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Sunday, December 14, 2008

The Consequences of the Failure of the Auto Bailout

The failure this past week of the auto bailout has set off a series of finger pointing. The UAW blamed the Republicans.

In a statement Thursday night, the union said it was “prepared to agree that any restructuring plan should ensure that the wages and benefits of workers at the domestic automakers should be competitive with those paid by the foreign transplants. But we also recognized that this would take time to work out and implement” using programs like buyouts and early retirement offers to bring in new workers at lower rates.

Of course, the Republicans fired the charges right back at the UAW. Immediately, the Bush administration made it clear that they would find a way to keep the automakers afloat at least temporarily. The Bush administration even signaled that they may use the TARP money (the money meant for the financial bailout) in order to save them.

In response to the company's many struggles, GM said it would cut its first-quarter North American production by 60 percent.

President George W. Bush can ill afford the failure of one or more of the automakers as he prepares to leave office on January 20 with a presidential legacy already battered by the grim economy and the unpopular war in Iraq.

Responding to the congressional impasse, the administration said it was considering tapping the Troubled Asset Relief Program (TARP) financial industry fund, whose use for an auto bailout it had earlier vowed to oppose.

"Given the current weakened state of the U.S. economy, we will consider other options, if necessary including use of the TARP program, to prevent a collapse of troubled automakers," Perino said.

Folks like me believe that without serious concessions from the unions these companies won't remain viable against their foreign competition which isn't unionized. There is no such consensus on this matter. My liberal colleagues at Best of the Blogs, for instance, don't see the UAW as the albatross that most conservatives see it for the big three.

The $71 that is floating around is valid ONLY if you add in the cost of all of the retirees. What do the UAW workers actually make? $2 less an hour than Toyota. $1 an hour more than Nissan-I can go on, but I won’t- These numbers come from figures direct from GM. The $71 got latched onto by republician senators and wing nut talk radio and network TV news. None of these(idiots) ever bothered to check at the source(my sources are the cong. record. testimony by big 3 and union and direct from GM and the UAW) or ever bothered to correct the number.

I would point out that something is clearly wrong with the big three and those that pawn the blame on something besides the unions don't have a very good explanation for what is wrong. (read the whole discussion in the link to see if you agree) The big three are on the brink of bankruptcy and their foreign competitors are NOT. There is a reason for this and if it isn't the costs from the union contracts, then it must be something else. The big three are losing a lot of money. In my opinion, they were making fairly good quality cars, and those cars were selling, however their costs are far too high. Labor is the biggest cost in making a car. As such, the contracts negotiated by the UAW have become an albatross around the necks of the big three, in my opinion.

Here is the bottom line. The automakers will now get enough money to survive until the next administration comes in. New reports have the Obama administration considering a stimulus plan that may run as much as $1 trillion. The big three will likely need a long term stimulus in the neighborhood of a $100 billion. The new administration and Congress will not ask for any concessions, and such a plan will likely pass with their massive advantage in the new legislature.

Then, the Congress and the car czar will demand action that boosts their own ideology. They will demand cleaner and greener automobiles. They will want cars with better fuel efficiency standards. In other words, the new Congress and car czar will become the defacto new CEO's of the automobiles with the UAW as their right hand deputies. If folks like me are right, that will mean a bottomless pit of wasted tax payer money in order to keep union jobs and create fuel efficient vehicles with ABSOLUTELY NO HOPE OF PROFIT. In this period of economic malaise, that is like throwing more gasoline on a very hot flame.

1 comment:

Gail said...

I do not have all of the details on this, but another aspect of the UAW's destructive influence is that contracts include restrictions on production methods to prevent automation from replacing workers.

I read that one of the big 3, maybe Ford has the most advanced automotive plant in Venezuela or someplace where there are no unions. They cannot build state of the art auto plants in the U.S. because of union restrictions.

This, even more than the wage/benefit issues is crippling our auto industry. Auto workers do not have sufficient skills to command wages much higher than minimum wage. Union policies and practices demonstrate this extreme lack of intelligence, the inability to observe the obvious or even to think an independent thought.

Another example of why socialism creates 3rd world economies and why we we must avoid another bail out at all costs. Better to have a brief deep recession than a socialized government that will keep us in poverty and failure indefinitely.

Best regards,
Gail S