The Bailout of The UAW by Steve McDonald

The UAW holds the key to the success of the U.S. auto
industry.



The recent Senate hearing with the CEOs of the big
three car manufacturers was better than most sitcoms.
The CEOs were unable to answer questions about how
they plan to pay back the loans, or just avoided the
question, or how long the loans would keep them afloat,
or how they would change their business models to avoid
asking the taxpayers to bail them out again. It went on
and on.



The CEO of GM was asked how long GM had to pay the
employees of a plant that had been closed. His answer,
“I don’t know.” How long do you think you would be
working for him with answers like that? The senator
who asked the question shook his head in disbelief
and muttered, “Unbelievable!”



The whole time the panel questioned the CEOs about how
they were cutting costs, how they plan to make their
operations profitable and how they were reducing their
pension liabilities, the answer was sitting at the end
of the table; the President of the UAW.



Autoworkers of the big three are paid significantly
more money and benefits than employees of Honda and
Toyota in plants in this country. Not in Asia, but
here. Honda and Toyota are profitable, the big three
are back for more free money from you and me.



It is so simple. GM, Ford and Chrysler cannot be
profitable with the labor agreements they have in
place. It is impossible. No one bothered to ask
the UAW president about this. He and his members
are the answer.



The real issue isn’t will we bail them out, of
course we will. A Democratic congress and a Democrat
in the White House will not jeopardize a half a
million blue-collar jobs, not if everyone knows
they are doing it. If they could sneak it through,
maybe, but not if everyone is watching.



The real question is how will congress explain to
the unions, who were a big part of Obama winning
the elections in Michigan, Ohio and Pennsylvania,
that they have to take pay cuts for there to be
any chance their companies and jobs will survive,
even with the bailout.



What we have is a bottomless money pit or guaranteed
failure for GM and Chrysler. Ford still has a chance.



Congress and the President-elect have a huge problem.
Go the bail out route and have to do it again in eight
months if the credit markets don’t loosen up. Or, don’t
bail them out and have a bankruptcy that will shake this
country at its very roots. Or, face the music and force
the UAW to make the needed changes.



The political ramifications are so huge for any of the
options, the most likely scenario is they will blame
Bush and come up with some half-baked solution that
just pushes the problem down the road for someone
else to deal with.



Some would argue that the big three have been
making cars no one wants, and that’s why they’re
in this mess. Partially true, but no matter what
cars they make and sell, they can’t be competitive
if they don’t see some change in their labor and
pension costs.



Even if the big three have an epiphany about the
type of vehicles people want, and are willing to
buy, if they magically shift gears and come out as
the world leader in new alternative technology cars,
put the huge technological advantage this country
enjoys to work to make significant improvements to
cars and then sell it to the rest of the world,
they still won’t be competitive.



What this bailout amounts to is subsidizing the
difference between the cost of the union contracts
the big three have compared to the union contracts
Honda and Toyota have.



The big three and the UAW signed these agreements
in very different times than what we have now.
Globalization, Japanese auto makers in Ohio and
Indiana, a worldwide labor market that is putting
pressure on wages everywhere and products being
manufactured in other parts of the world at a
fraction of our costs.



The issue is quite simple. Adapt or die. We cannot
afford to continue to subsidize 1950s style
management and union thinking. This is a fight
we need to win and it will require sacrifice
from more than just the taxpayers.



Steve



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Market Watch

After the Bailout, The Detroit 3 Still
Have Work To Do

By Christian Hill



Perhaps I am being too optimistic, but I think
the government bailout of the Detroit 3 is a
foregone conclusion. In the interest of the
entire country and the national economy, the
government simply can’t let the automakers fail.
There is no denying the business model is broken,
but hopefully steps will be taken to change that.



So what does the future of the American automobile
industry look like? Will all three survive, or will
GM absorb Chrysler? No one knows for sure. But one
thing is evident: drastic changes must be made.
Continuing as is, and keeping the status quo,
will surely result in each of the automakers
being on the brink again in a few years. And if that
occurs, there is no way the government can save them
again. Chrysler lining up for a handout twice in 30
years is bad, but GM and Ford holding out their hands
twice in a few years is unacceptable (at their current
monthly burn rate, even the bailout money won’t last long).



So what changes can be made, and made quickly to save
the companies? Here are a few that would make
significant impacts.



1. Trim the fat. There is no need for GM to
have eight divisions and 76 different models.
By comparison, Toyota has three divisions and
32 different models.



2. Close plants and eliminate jobs through
consolidation. This would take serious concessions
from the UAW since it violates agreements, but
paying the costs to get it done now will save
the rest of the jobs. After all, if GM goes out
of business, all plants would close and all those
jobs would be gone.



3. Eliminate the job bank. Talks are underway
to get rid of this dinosaur. It basically guarantees
laid off workers full compensation and benefits for
not working.



4. Eliminate dealerships. Again, there are costs
involved with this, but it is necessary. There are
over 15,000 domestic car dealers, outnumbering import
dealers 3 to 1. Some of this may be handled through
attrition this year, but buyouts are needed.



Will this cure what ails the Detroit 3? Not entirely.
There are many other battles to be fought, such as
with the UAW. But to continue to operate as they
are now only guarantees failure again.



There’s no reason that the companies can’t rebound
after the bailout and become leaders once again.
When Chrysler was bailed out by the government in
1979, they made great initial strides. The K car
saved the company, and they also created the
minivan segment.



Innovation brought Chrysler back from the brink, and
the Detroit 3 need to innovate to survive this.
Electric cars or alternative fuel vehicles could lead
them into the future, and establish them as real
players again. GM has their “Flex Fuel” vehicles which
can run on E85 (still a debatable solution), the Volt
is an electric hybrid, and Dodge (Chrysler) has shown
electric vehicle concepts (Dodge EV). More innovation
is needed, but at least they are moving in that
direction. I would hope that with their backs against
the wall, they break archaic processes and really
stretch their creative minds. Bland econo-boxes
just aren’t going to bring buyers back.



I also find it interesting that Chrysler created the
minivan, which saved the company after the bailout.
The minivan morphed into the SUV, which the Detroit
3 relied on so heavily for profits, and has proven
to be what may kill them. So what once saved them
has almost become what kills them.

Ready Yourself for a GM Bankruptcy

by Charles Delvalle



It was pretty amazing.



Last Saturday I wrote about GM. Not only did I write about GM, but I also talked about how I felt they should get government assistance.



I only received one bit of reader feedback – someone debating as to exactly how many jobs would be lost if GM went bankrupt. The reader sent a screenshot of Yahoo finance where it said how many employees GM has. Then he wondered how that number could possibly turn into 2.5 million.



The answer is simple.



That employee count in Yahoo doesn’t include those employed by dealerships, suppliers, ad agencies, and mechanic shops that all rely on GM to a heavy degree. If GM goes broke, the flow of money to these companies stops. And then they layoff their workers. After about a year, we’d lose about 2.5 million workers thanks to a GM bankruptcy.



Here’s what gets me furious about all of this, though. If the government was just going to let GM go bankrupt, why did they save the financials? Wasn’t it to prevent a depression? But if GM goes bankrupt, that’s most likely what we’ll encounter – a depression.



Because if GM goes bankrupt, Chrysler will follow suit and Ford will have a hard time building cars when the entire automotive distribution network in the US nearly bankrupts completely.



Together, the big three are responsible for one out of every 10 jobs. So, if they go bankrupt, we’ll have unemployment of 16 – 17 percent within two years. That’s depression territory.



So I don’t understand why the government wouldn’t act on this immediately.



In Congress, the Republicans are holding up the bill. I knew that would happen, after all most Republicans believe in “free markets”. They feel that GM put themselves in this situation, so they deserve to go down. But didn’t the banks do the same damn thing? In fact, I’d venture to say that what the banks did was even worse. They knowingly sold crap to the American public.



The Democrats, on the other hand, want to pass a bailout bill without putting any significant restrictions on it. This I don’t agree with. If GM is going to get bailout money, they need a new plan moving forward to become and stay profitable.



Most importantly, a GM bankruptcy might be ok if the economy weren’t already circling the toilet. My fear is that if GM goes bankrupt, we’ll have another credit squeeze similar to what happened when Lehman went under. But this time, the Fed doesn’t have much ammunition left to try and make things “less bad”.



If GM goes under, banks may wonder who’s holding automotive assets and refuse to lend to each other in the suspicion that someone’s balance sheet is much smaller than it used to be. This would cause the LIBOR rate to spike higher. I also fear that more money will move into treasuries and out of every other asset. The DOW could hit 6,500 in a GM bankruptcy. And if Ford followed suit, a huge part of American manufacturing would go down the drain.



I say this to warn you that a GM bankruptcy is huge. Job losses would go through the roof and more retailers would go broke. Hell, the state of Michigan may enter default, which would be a huge mess. After all, it’s not like they could merge with the state of Illinois to reduce overhead, like banks are doing.



The times ahead are getting darker and even scarier then we could have imagined.



When will it all end? Nobody knows. But we must stay prepared and try to take advantage of any big opportunities we see.
Charles



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