Automakers: about $35 Billion should do it, or 50B

[cannon_fodder]

How is it an unfair comparison?  Toyota labor produces a higher quality product of less than half the cost of GM labor.  Really simple comparison.  

Yes, it is true that GM has very bad legacy costs.  They made contracts that allowed people to retire by age 45 and get a full pension and enjoy full health care.  It very possible that person will be paid longer by GM to be retired than they were paid to work.  Who's fault is that if not GM's?  

And yes, corporate America must pay for their workers health care.  Just like Toyota plants in America have to pay for their workers health care.  Generally speaking, it is cars made in the USA by other companies that are out competing the Big 3.  The Toyota plants in Tennessee operate with the same laws and conditions GM faces, but they do so profitably.

And even if you consider cars made over seas - the corporate tax structures of those countries passes the cost on in much the same way.  Health care gets paid for largely by corporations either by direct payments or by taxes no matter where you go.

And dealerships?  GM set up too many dealerships and has bad contracts requiring it to subsidize them all.  Again, a bad business decision by GM.

I'm not really blaming the unions.  They got greedy, it's human nature. They rode that horse so hard that it's now dying.  It was managements duty to step up and say "we can not afford to do this in the long term, strike if you must" just as it is the unions duty to figure out that a contract that bankrupts the company is not ultimately in the best interest of labor.

"Getting more and more pay for less and less work is a dead-end street." Walter Reuther, former head of the UAW.

The unions got very good contracts for their workers and the companies were very generous.  Hell, I wish I could pay my lawn boy $100,000 a a year (I don't really have a lawn boy) - but it's just not possible.  The cold hard fact is the labor contracts are the primary reason that the US automakers are no longer competitive.  $78 an hour (wage + bennis for CURRENT workers, not servicing legacy costs) is far too much for a factory worker if you want your company to survive.
- - -

On a bit of a tangent, too many unions in the USA ride the horse too hard if they feel they have control.  Airlines, steel, mining, the auto industry...  anything that can be automated or draw real competition sees the industry suffer at the hands of a strong union that forces it's advantage.  Just as a company can not survive by mistreating it's labor force, a labor force can destroy a business by demanding too much.

Unions have a very valid purpose.  Safety, wages, benefits, bargaining many of the details in a working relationship.  I've worked with unions on several capacities and have seen well run unions (Operating Engineers in Tulsa is well run) and unions that kill jobs for their own members (UAW John Deere got wages up, and saw automation halve the number of manufacturing jobs).  I'm not anti-union just as I am not anti-corporation.  But when either abuses it's position they cause themselves to suffer.

$35 an hour is fantastic wage for a high school graduate.  Basically $20 an hour take home, health and pension benefits.  That's a nice living.  Better than many professionals are able to accomplish if you take into consideration their health care costs, self funded 401Ks, lost wages for years of education and student loans.

If you have agreed to pay your workers more than your competition, so be it.  But don't cry to me when that competition then kicks your donkey.

[inteller]

quote:Originally posted by cannon_fodder

quote:Originally posted by waterboy

Originally posted by cannon_fodder
Apparently Oklahoma didn't learn the lesson.[] Or, as I suspect, we're slow learners. They married automobiles, we married oil.

Actually, we tried pretty hard to ween off of that tit.  Tulsa, in particular, saw the writing on the wall and tried to diversify.  We courted  telecom (WilTel, WorldCom), Financial services (CFS, BOK), and aviation (AA, Boeing, Nordam).  Unfortunately, for us all three of those industries hit road blocks after 9/11.  Just as oil was taking off.  There was enough oil left in Tulsa to come back to life but the city did little to spur that growth.

Anyway, it is generally recognized by areas that one industry running the show is bad.  Often not even for the industry.  If the big three didn't have every Michigan politician in their pocket perhaps they would of been forced to compete long ago (instead of dictating concessions for SUV drivers and the like).  It appears to me that intentionally or not, Tulsa made a move to other industries and the laws of probability slapped us none the less.

My suggestions for Tulsa, to segway a little bit, is to work on alternative energies.  It uses many of our strengths (heavy transportation), is a related industry that can use our labor skill set (engineers, welders, business deals, legal issues), and has the potential to boom.  If we can assert Tulsa as a leader in that area we would all benefit (think San Francisco courting those new fangles tech companies in the late 1980's early 1990's).

pft.  CFS imploded before 9/11 due to crooked management.  Wiltel was saddled with debt from Williams, which was a result of bad management (see SemGroup, same cronies, same result)

Oklahoma is the second largest producer of natural gas in the US.  natural gas production is equal to or exceeds oil production.  people have a really antiquated view of the oil patch in OK.  Oklahoma is a leader in clean fuel production.  Western Oklahoma sits in the core of the wind belt.  We just need to prop up more wind mills.  

I'm not concerned about Oklahoma's economic prospects.  People still need to warm their houses and electric companies need to fuel their gas powered generators.  Oklahoma doesn't boom spectacularly anymore when the rest of the country does....however we don't bust spectacularly either.

[waterboy]

quote:Originally posted by cannon_fodder

How is it an unfair comparison?  Toyota labor produces a higher quality product of less than half the cost of GM labor.  Really simple comparison.  

Yes, it is true that GM has very bad legacy costs.  They made contracts that allowed people to retire by age 45 and get a full pension and enjoy full health care.  It very possible that person will be paid longer by GM to be retired than they were paid to work.  Who's fault is that if not GM's?  

And yes, corporate America must pay for their workers health care.  Just like Toyota plants in America have to pay for their workers health care.  Generally speaking, it is cars made in the USA by other companies that are out competing the Big 3.  The Toyota plants in Tennessee operate with the same laws and conditions GM faces, but they do so profitably.

And even if you consider cars made over seas - the corporate tax structures of those countries passes the cost on in much the same way.  Health care gets paid for largely by corporations either by direct payments or by taxes no matter where you go.

And dealerships?  GM set up too many dealerships and has bad contracts requiring it to subsidize them all.  Again, a bad business decision by GM.

I'm not really blaming the unions.  They got greedy, it's human nature. They rode that horse so hard that it's now dying.  It was managements duty to step up and say "we can not afford to do this in the long term, strike if you must" just as it is the unions duty to figure out that a contract that bankrupts the company is not ultimately in the best interest of labor.

"Getting more and more pay for less and less work is a dead-end street." Walter Reuther, former head of the UAW.

The unions got very good contracts for their workers and the companies were very generous.  Hell, I wish I could pay my lawn boy $100,000 a a year (I don't really have a lawn boy) - but it's just not possible.  The cold hard fact is the labor contracts are the primary reason that the US automakers are no longer competitive.  $78 an hour (wage + bennis for CURRENT workers, not servicing legacy costs) is far too much for a factory worker if you want your company to survive.
- - -

On a bit of a tangent, too many unions in the USA ride the horse too hard if they feel they have control.  Airlines, steel, mining, the auto industry...  anything that can be automated or draw real competition sees the industry suffer at the hands of a strong union that forces it's advantage.  Just as a company can not survive by mistreating it's labor force, a labor force can destroy a business by demanding too much.

Unions have a very valid purpose.  Safety, wages, benefits, bargaining many of the details in a working relationship.  I've worked with unions on several capacities and have seen well run unions (Operating Engineers in Tulsa is well run) and unions that kill jobs for their own members (UAW John Deere got wages up, and saw automation halve the number of manufacturing jobs).  I'm not anti-union just as I am not anti-corporation.  But when either abuses it's position they cause themselves to suffer.

$35 an hour is fantastic wage for a high school graduate.  Basically $20 an hour take home, health and pension benefits.  That's a nice living.  Better than many professionals are able to accomplish if you take into consideration their health care costs, self funded 401Ks, lost wages for years of education and student loans.

If you have agreed to pay your workers more than your competition, so be it.  But don't cry to me when that competition then kicks your donkey.

Maybe I'm dense.(No need to agree, its not probable!) I don't see any compelling evidence to suggest that Labor alone is the major problem with Detroit. You make unfair comparisons and no amount of fuzzing over the facts will change that. It is so easy these days to attack big labor and miss the point- We have an uncompetitive system in America when it comes to producing durable goods and putting them on the market against subsidized goods from other countries. No one element of that system is the cause or the solution.

Why? It stems from our unrestrained market attitude that companies know whats best and have our best interests in mind. Ixnay on both counts. It stems from expenses like management cost that are way out of balance. You want to talk labor cost? Executives in America are paid at a ratio of 300 times the average wage of its front line labor. Yeah, these same executives that set up 8 different brands with 8 different cost structures to serve the same customer. In Japan it is more like 10 times! That is labor cost gone mad.

Your arguments assume that countries that have overhead like health care and research carried on the state's books through taxation, somehow have no advantage over us. They do. Ask Boeing about Airbus.

It further assumes that local and state governments are hands off in the process. They aren't. The lobbying by dealerships to keep GM from shutting down unprofitable dealerships was basically allowing advantage to existing dealerships at other potential dealers' expense. The same politicians that ran on less regulation, less government and trickle down voodoo accepted these anti competitive measures. Now, since GM has no incentive to open new dealerships in a state that has these laws, existing dealerships have become gold. Kind of like a baseball franchise. So even though the dealerships were unprofitable, they increase in value and are passed around to the highest paid salesman or investor who knows the game. Sound familiar? They were and are, artificially inflated in value.

We keep looking at the cracks in the wall of our foundations and then assume its the bricklayer. If you identify labor as the main problem and neuter them in this process you will destroy the future American auto industry for sure.

I suspect the Republicans know this instinctively and are willing to sacrifice the industry to blame the opposition, regain control and destroy labor all at once. They can then rebuild it with $10hr labor.

[we vs us]

In a completely unscientific study of talking heads on CNBC, there seems to be a good amount of hesitation on the "let them fail" front.  Lots of the talk has centered around perception vs reality and how the perceptions have taken on an ideological flavor.  The perception is that the American car industry is still mired in the thinking and problems of 5 or more years ago, while the reality is much different.  GM and others (Ford was namechecked a lot) have done some major retooling, both on the management and labor front and on the research and design pipelines for newer models.  Obviously there're still problems, but the industry is much farther along on its way to becoming a going concern than most of the pundits and politicians (and people on chat boards) give them credit for.

Complicating the "let it fail" argument further is the fact that both Ford and GM have successful overseas brands and divisions, especially in emerging markets. Also, the credit freeze has made it next to impossible for an actual Chapter 7 restructuring to go forward.  GM won't be able to qualify for Debtor-In-Possesson financing, which would be the private version of the bridge loan they're asking congress for. The alternative is going into Chapter 11, which would liquidate the companies entirely.  As we've said before, the downstream and upstream ramifications -- not just to other suppliers, but to other carmakers NOT currently in danger -- would be horrendous.

Point being, it isn't as easy as "GMs should fail because it can't support itself in a downturn.  End of story."   The "can't support itself" is a complicated story in its own right.

[inteller]

Just like I said:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aHG4iPWMWpZA

Companies will swoop in and buy up the pieces of GM should they go under, and jobs will be retained.

[cannon_fodder]

Wevus:

If we give them another $25Billion, or $100Billion, do you honestly think it will matter?  Even if it is a flat out gift it just prolongs their failure.  Their entire business model has failed (deferring rising labor costs).  They lose money on every car sold... selling more cars will not cure their problems.  If you lose money on your primary business, you are doomed.  

We're talking MAJOR overhauls are needed.  The painful kind that will not come from handouts.  Once the government is in to the for $100 Billion you think we will be prepared to step back or just and out more and more cash?  

Furthermore, the Big 3 would qualify perfectly well for Chapter 11 (NOTE:  chapter 7 is liquidation) on the most basic of tests -  they are worth more as a whole that in pieces.  In pieces, GM has a negative value.  Selling off the pieces creditors will not get their money back, pension funds will be assumed by the Feds, and the UAW would lose everything (I use GM because they are the worst off).  The fact that they have profitable over seas arms further supports this argument.  

Market Cap: 1.6B
Book Assets: 110B
Liabilities: 170B
Book Value: -60B

GM's hyperbole about liquidation is a maneuver to get a handout.  A handout which would ensure the long term continued failure of the industry. If they are really in a position that would require liquidation than the are far beyond saving with handouts.


Waterboy:

First, it is clear to everyone who looks at the situation that labor costs are the most prominent difference between the successful and the failing automakers.  The labor costs per pickup in the United States:

GM - $1,800
Toyota - $800

$1,000 extra per vehicle?  That's very significant.  I've seen comparisons that show evern worse (Ford Taurus +2000 over Toyota Camry for labor).  It is THE most significant variable cost in a vehicle manufacturing.

Both present and legacy costs are crushing them to death.

And yes, management is overpaid.  I will readily fight any government interference on compensation limits for anyone.  However, shareholders should step up and object when an executive making poor decisions gets a FAT bonus.  

There are several trains of thought on the subject, but an executive is at the top of the game.  It is a bidding war to get the best and the brightest.  At the end of the day you can get 100,000 other guys that can run a punch press machine, but finding the person who can turn around a major corporation is a position with far less applicants qualified to fill it.  Basic supply and demand principles.

HOWEVER, when the ship is sinking good management will accept a big hit.  They are charged with making the big picture decisions and they have failed.  If you have confidence, take long term stock compensation or set your compensation to performance goals.  The GM executives flew private jets (G5) to beg Congress for money.  Screw that.

But at the end of the day, executive compensation is not a significant contributing factor.  The CEO makes nearly $9mil a year, or about $1 per vehicle sold.  Inconsequential in the overall picture of a major corporation.  The heinous executive salaries are a drop in the bucket of the $50,000,000,000.00 in unfunded retirement liabilities or other poor decisions made in the past.

Labor and management need to suffer if GM wants to have a prayer of turning it around.  Losing $2 BILLION in cash flow per month is simply not a viable business.  Even if the government assumed the $60Billion in liabilities, they may still lose money.  For god's sake, liabilities associated with labor exceed $60,000,000,000.00.

That's simply insane.

Please justify why a GM worker is worth 50% more per hour than a Toyota worker.  What do they do better?  You're argument distills to the notion that a worker should make whatever he thinks he is entitled too, not what the market is willing to pay.  The result is failed companies.
- - -



The UAW got too greedy and has created a situation in which their labor is not competitive with any other market - including non-UAW labor in the United States.  Non-union labor makes a good wage ($20+ and benefits) and produces higher quality products.  They offer no competitive advantage to companies but instead serve as a competitive disadvantage.  

When a company sucks more from it's workers than is acceptable the workers leave, strike, or produce poor products or productivity due to a lack of moral.  When labor extracts more from a company than is justifiable the company fails.  It is really that simple.

What competitive advantage does the UAW provide for GM, Ford, or Chrysler?  We are not talking about a fight to stop black lung or to ensure bathroom breaks, we are fighting to make sure a company pays a non-high school graduate at least $50,000 plus benefits. Then we wonder why we lost our manufacturing base.

Pay them what you will, demand whatever pay you think is just... but don't ask me for a handout when you are not competitive.  Management, organized labor, or otherwise.

Hey, I got an idea!  There are too many attorneys in Tulsa.  Attorneys in Tulsa have severely suppressed wages compared to neighboring areas (very true statement, btw).  I think we need government help to inflate our wages because it just isn't fair.  I cant demand $300 an hour and still be employed.
- - -

Inteller:

Don't care why they failed and I realize they did not fail because of 911.  My point was that Tulsa attempted to branch out and got stuffed just the same.  The overall picture being areas have long known that single sector economies are dangerous.

Unless that sector is government... who always spends more and more ad more.  Centers of government employment benefit relatively from economic recessions.  They are, in effect, recession proof.

[inteller]

tulsa didn't get stuffed because the sectors were bad.  tulsa got stuffed because they all had crooked management.

CFS:  failure due to crooked management
Wiltel:  failure due to shifted debt by crooked management (Williams almost failed from same cronies)
Worldcom:  failed due to crooked management
SemGroup: (see WilTel)

likewise the auto sector isn't failing.  a couple of companies are failing due to inept management.  However, as was mentioned before, Ford is getting lumped in with GM and Chyrlser when they have actually made great strides righting their ship.  Of the 3 I think Ford needs the least help.  I think they would show leadership if they rejected bailout money.

[waterboy]

quote:Originally posted by cannon_fodder

Wevus:
Waterboy:

First, it is clear to everyone who looks at the situation that labor costs are the most prominent difference between the successful and the failing automakers.  The labor costs per pickup in the United States:

GM - $1,800
Toyota - $800

$1,000 extra per vehicle?  That's very significant.  I've seen comparisons that show evern worse (Ford Taurus +2000 over Toyota Camry for labor).  It is THE most significant variable cost in a vehicle manufacturing.

Both present and legacy costs are crushing them to death.

And yes, management is overpaid.  I will readily fight any government interference on compensation limits for anyone.  However, shareholders should step up and object when an executive making poor decisions gets a FAT bonus.  

There are several trains of thought on the subject, but an executive is at the top of the game.  It is a bidding war to get the best and the brightest.  At the end of the day you can get 100,000 other guys that can run a punch press machine, but finding the person who can turn around a major corporation is a position with far less applicants qualified to fill it.  Basic supply and demand principles.

HOWEVER, when the ship is sinking good management will accept a big hit.  They are charged with making the big picture decisions and they have failed.  If you have confidence, take long term stock compensation or set your compensation to performance goals.  The GM executives flew private jets (G5) to beg Congress for money.  Screw that.

But at the end of the day, executive compensation is not a significant contributing factor.  The CEO makes nearly $9mil a year, or about $1 per vehicle sold.  Inconsequential in the overall picture of a major corporation.  The heinous executive salaries are a drop in the bucket of the $50,000,000,000.00 in unfunded retirement liabilities or other poor decisions made in the past.

Labor and management need to suffer if GM wants to have a prayer of turning it around.  Losing $2 BILLION in cash flow per month is simply not a viable business.  Even if the government assumed the $60Billion in liabilities, they may still lose money.  For god's sake, liabilities associated with labor exceed $60,000,000,000.00.

That's simply insane.

Please justify why a GM worker is worth 50% more per hour than a Toyota worker.  What do they do better?  You're argument distills to the notion that a worker should make whatever he thinks he is entitled too, not what the market is willing to pay.  The result is failed companies.
- -

You have a future in politics judging by the way you ignore my cogent points and stay on the party message so well (in this case the businessman's pov). I also do not enjoy having my viewpoints summarized into indefensible Palinesque positions like "a worker making what he feels he's entitled to."

A truly unencumbered, capitalist driven, supply and demand market would decide the value of that punch machine operator and the executives with soft manicured hands alike. Like some wag once said, "Capitalism is a great system. America should try it some time!". Instead their pay is decided only tangentially by natural factors. You way, way overestimate the value of executive skills. Proof is in their failure in the world market.

You simply can't ignore that its the domestic automobile system that is failing, not its labor. Your argument would be akin to suggesting that employees of Lehman Bros. were the real problem with Wall Street, but ignoring its executives or its systemic flaws. The two costs you compare are simply not representative of the true cost of labor. Might as well compare the labor costs of a 1950's Russian vehicle to the cost of a 1950's American vehicle. That comparison would also have shown a great advantage for the Russian vehicle. No, there are too many unequal elements to make it meaningful, much less THE determining factor in declining profitability.

Lets say you and I decide to run the 100yd dash, but I get to set the time, date and what food you have to eat prior to the race. You'll be hungover trying to overcome the effects of Mexican food at 4:30am on New Years day. I can win that race. [] Japan, Germany, France, Sweden can win the profitability race when the state assumes major liabilities like health care, R&D, and serves as a cheap source of capital. They can win that race when the social environment of their countries dictates that education is more important than it is here and where the thought of executive pay in the realm of American businesses is considered obscene and unacceptable to stockholders and the general public.

What will keep you from being a politician however is that you blithely suggest that these legacy expenses can be just done away with to make our cars cheaper. Those legacees vote. Anyway, after the bankruptcy and demise of our auto makers and the related 10% of national employment as collateral damage, just who exactly will be left to buy the cars?

[Hawkins]

We need to let capitalism run its course.

I don't understand why this is even being considered. They bail-out the banks, so now every big company thinks it is entitled to government funding.

This is a sad, sad, time for America. History will not be kind in its judgement of this period, I suspect.

GM wouldn't go away if it filed Chapter 11, it would simply restructure, downsize, and become more efficient.

The execs from the Big Three who flew into Washington on their own private jets should retire and let the free market run its course, instead of begging for handouts.

God help us all.

[we vs us]

Despite my typical English major Chapter 7/Chapter 11 confusion, I think this comes down to outlook and a blanket mistrust of government.  I actually DO believe that a bridge loan -- properly applied and with adequate strings attached -- can help the industry out of a tight spot.  

You're right:  GM is worth more in one piece than in pieces.  It's worth more not only as a component of the Dow but as critical part of American industry.  And I can definitely admit that excessive labor costs are part of the problem.  However, we've also talked about other parts of the problem, too; mostly having to do with a succession of managers and CEOs that couldn't or wouldn't respond to market pressure.  I can agree to all of that.  

I think just letting it all fail is a monumental 1) abdication of responsibility and 2) failure of imagination.  

You're arguing from base positions of "GM is a failed company," and "They will never get better."  I think both of those are flawed.  My premises are:  "GM is a weakened company," and "Throwing the baby out with the bathwater serves no one."  The difference between the two viewpoints is based on whether you think the gov can force positive change, and it's obvious you think not.  I think the gov can and does do it.  

Look at the FDIC and how it's worked with IndyMac, to not only ensure continuity of service to its depositors but how it's also done an excellent job of refinancing mortgages in its portfolio.  To me this is (unsurprising) proof that a government entity can reform a failed institution and prepare it for re-entry into the private world.  

I'm not saying it can happen all the time, and it's not a perfect solution.  Ideally, I'd love market forces to reform companies and leave the govt out of it.  But sometime the market malfunctions and doesn't reflect reality.  That's the core of my argument, really.  We're in an environment that distorts the free market, so it's no wonder that companies are in distress. To simply let a sector fall apart and try to reform itself at market pace and on market terms when the market's broke just won't cut it.  

The failure of imagination part comes right back to the idea that there is opportunity in chaos.  We have a boatload of systemic problems with our economy, our education system, our healthcare system, our environment . . . you name it, we're deep in it.  We have a partial opportunity to play large and play smart . . . and we have the leverage to do it.

Of course, if you're a Norquistian, what I just wrote probably made your eyes bleed.  But hey, what would we do without at least a token big govt liberal on this board?

[we vs us]

And PS, the private jet thing, while deplorable, is just big media bull**** populism.  It doesn't have anything to do with the issue.  Full stop.  These guys do similarly egregious things all the time.  Welcome to the world of the disgustingly wealthy. Welcome to capitalism!

[guido911]

Mitt Romney's take on letting the Big 3 going Chapter 11:

http://hotair.com/archives/2008/11/19/romney-let-detroit-go-bankrupt/

[cannon_fodder]

quote:Originally posted by we vs us

And PS, the private jet thing, while deplorable, is just big media bull**** populism.  It doesn't have anything to do with the issue.  Full stop.  These guys do similarly egregious things all the time.  Welcome to the world of the disgustingly wealthy. Welcome to capitalism!

I agree wholeheartedly Wevus.  However, Congress above everyone else bows to populism. If I were asking for a monster handout I'd make sure my PR was as good as my congressional donkey kissing.

On your other points, government has provided the tools to effectuate change in a going concern:  Chapter 11 Bankruptcy.  That's what it is for.

Under Chapter 11 the company would be forced into receivership and the government would step in to reform it.  Simply put, that's how it works.  Government has done very well forcing change as needed from time to time, I certainly do not discredit that.

But, pouring money in forces no change what-so-ever.  It will not erase the fact that they lose money on every vehicle sold.  It doesn't change their outstanding liabilities.  Nor will it encourage management to do anything but maintain the status quo.  

Unfortunately, another $25B thrown at this problem is like changing out the propellers on the Titanic as water gushes in through giant holes.  Don't fix the holes, don't worry about the ice berg slamming the side.  But it will look pretty as she goes down.



- - -

Waterboy:

I don't believe I ignored any of your major premises.  I gave a fairly detailed reply and merely extrapolated your argument.  What party line am I holding?  As many Democrats and Republicans are hostile to this proposal and I am hostile to both parties.

The "business man's point of view?"  I bet the executives that are begging for money would disagree with that assessment.  I am arguing to let four large companies fail (Ford, GM, Chrysler, and the UAW).  Hardly in support of big business.

My pov is a economists perspective.  

If I failed to address any of your concerns I am happy to do so.  I did not intentionally avoid them for any reason.

1) The free market solely dictates the salaries of management.  Executives make large sums of money because people are willing to pay them large sums of money, pure market capitalism.  Large company directors, shareholders, and employees alike want the best people running the company.  Wanting anything else would be foolish.

What the general public considers obscene is not my concern at all.  If paying someone $1 Trillion will make me more money, I'll pay them.  If shareholders think it will increase their value, they will vote YES on the package.  The owner of my company dictates my salary, likewise the owner of any company.  If they don't like it, do something.

When every company wants the best people, the best people become suddenly expensive.  The same reason an ERA < 2 or a batting average > 300 earns baseball players millions of dollars.  Does hiring a big name previously performing person guarantee future results?  Absolutely not (see the Yankees).  But if given the choice between an expensive winner or a cheap loser/unknown, who would you want running your company?

Is management too often an entitlement club (he was the ceo of XYZ Corp, lets hire him!)?  Damn straight.  Should underperformed CEO's be dropped with lead parachutes, yes.

Is management ultimately responsible for the failure of a company?  Most of the time (other forces can kill it, see the asbestos industry) they are.  Do the workers suffer as a result?   Yes.

In the present instance, management at the big 3 have wholeheartedly FAILED.  Labor has continued to perform to their contract.  It is managements fault for giving in to contracts that they can not sustain.  Unfortunately, labor costs is the only avenue that those expenses can be addressed.  While existing management should be ousted, cutting executive pay in a draconian style would only ensure that the best executives available go elsewhere.

So I'm not blaming the downfall on laborers.  Management is in charge of keeping costs in check.  But I will say that the organized labor played their strong hand to forcefully against a weak management and may have busted the house.

See where I'm coming from there?

2) The system is not failing.  Most auto makers in the world continue to make money.  Including in the United States using United States labor.  Even the Big 3 make money over seas.  They just can't do it with their US labor contracts and legacy costs.

It is NOT akin to cars manufactured in Russia.  Cars manufactured in the United States were better in features, quality, and power.  There was no aspect that made Russian cars superior in any way.  They were merely cheaper.  They didn't even compete in the same markets.

I assume you are trying to show that labor costs int he Soviet Union would have been cheaper.  However, the comparison fails miserably on many levels.  The products were not comparable, there was no direct competition, and certainly the Soviets never manufactured cars on America soil.

I'm talking about the same labor pool (Americans) making comparable and competitive cars for the same market (Americans) in the same or similar locations (America) under the same laws (American).  The Toyota plant next door to the GM plant makes as good of a product for less.  Using the same "true cost of labor." Do you agree with that basic premise?

The system that is failing is compensation that exceeds the companies ability to pay.  Very simple.  $62,000,000,000 in present and deferred labor liabilities that are being paid for by each and every car sold.  They promised workers retirement and health benefits for 30 years... you can't afford that.  Simple.  Is it really nice to offer such things?  Yep.  I'll offer anyone on this board $1,000,000 a year to clean my house and lifelong retirement - doesn't mean a damn thing if I can't pay it.

3) If socialist companies have an insurmountable advantage, why are free market companies dominating most industries?  The most socialist of countries rarely produce innovative or excelling companies.  That's why even after recessions the USA out performs the rest of the world time and time again.  We let cancerous companies die off and new growth take the place.  Ask Japan how subsidizing dying companies works out (article linked in previous post).

When countries subsidize industry it does give them greater profits.  However, it does NOT give them greater profitability.  Efficiency does that.  For dollars in most of those companies offer less dollars out than free-market industries.  

The fact is for every shortfall that our free-market system yields to a socialist system, we enjoy advantages.  The Europeans have always been more socialist than us, yet the Big 3 used to compete very well.  Korea is very free market oriented, yet Hyndai is profitable.  

And all that doesn't matter.  At the end of the day Toyota USA has the EXACT same conditions GM does.  Toyota makes money, GM loses money.  Toyota USA does not get special socialist health care from Japan for their American workers.  Nor does VW, BMW, Honda, or any other foreign auto companies in the USA.  Yet they manage to make money.


4) Education system?

Are you argue that it is the lack of education of GM's workers that is costing them money?  American Engineers are well respected worldwide.  We import the brightest from around the world to fill any gaps.

I fail to see how a lack of education is hindering the Big 3 in the United States.  Please extrapolate.

5) We've already covered the executive pay angle, but consider that the CEO of GM made $3mil last year (stock options don't cost the company any $, they cost shareholders, he did not exercise any options anyway).  Let's pretend the other 10 executives made that much.  Lets pretend they each had 2 VPs making as much as the top man.

That's 31 people making $3 mil.  Or $93 million.  It is of no consequence to the big picture.  Of the $2,000,000,000.00 they lose each month, .003 of that is for executive pay.

Fire all the executives.  Don't pay them a dime.  GM would only lose $1,992,500,000.00 a month. Woot!  

For fun want to pretend 100 people make as much as the CEO?  Fire all of them and GM is only losing $1,975,000,000.00 a month.

Lets say the top 1000 executives & managers at GM all make as much money as the CEO.  Every executive, president, VP, chairmen, unit manager, and plant manager, plus line managers, marketing directors, whoever all make the same as the CEO. If we fired all of them, GM would STILL lose $1,750,000,000.00 each month.

Wow, lets drop down to finance directors, shift managers, and department heads.  Lets say 5,000 people working for GM make as much as the CEO.  If we fired all of them GM is still losing $750,000,000.00 per month.

You would have to find 8,000 GM employees making the same pay as the top executive to fire before GM would break even.  Unfortunately the #5 man in the company, Mr. Thomas Stephens P.E., 59, Exec. VP of Global Powertrain and Global Quality, makes $1.4mil per year.  I assume the chart drops off from there and we quickly get below the $1,000,000 thresh hold.  

Executive pay, while it may be absurd, is not a large enough piece of the pie to be the deciding factor in this failure.

6) Arguement #6 is that they are too big to fail.  This argument fails on the face of it.  Keeping the company alive will cost the economy money.  For every $1 put in GM outputs 75 cents of economic activity.  The company eats huge amounts of money.

Subsidizing failing companies removes capital from more productive uses.

7) If I were to eat Mexican food at 4am and run a marathon, I would not demand the government change the results of the race when I lost.  

I would make a lousy politician because I saw what I think and work to support my position.  I detest populism and hyperbole.  Yeah, it wouldn't be good.

In any event, populism is a pathetic reason to make an economic decision.   I don't want to do away with legacy costs, but it is apparent that such a thing is mandatory for GM to be a going concern.  The alternative, which I assume you are supporting, is for the Federal Government to assume those costs.

In that scenario you and I end up paying for someone elses promise.  They made a bargain they could not live up to, both parties involved knew or should have known this.  If I promise to pay you a sum I can not afford, no one will step in to cover for me.  You are simply out of that money.

It is highly unfortunate in this instance for the retirees, but they had the benefit of being over paid for decades.  The Union continually allowed underfunding of the pension plans and continually refused to take responsibility for it.  It sucks all around to be sure, but I am not responsible for the poor contracting of another.

Please promise ME exuberant sums of money then ask the government for it when you can't pay.

#9) 10% of the economy will not go away. America will suddenly not need cars?  Existing companies won't open up new plants, dealerships?  No parts will be required?  The increased production of other companies won't consume those mining resources?

Units of these companies are still viable.  Bankruptcy would entail MOST of them to keep operating.  The 10% loss scenario is propagandist doom and gloom.  The airlines tried it, the steel industry tried it, unions have tried it for nearly every mechanized piece of machinery that came along.  Things adjust and the market works.  It always has before.

Yes, it will probably be painful.  Even in Chapter 11.  But in the long run the economy, and by extension workers, will be far better off.

And who didn't see this coming 10 or 15 years ago?  GASP!  Detroit failing.  The news is they want Billions of money... not that they are failing. They've failed.  

#10) This grew retardedly long because I tried to address all of your points.

[sauerkraut]

I guess after the car makers ask for their hand-out (and/or corp. welfare), the Home Builders will be next asking for a hand out. The housing industry is in the dumper big time. Did ya hear that according to Reuters the Dow fell another 427 points today 11-19-08 and is now at the lowest since March, 2003. IMO Investors are dumping stocks in fear of Obama's tax increases. It's really looking grim..[xx(]

[Wilbur]

quote:Originally posted by we vs us

And PS, the private jet thing, while deplorable, is just big media bull**** populism.  It doesn't have anything to do with the issue.  Full stop.  These guys do similarly egregious things all the time.  Welcome to the world of the disgustingly wealthy. Welcome to capitalism!

While I admit the private jet thing looks very bad, the people preaching to the auto industry on how they spend money and run their companies is so ironic.  The congress folks doing the preaching spend way more money then they have and fly all over the world on government jets, spending more money they don't have.

I'd love to hear one of those auto execs give it right back to one of those panelist, although, their bailout money would go down the tube.