allows companies to restructure.
"That's the tried and true way to do it, as opposed to having Congress do willy nilly and throw more money at this problem," Price said. "That's not the solution."
Like it or not, bankruptcy IS the way something like this should be handled. Pehaps even with some sort of Federal assistance on specific items once the restructuring plans are worked out, with the specific goal of smoothing the transition for the affected workers. But anything we do now, to prolong this, is simply delaying the inevitable, not preventing it.
If you disagree, and think Washington can indeed "save" the auto industry, I'd be interested in hearing your arguments for that.
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Not taking a position here yet, I need
to learn more about the specifics, but what about the argument that due to the credit crisis a bankruptcy would not result in the normal restructuring but would instead wipe out everything?
This sounds like something your idea of Federal assistance on specific items could help with, but then the question becomes is it more efficient (factoring in lost wages, etc) to preserve the company? And that depends on whether there is a sound business model going forward.
There could be a scenario under which GM is profitable, but I believe it would require some kind of health care reform that will decrease their costs in that area, and probably also some kind of commitment to alternative fuel, ala the "health care for hybrids" plan that Obama has pushed in the past. Maybe bailing out the automakers is part of a Democractic strategy to push forward on overhauling health care and taking significant steps to reduce our consumption of oil and all the associated drawbacks that come with it.
(One minor argument: I'm not convinced, watching the market recently through the eyes of an admitted amateur, that the correlation between a company's viability or financial strength and stock price is as strong as is sometimes assumed.)
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
Detroit's problems go deeper, IMHO
I guess it boils down to what the real problems are -- is Detroit in this situation solely because of the credit crunch, and would this bailout be the best way of ensuring their viability, or are there other, more effective options. I personally believe that Detroit is in their current situation based on all the past decisions they have made. Other automobile companies are not asking for bailouts, yet they are facing the same economic issues as Detroit, so to me, it is difficult to argue that their current situation is solely due to the lack of credit available in the current market.
Bankruptcy would allow Detroit
to address their healthcare costs.
A bankruptcy judge would be able to void some of the contracts that Detroit can no longer afford. Or, the swift implementation of some form of nationalized heathcare would allow Detroit to quickly shift their retiree heathcare costs to the government, assuming that labor rapidly agrees to accept such a transfer.
But a bailout would not address the underlying issues, from their basic cost structure to the readily apparent marketing missteps that make their product less desirable than their competitions'.
The idea of the efficacy of a federal bailout implies one of two things: either that the entire problem with the industry is due to extraordinary market forces that can only be survived with government intervention, or that the strings attached to the bailout will somehow fix the other problems (bad management, unrealistic labor contracts, etc) that affect the industry; that Congress can "make" these companies better.
Can some of the work involved in ensuring the viability of these companies be handled by Congress? In other words, can Congress act in the role of bankruptcy judge? Theoretically, I suppose it could. But should they? and why? Perhaps the government should act as the lender of last resort, but to preempt the entire reconstruction process the comes from a bankruptcy, at such a price tag, seems to be a poorly thought out political reaction. Obama pledged, what, 150 billion over 10 years to help develop alternative energy---which could work out to 15 billion a year for ten years---yet we are willing to shell out 25 billion right now just to pay their current expenses?
And as far as stock prices, companies are often over-valued or undervalued, but when stock essentially falls to about a dollar, it is a sign that people who invest have decided that the company's financial health and business model aren't worth risking any money on. And their bond status (bonds being in theory at least somewhat more secured than stocks) have been in junk territory for some time.
A lot of that "hourly" cost is obligations
incurred by the company towards previous work
, so-called "legacy costs" that eventually act as a brake to established companies in any field. For example, one of the reason newer airlines can compete with traditional powerhouses is that they don't have as many obligations towards retirees.
Seems to me that the benefits provided by that previous work have already been cashed in by the company, and accrued to shareholders, management, and yes even taxpayers. At the same time most of the poor decisions that have led to the companies' current woes can be laid at the feet of shareholders, management, and yes even taxpayers. So IMHO any action now should be weighted towards protecting the interests of the workers (which might involve a balance between short-term and long-term). Congress might be able to act there in a way that a bankruptcy court wouldn't.
Anyway, all that is by way of saying that I think a lot of this is not specific to Detroit. It's not solely related to the credit crunch (although that does make it more urgent), but it does point out the thin margin for many established companies, and addressing that will require fundamentally rethinking how we provide health care and perhaps to some degree retirement. So you're right on two counts: a bailout on its own doesn't solve the problems particular to bad business practices by the automakers, and it doesn't solve the underlying demographic issues impacting costs. Maybe it could make steps in both directions with proper design, however. If we're covering their expenses we could mandate a lot of useful conditions.
I guess we'd want to see the specifics of the plan...
Edit: I see Adam made some similar points below.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
presumed monopoly
I don't think that legacy costs are inevitable. They reflect bad decisions made by management (and union negotiators), apparently done on the presumption that the company could function like a monopoly and would never face serious competition. My impression is that companies have gotten away from legacy costs by switching to defined contribution retirement programs, and avoiding defined benefit retirement programs.
Maybe the big three figured that they'd always have more clout in DC than any possible competitiors.
In my expert opinion, you should do what I tell you to do.
a question
pension funds are put aside and managed for growth, correct? So what's wrong with having an fund that is an investment fund, that is well managed (or should be) to provide retirement benefits to those who contribute. Nothing that I can see.
Companies have gotten away with retirement costs by offering stock options at discount rates, buy one get one free.
The emphasis on stocks as implied 'infrastructure' or added value to a company has gotten out of balance. What adds value to a company is good workers, that produce a good product. Stock produces nothing but risk, as we see in today's market. You can't run a company by DOW only, which is how too many companies have been beefing up the bottom line, seeking only to meet the numbers for the quarterly stocks to go up by a mandated %.
I'm only half stupid
if that were true, we'd have no problem
I don't know the details of these funds, but if your description were true, then the financial problems of the big three would have no connection to the pension system--they would put money in as the work is done, and have nothing more to do with it.
The fact that the pensions are connected to the financial health of the companies suggests that the pensions rely on the company for their cash flow -- either direct contributions, or through stock ownership concentrated in the company.
Update: From Brendan's link:
So no, the money is not put aside. It comes from current revnues, and seems to be paid out immediately.
In my expert opinion, you should do what I tell you to do.
Not inevitable, but typical
However, I gather that the UAW already agreed to renegotiate future benefits packages to reduce the problem of legacy costs going forward. Maybe too little too late, but we'll see.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
How much of the 'cost' is obligations
to CEO bonuses
So while the CEO's double their pay they ask for labor to cut theirs? Because.... exec's making more money gives the company that competitive edge?
I'm only half stupid
There are so many myths that are rampant
about the Auto Industry it does not serve the public well.
The bottom line for me, is that in this country, there has been an all out attack on labor, specifically unions for a long long time.
Did you know that Union Workers in Detroit operate on a two-tiered system and that many of the workers get paid $14 an hour?
Did you know that Toyota is suffering from a drop in sales, just like GM.
Did you know that people need trucks and Chevy makes a damn good one. Change the oil and rotate the tires and you will get 250,000 miles maintenance free?
Absolutely Detroit should be bailed out. Absolutely.
The auto industry should be entitled to a bridge loan from the already mandated $700 Billion dollar bailout, but idealogues still prevail that only the banks deserve the money.
The auto industry is suffering heavily due to the credit freeze and should be entitled to a bridge loan from King Paulson. Why they refuse to give Detroit a relatively small bridge loan is beyond me.
As far as the stock prices, you can hit a company and bring it's stock down to nothing as a hedge fund, by using massive amounts of money to short the stocks.
The life long dream of Republicans, is to sabatoge labor, screw the unions and relocate the auto industry in the South.
There are compromises that can be made, but allowing Detroit Auto Industry to fail is not one of them.
You might could get away with this in normal times, but these ain't normal times.
Bankruptcy means you turn pension funds over to the PGA or the taxpayer. The states have to come up with unemployment benefits. You lose the buying power of the consumer. More foreclosures would likely ensue. For 25 bil you can keep three million people in their jobs, the loss of which would likely guarantee that this country moves from a recession into a spiraling depression.
I'm only half stupid
government working at cross purposes...
Well, they've basically accomplished it, right? They wrote tha laws (right to work) that would make this happen, and now that it is happening we want them to throw billions of dollars at avoiding the inevitable?
I'm sympathetic to the idea of labor unions, but the current union system in the US is BS. I wouldn't mind if it collapsed.
In my expert opinion, you should do what I tell you to do.
Who stands up for the worker
if there is no collective bargaining power?
While unions might could use an overhaul, and become more effective and you could say they have too much money....... how can you stand up for your rights against a corporation that has godzillions of dollars to shove the worker aside.
The real estate group has lobbyists, multi-million dollar corporations have lobbyists, why not the worker?
What is inevitable? Businesses can update their business models as can unions.
My husband as a member of the carpenters union is trained, skilled and knowledgeable. His knowledge and experience saves his company money. Everytime they need to hire day labor, or temp workers, the awful standards of work they do ends up costing his company more money due to shoddiness of workmanship. They scratch floors (expensive) break doors, put things on backwards. More than half the work of the temp laborers has to be redone, or paid for in replacing damaged goods.
Quality of workmanship, and compensation for that quality saves companies money in the long run.
As an aside, I see this battle as the big one that will be fought in the short term future.
I'm only half stupid
the government has killed unions
I have no problem with unions, but it seems that the main American unions have become centralized, bureaucratic mirrors of the corporations that they deal with. I think that their goal should be to eventually take ownership of the company -- short of that, they will eventually be outcompeted by a non-unionized company. As they currently operate, they get their employees some short term benefits, create an unsustainable partition of power between management and union reps (which the union will eventually loose), and create another level of bureaucratic parasitism in the form of the union administration.
I was also referring to how unions are almost dead in the private sector but thriving in the public sector--where they simply interfere with the provision of "public services".
The rust-belt automotive industry is dead. The southern, anti-union automotive industry has fewer expenses, and a $25 billion bailout won't change that. I don't think there is any possible restructuring of the Big Three (short of Quaror's fantasy of transferring ownership to the employees) that could allow those workers to keep their benefits. Either they will abandon their benefits, or the companies will fail. The unions simply don't have the (industry-wide) bargaining clout that they used to have.
In my expert opinion, you should do what I tell you to do.
What a lovely dismal alternative
Abandon your benefits. End of story.
The southern anti-union automotive industry is subsidized by Japanese tax $$ to support American workers. The South gleefully snarfs up taxes paid by Japan, for competitive advantage so big business can wage it's anti-labor, anti-union campaign.
Of course there is a way to restructure the industry, it just won't be easy.
I'm only half stupid
How do you compete?
Unless there are drastic changes to American labor law, that is the end of the story.
How are the big three supposed to compete with companies that have half the labor costs? Anything that the big three do to decrease costs can also be done by the foreign companies also...except cutting those labor benefits.
How are they supposed to sell cars at a price that will support those benefits?
Do you have some reason to believe that the new government will eliminate the "right to work" clause from American labor law, and place heavy tarriffs on cars imported from cheap-labor countries? If they don't, and the detroit unions don't conceed something big, then the $25 billion won't accomplish squat in the long term. The only hope is that they have already conceeded enough for the long term viability of the big three.
But the basic point is that they have lost control of the American car market -- their "business model" doesn't work anymore.
In my expert opinion, you should do what I tell you to do.
I appreciate your interest
and comments, as I generally agree with and respect much of what you say. However, if you check the facts about unions, the concessions they have made to support the viability of GM, I think that you would find many many mistruths regarding your preconceived notion that it is unions that are the problem. This isn't your grandpa's union any more. GM unions workers make $14 , others make $18 an hour as do Toyota workers. Some expenses are picked up Japan's government. Japan is subsidizing Toyota in the US making it seem like cost of business is cheaper.
One of the major hangup's for GM is contracts they have with the states about how many car dealership each state must have. Toyota doesn't operate that way. The sweet deal, with tax incentives and political favors etc. John Elway now the proud owner of several car dealers in my state, as a quid pro quo, voted and campaigned for GWB. It isn't (just/only) the unions.
I agree that generally speaking all mega- corpts need to overhaul their business models. The rush to grow at 14% per year is unrealistic and has been facilitated by the crazy credit and lending markets.
I'm only half stupid
I don't think I ever said that unions are THE problem
I'm not griping about the unions. I think I kept a pretty non-judgemental tone in the above thread, I'm just describing the feasability of certain tactics or business models. I even mentioned a number of legal changes that could make the current unionization model viable, but I don't think that those changes are likely to occur.
I definitely wasn't saying that those poor billionare corporate executives are being held hostage by the unions.
In my expert opinion, you should do what I tell you to do.
BTW, I recognized the concessions
I wrote:
Likewise, on the issue of Japanese subsidies for Toyota, do you believe that there is any reason that this will change? Or do you just think that this should be balanced by equal subsidies to "American" car companies?
In my expert opinion, you should do what I tell you to do.
I think
that health care reform would go a long way in cutting costs for car companies. The business model that is our health care system is pathetic. Too many middle men, too much paper work, too many insurance companies dictating medical practice, and too many drug companies involved. GM claims that this aspect of their business, which they include as the legacy costs, is too expensive to tolerate. Yet Toyota has the Japanese govt subsidizing their health care costs. So yes, if the US govt would subsidize the health care costs for GM, that would make the playing field more level. I am not sure this is the right solution, for GM, but the 'legacy' costs presented by Toyota vs GM are falsely represented.
All in all my prescription is to drastically change the business model in the US, with a more bottom up model. When a MBA gets hired to study the cost cutting measures and implement change that has never ever worked on the ground floor, they often have strange views of efficiency.
Sort of like a restaurant with three managers for every waiter.
I'm only half stupid
further
I would say that it isn't the government, but special interests that have infiltrated the government that are at cross purposes.
Specifically huge numbers of lobbyists with metaphorical suitcases full of cash to 'bribe' or 'donate' to Congress. These groups of monied lobbyists (a union of sorts) represent and sometimes write the laws to serve their own interests and give themselves a competitive advantage that serves their own special interest need.
I'm only half stupid
government was built by special interests
Special interests built the government. They never had to infiltrate it -- government exists specifically to serve them. This is evident both from the structure and origins of the state.
In my expert opinion, you should do what I tell you to do.
Then it should be
obvious that the special interest known as the investment banking industry has hijacked the country, by putting the US in a situation where global creditors do not trust the US banking institutions.
The largest special interest group we are now serving is the authoritarian government of China.
I'm only half stupid
financial interests have always had power
American history is full of political struggles over finance, deciding what sort of special privileges/protections are given to banks and other financial institutions. Back in colonial days, the government would imprison debtors at the behest of banks/lenders.
In my expert opinion, you should do what I tell you to do.
Look further
I fully understand and sympathize with what bankruptcy means. But my point is can this 25 billion (which is not a "relatively small bridge loan") actually make a difference for the employees you are concerned about? I say the odds are against it. It is much more likely to just postpone the inevitable while adding to our already overburdened national debt.
If jobs is your major concern, you do realize that under the terms of the bailout, jobs will be lost? They have to. The corporations are bleeding money -- they are making more cars than they can sell at a profit. Jobs WILL be lost, no matter what happens. Benefits will be lost. That $25 billion is no guarantee that those 3 million people will stay employed.
Let's say they get this, er, "small" loan. And nothing improves. What happens then? Do we fork over another $25 billion next year? Or are you going to say that the management that got them into this pickle will suddenly discover some previously unknown silver bullet strategy that will restore Detroit to long-term viability? Or that Nancy has the magical plan? (need I add the smiley? ok, just to be clear ;-} )
This is what is quaintly referred to as being stuck between a rock and a hard place. The workers are going to lose, no matter what action is taken. The companies must adapt to current market conditions. You like Chevy trucks; Ford can make good ones too. Maybe both should trim down and focus only on those lines.
And this is just gratuituous
What, don't people in the South deserve jobs too? The ugly reality is that while unions have indeed provided protections and can do good things in the workplace, in this case, they may have been a significant contributor to killing their own egg-laying goose. If given the chance, might the UAW handle past negotiations differently? Perhaps, with the benefit of hindsight.
I will politely
disagree.
First off with the statement that in relation to the 700 Billion Bailout, 25 Billion Bridge Loan by comparison is a Big Loan seems off the mark. That's like 1.2% of the allocated rescue which is in relative terms small.
What don't people in the North deserves jobs too?
The UAW has been more than willing to compromise and has done so. To say that they haven't made concessions, major concessions, is yet another myth.
If given the benefit of hindsight might the CEO's of GM and Ford have handled their businesses differently. Likely yes. Blaming the unions for the failure of the company is a misrepresentation.
In an odd twist of fate, the unions and the car companies, once dire enemies, are on the same side.
It is more than plausible that GM can outline a business plan that looks to the future, while minimizing job loss. As mentioned if GM goes into bankruptcy, who will pay the retiree's benefits? The tax payers. Who will pay the unemployment benefits? The taxpayers.
Why not give them a loan, and the opportunity to retool. More folks keeping jobs is a better outcome overall, since the tax payers will have to foot the bill either way.
I'm only half stupid
maybe they can sell the cars overseas...
The Economist reports that demand for cars is booming in BRIC
(Brazil, Russia, India, China), and there may actually be sufficient international demand (soon) to maintain America's companies.
In my expert opinion, you should do what I tell you to do.
the South has a lot of anti-union laws
The point here is that the South has laws that decrease the power of unions
relative to the northern states. In effect, they aren't playing on a level playing field--moving the industry to the south is equivalent to destroying the unions.
In my expert opinion, you should do what I tell you to do.
wrong question?
I don't have any great insights on the issue of the bailout, but I have the feeling that as long as the question is how to "save Detroit", we're just going to tie ourselves to outdated, decrepit business models--as if we could recreate the economic conditions of the 1950s.
I think the big question right now is how do we structure our institutions (retirement plans, cities, etc) around the fact that the economic world is constantly changing. Then there is also the question of how we smoothly make the transition from our old system (assuming that corporations like GM are immortal) to a new system that can transcend momentary business models and business organizations.
In my expert opinion, you should do what I tell you to do.
Interesting!
A good angle on this that I'm still pondering. I've only got random thoughts to offer, but maybe some of the first steps toward this new paradigm would include
> Uncoupling heathcare from employment
> Encouraging the development of a less materialistic culture
> Regaining appreciation for "blue collar" jobs as career choices
> Recognizing that business and citizenry exist in symbiosis, not in opposition
It's hard to envision, though. Congress's notoriously short outlook would seem to preclude them from taking the lead in something like this.
I'm not sure 4 is really true, PF.
At first glance the relationship between business and customer is symiotic, but really it isn't or at least both sides try to make it parasitic. othsides try to take as muchfrom the other as possible while giving as little as possible (assuming everyone is a good little capitalist). That's not win-win (symbiosis).
I think the most realistic characterization of the relationship between citizenry and business is "necessary evil."
I came. I saw. I posted.
Veni, Vidi, Bitchy.
Was thinking broader
Business/employee relationships certainly tend to be parastic, especially in the larger firms, but I still see some wiggle room in the business/customer relationship. While money is important, it is not the sum total of what everyone uses to evaluate their choices as consumers.
Want WalMart to succeed? Shop at their megastore five miles away instead of at the local independent hardware store down the block. You might save fifty cents, but you lose something less tangible but perhaps equally valuable. Buying groceries from the farmer's market instead of the local superstore would be another example. Or, an example from my own business: my suppliers want to maximize their profits, but they know at some point I can and will go to the competition (or cease carrying their product) if it's not profitable for me also.
Same for local government. Business' choices affect local government spending (new roads to handle the traffic created by sprawling development, for instance) and spending affects choices (tax incentives for project ABC, for example)
In any exchange between two entities, one can seek and frame it as win/win or win/lose. In my admittedly incomplete musings on his comment, I seem to have been wearing my rose-colored glasses and hoping for that win/win attitude ;-)
transforming america...
Yeah, there's probably something to that. Having healthcare linked to employment really puts too many eggs in one basket (same with company pension programs). It's especially bad if you loose your job due to disability arising from a chronic disease: you then loose the health care that helped you to keep your disease in check.
I'm resistant to state-sponsored healthcare systems, but I don't really think that a individual health-insurance market is tenable, and I don't see any other institutions (unions, fraternities, churches) that really have the ability to provide healthcare benefits to their members.
I would put the emphasis on material security rather than frivolous consumption. I don't know if you would consider that "less materialistic" or not. Perhaps it is less materialistic in that it places a low ceiling on what we expect from material goods and places surplus wealth to the task of maintaining that ceiling as a floor.
How? Would this require comparable salaries between blue and white color jobs? How would the differences in power and potential for advancement between those two career paths be equalized in a way that maintains incentives for people to do the job where they contribute the most?
I think most of us recognize that our economic (and political) relations are a combination of give and take, or symbiosis and competition. I can't imagine our current conflicts being removed without a radical restructuring of our institutions (from corporations to government). Even in the best case, some level of conflict is probably unavoidable.
It seems that all we can do is encourage trust where trust is deserved. However, we can't hesitate to remove trust from those who have violated it, or who ask for an unjustified level of trust.
I can't really see what Congress would have to do with 2-4. Let's just have them focus on 1.
Number 2 might gain some ground in the near future as a response to the current economic problems. It may also provide the foundation that we can use to address other problems (by freeing our attention and material resources to address social issues). I think that 3 and 4 may be exacerbated by ethnic and economic segregation, so maybe that would be a good place to start looing for solutions.
In my expert opinion, you should do what I tell you to do.
Politically I'm not sure the GOP can safely refuse
to bailout the big three. If they do they leave themselve very vulnerable to charges that they were willing to shovel $700 Billion to their friends on wall street but not even $25 Billion to save the jobs of tens ofthousands of ordinary Americans.
Not saying the charge is fair, but if I were the dems I'd hang it over the republican's heads like a damoclean sword or guillotine blade.
I came. I saw. I posted.
Veni, Vidi, Bitchy.
Full agreement
//
I'm only half stupid
The political damage is already done
Hundreds of billions for banks and Wall Street fatcats. Nothing but scorn for blue-collar auto workers.
qui tacet consentire
"Fairness" or functionality?
If I am understanding you, some (most?) of the support for this bailout is coming from the idea that "The fatcats got some, why not give it to the blue collar workers too."
As understandable as that sentiment is, is it (a) practical and (b) actually going to happen with the bailout?
The issue of practicality comes in with the staggering amount being requested. Twenty-five billion dollars is about half the amount we budget for the Department of Education, more than twice what we spend on the Department of the Interior, and four times what we spend on the Environmental Protection Agency. There are three hundred million people in the US. Spending such vast sums on 1% of the population with no guarantee of efficacy seems irresponsible, IMHO.
Second, if you say that this "gives some of it to the blue collar workers" then we are actually talking about many fewer workers than the 3 million number being thrown about. Your own proposals
back this up:
So, realistically, you are speaking of trimming half these employees anyway, or a third, or some other significant portion. In other words, you are stating that providing employment for another year (or two, maybe?) to three million people, and perhaps providing employment for longer than that to another million, is worth more to the nation than an entire year's worth of action by the EPA (8 billion), the Department of the Interior (10.5 billion), and the National Science Foundation (6.4 billion).
And there is no guarantee that it will stop at the 25 billion. If they say "but we just need 10 billion more, we promise" will we say no?
My position is that Detroit can accomplish exactly what you propose through the existing and proven mechanism of bankruptcy protection and restructuring. And, if they cannot (actually can not, not "but we might not") obtain stopgap financing via the bankrupcy process, then we do step in and act as their lender of last resort.
I realize I'm gonna lose this one. Politically, it is impossible to avoid doing this. But let's do it with our eyes wide open.
the bailout is for corporations, not workers
Even if the Big Treen get this bailout, and their workers (and local governments) expect to benefit, it is still worth noting that this money is going to the corporations, not the workers. It is still a "trickle down" system of subsidies.
Still, it is telling how many people place the blame on the unions...as though they were the only ones getting money from GM (GM continued to give out dividends
even as their profits collapsed). The bias is also shown in how outsiders get irritated that union workers get paid so much relative to non-union workers (but ignore how their pay compares to CEOs)--as if there is something wrong with workers using all the tools at their disposal to bargain for a higher wage.
Kevin Carson provided some good critique of this mentality in his writings -- I think they are collected in The Ethics of Labor Struggle
(to get to the point, skip to the line "Vulgar libertarian critiques of organized labor")
In my expert opinion, you should do what I tell you to do.
A bailout is necessary
But it needs to come with many strings:
1. One of the biggest problems with the Big 3 is that they have way too many dealers for way too many brands. Chevy might make a pretty good model, but they immediately dilute the brand by making a nearly identical version for Buick and another for Pontiac, etc. They do this because they promise all these dealers a certain number of new models. It's time for GM to sink Buick and Pontiac and close at least half its dealerships. Keep Chevy and Cadillac. Ditch the rest.
2. In exchange for $25 billion in bailout money, the government should acquire majority control of the stock of each of the three companies (in the case of privately held Chrysler a straight-up sale). This stock should then be transfered into an ESOP plan for the employees of the companies. Ownership of the companies would pass to the employees, providing a huge incentive for them to make sure they succeed.
3. The three companies should be forced to restructure into no more than two companies -- Ford plus a merged GM/Chrysler.
4. The Big 2 would then be given lucrative tax incentives such as a zero percent corporate income tax rate and other incentives, such as the government assuming all legacy costs, if the companies meet stringent new CAFE standards and sell at east a minimum number of these new fuel-efficient cars. In other words, if they make a very fuel-efficient car that lots of people want to buy they make a ton of money.
qui tacet consentire
That seems reasonable
Although I imagine there would be some complications to a forced merger.
Seems like with the restructuring in the financial sector we do run some risk of swinging too far towards a handful of very large companies with close ties to government, so maybe there should be some kind of sunset clause in there too for once things settle down.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
GM and Chrysler would have already merged
But they could not get anyone to finance it.
From a matchup of product lines, however, the merger that makes the most sense would be Chrysler with Renault-Nissan.
qui tacet consentire
completely incompatible with the nature of our government
Numbers 2&4 would produce quite an interesting economic model for American corporations (National Democratic Socialism?), but I suspect that it would be way too radical for our government to even consider it. Maybe Kukinich would consider it, but the capitalist elements of our government (which dominate it) would be very uncomfortable with it. I think the general taxpayer would also be uncomfortable with the government buying up these companies on behalf of their employees. It may not be any more expensive than a bailout that leaves the current ownership system intact, but I think that the radical nature of the chnge would bring much more scrutiny on the deal.
Furthermore, I wonder if the management of the big-three (or their current stockholders) would endorse such a restructuring -- since they would essentially give up everything in the process. But isn't there some sort of precedent with an airline (Update: United Airlines
?
iswas employee owned)I think this business model could be quite effective by reducing/eliminating the conflict between employers and employees, but I think it would have to be accomplished directly by the unions rather than by government.
In my expert opinion, you should do what I tell you to do.
Apropos the literal title
there's this bleak story
about an abandoned Detroit school via ObWi.
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
Some comparative numbers for all bailouts
Data seems to be swirling around teh 'tubes concerning the enormity of all the bailout legislation passed and under consideration. This of course includes more than just Detroit.
Upthread I mentioned some budget numbers
, just for comparison. But others have created some comparative data, so I'm linking it here. I make no claims as to the accuracy of this new data, btw; I would venture to guess that the values will be contested and refined and argued as time goes on.
Bianco Research is said
to have come up with this
Bloomberg
does some number crunching as well
All of this with no guarantee of results. We might as well just burn the cash.
Updated price tag estimate: 130 billion
Adding this comment just to link the latest estimates as per CNN
PF, what part of the country are you...?
...if you don't mind me asking...
Underlying all arguments against the free market is a lack of belief in freedom itself. ~M. Friedman
Houston
I think I'm the lone third coast representative here.
You know the funny thing is too...
...they're actually building really competitive, high quality products now.
I see no quality advantage for the Japanese, or even the Germans in their respective classes.
It's all a consumer confidence thing at this juncture.
Underlying all arguments against the free market is a lack of belief in freedom itself. ~M. Friedman
Oh look, he agrees with me now
Obama appears to be reaching some of the same conclusions
I did:
Even his staff
thinks so:
Finally!
Maybe a consensus will start to form around this idea and they are able keep from continually propping up these 2 companies.
Or maybe the data came in showing Obama can win in 2012 without Michgan, Ohio, and Indiana :-P
But naw, seriously, I hope they do consider the bankruptcy option.
http://wealthweekly.blogspot.com
Wii FC:2805-8311-8040-2678 Brawl: 2277-7051-2186
Let them whither
and sink into the abyss.
Healthy Car companies will step in and salvage the wreckage into something profitable when the price in right.
Under Bankruptcy, wouldn't that happen? n/t
.
http://wealthweekly.blogspot.com
Wii FC:2805-8311-8040-2678 Brawl: 2277-7051-2186
yes
...