Are UAW Union Bosses Abusing Their Positions for Pay?

[Ivan Seeking]

To bailout, or not to bailout, that is the question.

What about saving only two? I haven't heard that option discussed.

 

[turbo]

To what end, though? The top management in the big 3 have ignored all the lessons of the Japanese car-makers. Build to tighter tolerances, engineer WAY in advance of building, and re-tool frequently. I got burned by Chevy, Ford, and Buick when I was younger. Eventually, I smartened up. I bought a 4WD Datsun pickup during their first model year, bought a Nissan Pathfinder during its first model year, and bought a 240SX during its first model year. You'd have to be brain-dead to buy a major new model from the big 3 at roll-out, unless you like chasing recalls and warranty repairs.

The big 3 cannot be trusted to improve their business models if we throw money at them. I suggest that we help them by providing universal health-care coverage for all US citizens, and taking that overhead off them. If they can restructure, trim down and survive, great. If they cannot or will not take those steps, then they should be allowed to fail. In a real capitalistic system, inferior companies fail and superior companies thrive. Suppressing that correcting mechanism is unhealthy.

As an object lesson, look at Chrysler. We bailed them out years ago. They are building some of the largest, thirstiest pickups on the market today, and to avoid having to comply with CAFE standards, they successfully lobbied to have the PT Cruiser classified as a truck so its fuel efficiency could offset the inefficiencies of the RAM trucks. The PT cruiser is a light-weight station wagon built on a Neon chassis - it's not a truck by a long stretch, but it was a convenient cheat.

 

[Ivan Seeking]

Whether this is discussed in formal terms, I'm not sure, but Obama has discussed the requirement for retooling as a part of the package. And I can see his logic here. Use this as an opportunity to recast the US auto industry for a green economy.

My perception of things leads me to believe that the markets will work, but only after far too much pain has been endured. So the government has a legitimate role in helping to make the transition. Why allow chaos to govern? With proper planning, a new economy could be expedited in an intelligent manner.

The justification: It is argued that US industry generally would suffer a catostrophic collapse if the big three go under. But then my next thought was, why all three? It is discussed as if all three are one. But like AIG and everyone else, the argument is that unless we want another great depression, they are too big to fail.

 

[Hexnergy]

hmmm Id say save them to avoid a chain reaction of job and money loss. You could lose the manufacturing jobs at the automakers... the jobs at the companies that supply them... the jobs from the suppliers' suppliers... home foreclosures due to no payment from recently unemployed... a whole bunch of related industries...

 

[Ivan Seeking]

So my next thought was that we allow the government to make the final selection for the market. Kill the biggest beast, and recast and streamline the other two as a requirement of the bailout.

 

[turbo]

Your points are well-taken, Ivan. I do not believe that we can legislate re-tooling schedules, design cycles, etc, though, and the big 3 have shown that they are unwilling to do these things, as long as they can scrape by. I had hoped that a little of Mitsubishi's philosophy would have scraped off on Chrysler, after their collaboration on the Diamond-star plant, but I don't see it. (I worked for a company that developed training materials and process-documentation for that plant, and I DID have hopes.)

Ford closed its Marysville, OH plant years back, saying that it was uncompetitive. Honda bought the plant, rebuilt the lines, re-tooled and started producing the Accord - the US-built car with THE highest percentage of US-made parts. They did OK. (understatement alert!) The only way that Ford could make its Taurus competitive in sales numbers was to "sell" the cars to Ford Leasing and blow them out to fleets like rental car companies. They had a hard time pulling this off, even though Honda did not engage in fleet sales and sold their cars at retail one at a time.

I'm not saying (or even hoping) that the collapse of anyone of the big 3 would be an easy thing, especially in a depressed market, but like any capitalistic venture, if they fail, their competition will move into fill the void. Nissan, Toyota, Subaru, and Honda may be foreign-owned, but if they are willing to jump in and fill the void, I have confidence that it will be good for our economy, because they plan LONG term. BTW, my wife's Subaru Legacy was manufactured in Indiana, and it is a VERY reliable vehicle, and handles a lot better than my Nissan 4WD pickup in sloppy conditions. It has also proven to be very reliable - we bought it used from a panicky professor just before the 3-year warranty ran out. He needn't have worried.

 

[Ivan Seeking]

Well, I find myself at odds with my own lifelong philosophies. What you say makes perfect sense to a free-market guy. But, beyond the issues of time and pain, and ignoring the catostrophic failures of free market principles [too big to fail], I do see another twist. This may be the last chance to save the US auto industry. Mark Shields made this point the other night on the News Hour. We as a nation cannot afford to be uncompetitive in the global auto industry. It could take decades to recover from a complete collapse.

 

[CaptainQuasar]

One of the things that occurred to me is, if a large percentage of the cost of an American automobile really is pensions and other things and that isn't just a fat cat boogeyman rumor, it might make sense to re-negotiate things like that with the unions as part of any deal to bail the auto makers out.

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[turbo]

Well, I find myself at odds with my own lifelong philosophies. What you say makes perfect sense to a free-market guy. But, beyond the issues of time and pain, and ignoring the catostrophic failures of free market principles [too big to fail], I do see another twist. This may be the last chance to save the US auto industry. Mark Shields made this point the other night on the News Hour. We as a nation cannot afford to be uncompetitive in the global auto industry. It could take decades to recover from a complete collapse.

There are a lot of scenarios that have to be played out and evaluated. If Chevy drops a truck line where the trucks are assembled in Canada, the suspension and critical drive elements come from Germany, the engines are made in Mexico, and the wiring harnesses are made in Guatemala, there are going to be LOTS of repercussions. Nobody knows how all of that could settle. I still hesitate about throwing money at the big 3, because if they are "too big to fail", they are extortionists that are "too big to exist".

 

[nuby]

What is the logic behind saving these automakers?

If you give them all 25 billion to survive another year or two, what happens if they are still failing and people still aren't buying their cars/trucks in a couple years? Give them another 25 billion?

The 'real economy' wants these car companies gone.. They've failed produce electric vehicles, and anything that the public might be interested in. I say let them die off, and make room for the new innovative companies.

 

[CaptainQuasar]

The 'real economy' wants these car companies gone.. They've failed produce electric vehicles, and anything that the public might be interested in. I say let them die off, and make room for the new innovative companies.

Because of the substantial barriers to entry for starting a car manufacturing operation they don't just appear in a free market (not since the beginning of the industry when there were no big players.) Japan had to use heavy subsidies and protectionist trade arrangements during the first several decades before the products of its auto industry could compete on a global scale. China's car industry started while the country was still Communist. I don't know about India in general but I know that Hindustani Motors was founded as a project of a socialist government at the beginning of the last century, based on designs that were simply copies of some British cars. (Just like many of China's modern designs are copies of Japanese or Western companys' designs, violating international intellectual property law.)

So whether we preserve the old companies or federally subsidize and protect new ones, for there to be an American car manufacturing industry in the future it's not just going to happen as the result of a free market. So it's not exclusively a "too big to fail" problem.

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[mgb_phys]

my wife's Subaru Legacy was manufactured in Indiana, and it is a VERY reliable vehicle, and handles a lot better than my Nissan 4WD pickup in sloppy conditions. It has also proven to be very reliable -

Don't GM own part of Subarau ? Pity they haven't learned anything from them.
Funnily enough I bought the Impressa beause it is only made in Japan - I wasn't about to trust the build quality of a car built in Indiana. When your customers are going out of their way to avoid USA built cars your problems go deeper than how to fit more cupholders.

Presumably the big three's demands will involve more rules to keep out foreign competition - probably starting with all the Toyota, BMW, VW, Mercedes and Subaru plants in the southern states.

 

[russ_watters]

The justification: It is argued that US industry generally would suffer a catostrophic collapse if the big three go under.

I'm not sure why that would be true. It isn't like they would just close their doors and cease to exist. Someone would buy them and restructure them. It'd be painful, sure, but eventually they'd all become divisions of Honda, Toyota, and Hyundai.

But then my next thought was, why all three? It is discussed as if all three are one. But like AIG and everyone else, the argument is that unless we want another great depression, they are too big to fail.

I'm not a big fan of that logic, but the difference between them and AIG (and some of the other banks) is that AIG is a facilitator for an enormous fraction the businesses and a failure of them would be catastrophic. I do think that the govt should have let some of the other large banks fail. Since most of the money in them is insured, I don't think it would have been as bad as people feared.

 

[russ_watters]

So whether we preserve the old companies or federally subsidize and protect new ones, for there to be an American car manufacturing industry in the future it's not just going to happen as the result of a free market.

Why does there have to be an American car manufacturing industry?

 

[CaptainQuasar]

Why does there have to be an American car manufacturing industry?

Oh, there doesn't, that's definitely a valid topic for discussion whether we want that or whether it's too costly. I'm just pointing out that we can't expect to let the car companies collapse and in a few years see a new auto industry appear ex nihilo as nuby was suggesting, the jobs and the satellite industries involved that are lost will be gone for good.

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[Proton Soup]

i'm with turbo, i think it's extortion. let them fail. the plants will get bought for cheap by someone else that will do a better job. life goes on.

 

[WarPhalange]

Doesn't Toyota manufacture a lot of their parts in the US? Maybe it's time for the US to take a slice of the outsourcing action?

 

[CaptainQuasar]

That would be nice, but Japan and China have been intentionally been propping up the value of the dollar to make sure that things like that don't happen. (Not that this is a bad thing on the whole, don't bite the hand that feeds your economy out of mutual interest.)

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[BobG]

How do the costs of health benefits for the US big three compare with foreign companies operating plants in the US? They might be locked into higher costs by past labor agreements, but I really don't know. The point is that health benefits are a cost for current labor and have to be paid by any company operating in the US, including foreign brands.

Universal health costs subsidize all factories in the US, not just the big three auto makers. That's a valid point for US labor, overall; just not for the big 3 auto companies in particular. If they're paying too much in health benefits, renegotiating those benefits would be less extreme than having them drop into bankruptcy.

The pension benefits currently being paid by US auto companies are a bigger problem. Either the companies pay those benefits, or the Pension Benefit Guaranty Corporation does. Since insurance premiums for financially strapped companies are far below the actual risk posed by them, the PBGC constantly runs a defecit. Eventually, you'll have a combination of retirees accept lower benefits (their past labor agreements won't help them with the PBGC) and US taxpayers subsidizing the PBGC.

The decision on whether to bail out the auto companies should really be based on the eventual cost of not bailing them out. If we're bailing the companies out with money that taxpayers would have to put out eventually, then the bailout makes sense.

Eventually, company retirees will get soaked one way or the other (just as Social Security recipients will). Both company management and labor leaders agreed to promises that neither cared whether they were fulfilled or not - the individuals making the agreement wouldn't be around for the pain. A bailout with renegotiated pensions and health benefits might be the best solution.

 

[Astronuc]

10 Cars That Sank Detroit [or 10 Reasons Not to Rescue the US Auto Industry]
November 14, 2008 03:01 PM ET
http://www.usnews.com/blogs/flowchart/2008/11/14/10-cars-that-sank-detroit.html

The global financial crisis is suffocating the Detroit automakers, but the problems at General Motors, Ford, and Chrysler have been festering for years—even when the mighty "Big Three" were earning billions. Aging factories, inflexible unions, arrogant executives and shoddy quality have all damaged Detroit. Now, with panicky consumers fleeing showrooms, catastrophe looms: Without a dubious federal bailout, all three automakers face the prospect of bankruptcy.

There will be plenty of business-school case studies analyzing all the automakers' wrong turns. But, as they say in the industry, it all comes down to product. So here are 10 cars that help explain the demise of Detroit:

Ford Pinto. This ill-fated subcompact came to epitomize the arrogance of Big Auto. Ford hurried the Pinto to market in the early 1970s to battle cheap imports like the Volkswagen Beetle that were selling for less than $2,000. Initial sales were strong, but quality problems emerged. Then came the infamous safety problems with exploding fuel tanks, which Ford refused to acknowledge. Message: The customer comes last. "The problems for the domestics really started in the '70s when they were offering cars like the Pinto up against higher-tech, better-built Toyota Corollas and Honda Civics," says Jack Nerad of Kelley Blue Book.

Chevrolet Cavalier. GM sold millions of Cavaliers in the 1980s—and decided the thrifty car was so successful the company didn't need to update it for more than a decade. To milk the model, GM even added some lipstick and high heels and tried to peddle the upgrade as the Cadillac Cimarron—a legendary flop. Honda and Toyota, meanwhile, were updating their competing models every four or five years, and grabbing market share with each quality improvement. . . . .

Roger Smith should return his bonuses.

Back in September -

Cerberus Capital races to salvage investment in Chrysler and GMAC
http://www.iht.com/articles/2008/09/04/business/04lend.php

Stephen Feinberg, one of the most powerful — and secretive — financiers in the United States, hoped to make a fortune out of the detritus of the American auto industry. Instead, he seems to be losing one.

Feinberg's giant investment fund, Cerberus Capital Management, is racing to salvage multibillion-dollar investments in Chrysler, the smallest of the Detroit automakers, and GMAC, the financing arm of General Motors.

But for Cerberus, named after the mythological three-headed dog who guards the gates of hell, the news keeps getting worse.

On Wednesday, Chrysler, which owns the Jeep and Dodge brands, said its sales in the United States fell by a third in August — nearly twice the industry average — as the downturn in the auto business dragged on. Honda eclipsed Chrysler as the No. 4 seller of cars in the United States, and Nissan is closing in fast.

The same day, GMAC, in which Cerberus holds a 51 percent stake, said it was trying to stanch the bleeding from a business that was supposed to be immune to the ups and downs of the car industry: home mortgage lending. GMAC and its home loan unit, Residential Capital, announced that they would dismiss 5,000 employees, or 60 percent of the unit's staff, and close all 200 of its retail mortgage branches.

. . . .

Why not let the responsible car makers (the foreign-owned ones) take over the failed (domestic) ones, as was the case with the US nuclear industry, which is now largely owned by foreign companies, e.g. AREVA (which acquired B&W's commercial nuclear operation and Exxon's commercial nuclear operation via Framatome's acquisition of Siemens nuclear business), Toshiba (which bought Westinghouse Electric from BNFL, after BNFL had incorporated the remains of ABB-CE), or GEH (GE's partnership with Hitachi, which operates GNF).

 

[Ivan Seeking]

Today, about half of Meet The Press was dedicated to the auto sector crisis; followed by an interesting discussion of the global financial crisis.

Well worth a watch or read.
http://www.msnbc.msn.com/id/21134540/vp/27751726#27751726
http://www.msnbc.msn.com/id/27752329/

 

[Moonbear]

I have a hard time believing the big 3 would see the error of their ways if they were bailed out. I think they NEED to face reality here and be allowed to go under if they don't figure out how to fix their problems. This isn't a new problem, and it's not like they haven't had time to see the handwriting on the walls AND implement changes to correct them.

I AM concerned for their employees, but that's not enough of a reason to give the CORPORATIONS a handout. If the money is going to be spent, I'd rather see it go toward things to directly help the employees get back on their feet:
1) Assist with relocation expenses if they can get a job at another auto manufacturer but can't afford to move to a new state. It's about a 5 1/2 hour drive from Detroit to Erlanger, KY if they can get a job working for Toyota. And, without the big-3 to compete with, companies like Toyota should be able to expand their production and sales to pick up the slack.

2) When that market is too saturated, pay for them to get retrained for new jobs. If we're thinking about major infrastructure changes to support alternative energy production, train them to work in that industry. Right now, it's wide open. Certainly we'll need people to build the infrastructure.

3) If all else fails, put the money toward unemployment benefits until things shake loose with the economy and they can find new employment when the economy recovers.

 

[CaptainQuasar]

And, without the big-3 to compete with, companies like Toyota should be able to expand their production and sales to pick up the slack.

Yeah, but will they do so in this country while the global recession is affecting Japan too?

I think all of your points about helping the employees are good. But I think we seriously need to think about what we would end up doing in the future anyways if we allowed these companies to collapse and decide later on "Whoops, we do want to have an automobile industry in the U.S."

Take a look at page 11 of http://ncseonline.org/NLE/CRSreports/05apr/RL32883.pdf" on the global auto industry, under the heading "Broader Issues of Automotive Trade Policy." An automotive industry is not something that just springs up out of the free market - apart from the U.S. and Europe that developed the industry after cars were first invented a hundred years ago, all the countries in the world with domestic car industries have had to use protectionism or some kind of government support for those industries to be viable. If the auto industry in the U.S. were to dramatically weaken or disappear it would not be coming back in the future without government support.

We already buy just about everything from China and it concerns me that we might end up buying all our cars from them too without any domestic manufacturers.

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[turbo]

We already buy just about everything from China and it concerns me that we might end up buying all our cars from them too without any domestic manufacturers.

⚛​

I don't think this is a concern that has any chance of being realized. Toyota, Honda, Nissan, etc built plants here in the US to take advantage of our workforce and markets, and reduce the costs associated with transporting materials and finished products. I don't care where the manufacturer is headquartered, as long as jobs are created here in the US, providing income for families and stimulating local economies.

 

[CaptainQuasar]

I don't think this is a concern that has any chance of being realized. Toyota, Honda, Nissan, etc built plants here in the US to take advantage of our workforce and markets, and reduce the costs associated with transporting materials and finished products. I don't care where the manufacturer is headquartered, as long as jobs are created here in the US, providing income for families and stimulating local economies.

Okay... if we can really be certain that's what is going to happen... I'm just mindful of the number of industries we have destroyed in developing countries by leveraging them to accept free trade or increased foreign competition, et cetera, and I see no reason the same sort of thing wouldn't happen to us.

Especially once Toyota, Honda, and Nissan are no longer facing domestic competitors. And also, part of the reason they've located operations here has often been because a state government has paid them an incentive to do so... this is what I mean about money we might end up spending anyways.

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[nuby]

An automotive industry is not something that just springs up out of the free market -

This isn't true.

With enough innovation, a little government support, a lot of public support, (which there would be if Ford, GM, & Dodge were gone) a new auto company would rise out of a free market. When cars were first invented and manufactured in a economical way 100 years ago, that was a revolutionary product .. everyone had to have one. So, why is it not that simple in a real economy? Invent a revolutionary product, or feature, that everyone has to have, the product sells itself... Problem solved.

The bigger problem is resistance to innovation.

For (hypothetical) example,

If a car company invented a vehicle could drive itself with auto pilot (with GPS and AI).. Would that ever hit the market, even if it was proven 10x safer than a human driver, got rid of all traffic jams in metro areas, and saved 100k lives a year? Probably not. It would put 500k truckers out of work, and would cost other groups millions. This is the major flaw in our economic & political system, and most likely the root source of the "Financial Crisis" we're having today, imo.

 

[mgb_phys]

Citreons have cameras that track your road position and vibrate the steering wheel if you drift out of your lane.
Mercedes have radar that check the position of the vehicle in front and automatically adjusts your speed to keep a safe distance.

 

[edward]

I have a hard time believing the big 3 would see the error of their ways if they were bailed out. I think they NEED to face reality here and be allowed to go under if they don't figure out how to fix their problems. This isn't a new problem, and it's not like they haven't had time to see the handwriting on the walls AND implement changes to correct them.

I AM concerned for their employees, but that's not enough of a reason to give the CORPORATIONS a handout. If the money is going to be spent, I'd rather see it go toward things to directly help the employees get back on their feet:...

I can certainly see your point of view, but I do have a problem with where we are going to spend the money.

Will the big financial institutions see the errors in their ways now that they will be receiving federal money. For the most part they can't even account for how or where they lost so much money.

I am a bit biased because I have family members in the middle west who will be facing a crisis if the big 3 fail.

The cost and logistics of retraining and relocating that many people is overwhelming. Many people who work in the auto supply industry producing; seats, wheels, windows, door handles and tires, etc have already been through factory closings one or more times.

 

[Moonbear]

Yeah, but will they do so in this country while the global recession is affecting Japan too?
...
We already buy just about everything from China and it concerns me that we might end up buying all our cars from them too without any domestic manufacturers.

⚛​

I don't think this is a concern that has any chance of being realized. Toyota, Honda, Nissan, etc built plants here in the US to take advantage of our workforce and markets, and reduce the costs associated with transporting materials and finished products. I don't care where the manufacturer is headquartered, as long as jobs are created here in the US, providing income for families and stimulating local economies.

I think turbo's response on that is reasonable. It's also not worth the added cost of shipping the vehicles when they can be manufactured in the US. If anything, there's an incentive to do more manufacturing in the US if we have a lot of auto-workers unemployed so the Japanese companies can pick and choose the best employees...or the cheapest...whichever works for them.

I think all of your points about helping the employees are good. But I think we seriously need to think about what we would end up doing in the future anyways if we allowed these companies to collapse and decide later on "Whoops, we do want to have an automobile industry in the U.S."

Again, we'll still have an auto industry, the headquarters just might be elsewhere. On the other hand, you never know. When companies that hold such a grip on the industry go out of business, it opens opportunities for new ones to fill that niche too. Maybe there's someone out there with good ideas who just knew they had no chance to break into the current market, but could finally get off the ground if they didn't have to compete with the Big 3, not just for sales, but for employees. Maintaining an auto industry for consumer vehicles isn't really such a big deal. Now, when we're talking manufacture of military vehicles, yes, we want to keep that in the US and run by US companies.

 

[Art]

This isn't true.

With enough innovation, a little government support, a lot of public support, (which there would be if Ford, GM, & Dodge were gone) a new auto company would rise out of a free market. When cars were first invented and manufactured in a economical way 100 years ago, that was a revolutionary product .. everyone had to have one. So, why is it not that simple in a real economy? Invent a revolutionary product, or feature, that everyone has to have, the product sells itself... Problem solved.

The bigger problem is resistance to innovation.

For (hypothetical) example,

If a car company invented a vehicle could drive itself with auto pilot (with GPS and AI).. Would that ever hit the market, even if it was proven 10x safer than a human driver, got rid of all traffic jams in metro areas, and saved 100k lives a year? Probably not. It would put 500k truckers out of work, and would cost other groups millions. This is the major flaw in our economic & political system, and most likely the root source of the "Financial Crisis" we're having today, imo.

The cost of entry in the automobile market would be huge. Tooling and automated production lines do not come cheap. Plus to sell at an economical price you would need economies of scale which would only materialise over time as a new entrant built up market share during which time you would need huge injections of capital to keep you solvent.

If you want a real world view of what happens when domestic auto industries go bust you need simply look at the UK, once the world's major car manufacturer and now nowhere in terms of domestic producers. The relatively few cars still produced in the UK are now made by foreign companies who import most of their parts from abroad. These producers only stay in the UK on the payment of subsidies from the UK gov't and so in hindsight it seems it would have made more sense for the gov't to have given this level of subsidy to the original UK mfgrs to stop them going bust in the first place.