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Thumbs down on the bailout
Loathe though I am to agree with the Republicans, on balance I'm coming to the conclusion that they're right about the auto bailout.
It's probably true that going Chapter 11 would cause GM an enormous amount of short-term pain (and Chrysler might well just go under), and it's true that there would be a nasty, sharp contraction as a result. That said, if it was packaged correctly, I suspect that it would correct much more efficiently: it would rip the bandage off, and allow the industry to do the necessary restructuring fast. It would to a substantial degree break the UAW (which, even granting that it does *some* good, is doing too much harm at this point), and probably come out with a GM that was smaller but ready to fight back much more quickly.
And I suspect that much of the PR debacle could be offset if the company, from the start, aggressively painted this as "reorganizing to be stronger". (And, frankly, played the national-pride card hard.) They have to move off the defense publically, changing both their thinking and look into that of a scrappy competitor. Granted, they've shot themselves in the foot on this particular point (over and over and over again in recent weeks), but public attention is fickle, and I'd bet that it could still be turned around.
Chapter 11 and the bailout both have essentially the same medium-term goal: restructuring the auto industry to make more *sense*. The difference is that Chapter 11 would probably be much faster and more efficient, because the legal power to change would be stronger. And really, it would be more honest. The bailout has this image of "saving jobs" and suchlike, but that's nonsense -- the whole *problem* is that GM is ridiculously inefficient, and there's no way to save it in the long run without lots of pain. So the choice is between dragging that pain out over the course of years (the bailout) or getting it out of the way in a horrible shock (Chapter 11). The latter would be much nastier in the short run, but I suspect better a year or so down the line...
It's probably true that going Chapter 11 would cause GM an enormous amount of short-term pain (and Chrysler might well just go under), and it's true that there would be a nasty, sharp contraction as a result. That said, if it was packaged correctly, I suspect that it would correct much more efficiently: it would rip the bandage off, and allow the industry to do the necessary restructuring fast. It would to a substantial degree break the UAW (which, even granting that it does *some* good, is doing too much harm at this point), and probably come out with a GM that was smaller but ready to fight back much more quickly.
And I suspect that much of the PR debacle could be offset if the company, from the start, aggressively painted this as "reorganizing to be stronger". (And, frankly, played the national-pride card hard.) They have to move off the defense publically, changing both their thinking and look into that of a scrappy competitor. Granted, they've shot themselves in the foot on this particular point (over and over and over again in recent weeks), but public attention is fickle, and I'd bet that it could still be turned around.
Chapter 11 and the bailout both have essentially the same medium-term goal: restructuring the auto industry to make more *sense*. The difference is that Chapter 11 would probably be much faster and more efficient, because the legal power to change would be stronger. And really, it would be more honest. The bailout has this image of "saving jobs" and suchlike, but that's nonsense -- the whole *problem* is that GM is ridiculously inefficient, and there's no way to save it in the long run without lots of pain. So the choice is between dragging that pain out over the course of years (the bailout) or getting it out of the way in a horrible shock (Chapter 11). The latter would be much nastier in the short run, but I suspect better a year or so down the line...
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The actual salary paid to Ford/Chrysler/GM workers is not much different from that paid to Toyota/Honda workers in the US. The difference in pension requirements is very large -- because F/C/GM have 50+ years of retired workers still living and drawing, whereas T/H has only been assembling cars in the US since the early 1980s.
The fact is, as Justin says, is that F/C/GM are ridiculously inefficient and extremely bad at predicting what the market will want to buy.
How many lines does Toyota have? 3. High-end is Lexus, most cars are Toyotas, and the edgy line is Scion.
How many lines does have Honda have? 2. Honda and Acura.
Ford? Ford, Lincoln, Mercury, Mazda and Volvo. What the heck is the differentiation between a Ford and a Mercury?
GM? Buick, Cadillac, Chevrolet, GM Daewoo, GMC, Hummer, Pontiac, Saab, Saturn, and outside the US, Holden, Opel, Vauxhall, and Wuling. Oy.
And Chrysler is 80% owned by Mega-Evil Corporation, aka Cerberus Capital.
They all need to get crunched into the jaws of reorganization.
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If GM saved Saturn, Ford, Dodge, Chevy, and Cadillac that would be a nice streamlining of the popular brands. Possibley SAAB.
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Are you sure? That doesn't match my understanding at all -- I thought there was an average of about $10/hour difference, which is a considerable margin.
No question that there are other important issues (even GM doesn't defend its ridiculous number of marques), but I do think the union is a major component of the problem.
OTOH, who owns Chrysler *is* a red herring: it makes very little difference to any of the relevant questions here. The difference between private and "public" ownership doesn't matter much on either the moral or practical level...
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from the AP story at http://news.yahoo.com/s/ap/20081212/ap_on_go_co/congress_autos
The UAW says that wages at GM factories start at $14/hour, and go up to $33, which is in line with the numbers above.
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So while I wouldn't put labor costs as a complete red herring, it is certainly not the major difference between why Honda is showing a profit and GM isn't.
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More to the point, UAW uses "pattern bargaining" with Chrysler/Ford/GM, where they negotiate with whomever they consider weakest, and then use the same contract with the other two. If Ford is "OK" and GM/Chrysler are not, it isn't just the auto unions...
PS "I'm sure that I'm going to be asked, 'Congressman, I work at Honda' or 'I work at Mercedes. I get $40 an hour. Why are you going to take my tax dollars and pay it to a company that's paying their employees $75 an hour?' " Rep. Spencer Bachus (R-Ala.) said last month.
That wage figure -- widely used by opponents of the auto industry bailout -- is not in fact the wage paid to current workers. It is an approximation of the costs of salaries and benefits for current and retired workers. After wage concessions in recent contracts, the UAW says its workers at GM, Ford and Chrysler plants range from $33 an hour for skilled trades to $14 an hour for new hires.