Is an Auto Industry Bailout Inevitable?

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And another one after that?

First of all, we should stop using the term bailout; it paints a false picture. If you’re one of those glass is half empty’ types, consider these transactions as loans against assets — and there are LOTS of assets. For us ‘glass is half full’ types these transactions are investments that may garner large rewards.

The auto makers need these loans to stay in business for two reasons: 1) they are, by all indications, badly managed companies and 2) they are dealing with the UAW (United Auto Workers Union) one of the most corrupt unions in the country. Now there is the perfect picture of a troubled company: bad management AND the UAW. But even with good management, dealing with the UAW would eventually bankrupt any company.

UnionFacts.com has documented the UAWs unethical practices and how much these practices have cost automakers. Read it — its a real eye opener. Following as an excerpt from UnionFacts.com’s profile of the UAW; this excerpt discusses “job banks”:

Thousands of UAW members are being paid between $70,000 to $85,000 per year not to work. (By some accounts, the expense is even larger, costing the “Big Three” up to $130,000 for each job banker). For 4,200 of these union members, their 8 hour “work day” consists of filling out crossword puzzles, watching World War II movies and even taking naps. These job bankers have drawn nearly full pay and all benefits, often for years, no matter the companies’ health. As shown by the $4.5 billion the Big Three earmarked to fund job banks, this practice is costing the companies billions of dollars at a time that they are losing billions.

(NOTE: This post is not intended to be an anti-union rant. There are many companies that work well with unions and many unions that actually help companies increase productivity and profits — my point is, the UAW is not one of these unions.)

An editorial in the Orlando Sentinel titled: “We think: Taxpayers shouldn’t bail out the auto industry without big changes” has it, in my opinion, just right. They say:

“The United Auto Workers union needs to step up with significant concessions on salaries and benefits for its members working at the Big Three. That would help bring compensation at American car companies more in line with the nonunion, foreign-based competitors that have set up shop in the United States and (have) steadily gained market share. The union faces a choice between jobs with less-generous benefits at the U.S. companies or no jobs if they go under.”

Its possible that UAW members have starting realizing the damage their union is doing; the UAW has, since the 1970s, lost more than half of its membership.

President Bush or Congress should jump on the Orlando Sentinel’s idea and insist that no loans be made to auto makers unless they get considerable concessions from the UAW and come up with a profitable business plan. Essentially, the Big Three are looking for Venture Capital and that should be the minimum requirement from any lender — including the U.S. Government.

Failing some positive steps on the part of the auto makers and the UAW millions of workers will be unemployed and the U.S. Government would loose lots of revenue. Its a pretty bleak picture and it suggests that there WILL be a “bailout,” without many conditions, and perhaps another one after that.

One other note: Radio Broadcaster Neil Bortz was on CNN yesterday making many of these same points. Bortz said on his radio show this morning that, before he was even off the air, he had received numerous death threats through CNNs switchboard and via e-mail. Draw your own conclusions about that!

News Links:

Orlando Sentinel: We think: Taxpayers shouldn’t bail out the auto industry without big changes

ABC News: Car industry turmoil forces US to mull bailout

Start Thinking Right Obama Democrats Pull Out All Stops To Bail Out Auto Industry Carcass For Union Leaches

The Long Goodbye Automakers Need a Bailout, While McCain-Palin Try to Rescue Their Reputations

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One thought on “Is an Auto Industry Bailout Inevitable?

  1. armin sachse

    The auto industry has been supported by the local, provincial and federal government for as long as living memory in for of reduced taxes, training subsidization, industrial incentives, tax relief and trade agreements such as the Auto pact.

    As a result they are worst example of the socialist/ free enterprise combination where the profits go to the company and the risk goes to the tax payer.
    It’s like having a 40 year son living at home. He truly does not understand financial risk as he can always count on Mom and Dad to feed him.

    As a result, the executives have not been running a real company. They are like the spoiled princes of the past. The auto companies got into trouble years ago and they have became weaker and weaker as time went by as management was not able to get the company out of the long term liabilities that they had negotiated. Their request to Dad of give me the money and I will then come up with a plan to spend it, very adequately describes their lack of management ability.

    To think that the CEO of Ford at $22,000,000 a year plus benefits and a retirement program that one can only fantasize about is “comfortable with his salary” instead of “ashamed” of the amount he was paid to drive the company to edge of bankruptcy. That is what is wrong with the business world today.
    The other example of what is wrong is the big three’s “rubber room”. 15,000 employees reporting for work each day and paid to do absolutely nothing. No other industry has one.

    http://wsjclassroomedition.com/archive/06may/auto2_jobsbank.htm
    The media sensationalism backed by the auto lobby give a frightening absolute worst case scenario of chapter 11. One station reported that the local auto insurance agent would be out of business. How absurd! People will not give up their cars; they just may delay buying a new one.

    Their existing cars will still need to be insured, and accidents will continue to happen. Cars will continue to be repaired and serviced; funeral parlors will continue to bury the carnage. Parts stores will flourish as older cars need more repairs and so on.

    There will be some plant closures, but these will be long over due. GM will continue to make cars while they sort out this mess. But only cars that people are willing to buy.

    But what will not survive is the $22,000,000 plus benefits and the related super pensions that go with it. That is the main reason for the executive visits to Ottawa and Washington. They really are not bothered by closing a plant and putting 10,000 people on the street. They have done it before and got a big bonus for it. Paraphrasing a writer in the Economist who so aptly described it. “Today there are a couple of hundred business leaders sitting at the dining room table and the rest of us are on the menu.” It must have been quite a shock for them to go back to their corporate jets empty handed. It is a situation that they are completely unfamiliar with.

    Most important though, the rubber room will close along with the practice of paying a person for 8 hours but requiring them to work only 6 hours. Perhaps layoffs will be based on obsolete skills, not based on seniority and stop getting rid of the new skills and preserving the old obsolete skills. Companies may be run from the top down but they only grow from the bottom up.

    When I did a tour of deep sea drilling platform shipyard in Singapore, it was not the fact that they paid welders from Bangladesh $12.00 a day that surprised me. The reason they could compete against other countries was that the welder worked the full 8 hours. They did not leave the rig to get coffee or for lunch. As a result, the company could turn the project around much quicker than others.

    I am certainly not recommending the $12.00 per hour. But when one learns that the autoworkers work 6 hours for 8 hours pay, you start to understand what is wrong.

    A month ago I was camping with a “retired” ship builder out of the west coast. He blamed the closing of the shipyard because of the young people could not make a part by hand and expected a computerize machine to do the work for them. When I asked him how old was the machinery he was using when he left, he said from 40 to 60 years old. When I asked him if he thought that when Japan built a new shipyard that they went out to find 60 year machines?
    We all have to become more productive. Not work harder but smarter. But work.

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