$700 Billion Bailout

[Balta1701]

Can't it be both?

 

Why should someone make $40-hr/$80k-yr plus overtime (plus another $35/hr or so in benefits) to screw on a car mirror?

Why is it a bad thing for people to earn a decent wage? Especially if the product they make is already priced at a lower price than similar levels of competition?

[lostfan]

Why is it a bad thing for people to earn a decent wage? Especially if the product they make is already priced at a lower price than similar levels of competition?

I was actually going to type that it's a copout to blame individual people for wanting more money as if it were that simple. The UAW shares some blame on this no doubt, but to blame it all on them is pretty silly IMO. Blame the executives, just like with the banks.

[StrangeSox]

Why is it a bad thing for people to earn a decent wage? Especially if the product they make is already priced at a lower price than similar levels of competition?

 

First, $80k is a little more than "decent" for unskilled assembly line labor. It's a bad thing for people to earn far more than their labor is worth because of a union strong-arming management.

 

It's a matter of economics. Their jobs don't really warrant that level of pay, and as we're seeing, it isn't sustainable (many unions are pricing themselves out of work because of their pay scales). Even with their cars priced at lower levels, they were still losing market share every quarter. They could price them lower or pump more money into R&D, but instead they have to pay unskilled labor incredibly high wages. When the people assembling the product make more than the engineers behind the product, something's gotta give.

 

I was actually going to type that it's a copout to blame individual people for wanting more money as if it were that simple. The UAW shares some blame on this no doubt, but to blame it all on them is pretty silly IMO. Blame the executives, just like with the banks.

 

I have blamed management as a major part of the problem repeatedly.

Edited December 12, 2008 by StrangeSox

[lostfan]

I have blamed management as a major part of the problem repeatedly.

I know, that wasn't really directed at you specifically. I've actually seen people blaming the UAW as the problem which is pretty ridiculous.

[Balta1701]

It's a matter of economics. Their jobs don't really warrant that level of pay, and as we're seeing, it isn't sustainable (many unions are pricing themselves out of work because of their pay scales). Even with their cars priced at lower levels, they were still losing market share every quarter. They could price them lower or pump more money into R&D, but instead they have to pay unskilled labor incredibly high wages. When the people assembling the product make more than the engineers behind the product, something's gotta give.

The remarkable thing is though...somehow it certainly seems to me like all 3 of them have had plenty to spend on R&D. They've just a lot of times chosen to spend that money building cars that weren't sustainable through an oil price shock, and the current crisis relates to them getting ripped apart by that. Ford, for example, has supposedly done an awful lot of good in terms of improving the quality of its vehicles. There's no one out there saying that these companies weren't introducing enough new cars or anything like that, they just totally failed to anticipate the way the market was going to move. And they tried spending a ton on lobbyists to convince the people over their heads that it wasn't going to move, that they were greening with the fake green fuel E-85 & crap like that, when they really weren't. Hell, GM's vice chairman still thinks that the future of his company is in the SUV as far as I can tell.

 

Perhaps the weirdest thing about that claim is that somehow, GM's R&D department has finally come up with a car that I would consider jumping at in a couple years once the initial price comes down; the volt.

[StrangeSox]

Explain to me how an $800/ vehicle (and at roughly 2M/ year for Ford alone, that's 1.6B a year) isn't a significant competitive advantage, and please justify $80k a year + incredible benefits for unskilled labor.

 

They kept with the big trucks and SUV's because they're cheap and easy to design. It's harder (read: significantly more expensive) to design a small, lightweight car with a direct injection gasoline engine that still meets federal safety standards and has all of the comforts and features Americans want these days.

 

Ford was a big sponsor at U of I where I went through engineering. They used to hire several people out of there every year. By the time I got there, they were lucky to hire one, and most years it was zero. That leads them to recruiting less expensive (read: not as good) engineers, or to cut R&D costs all together (which is exactly what they did). They simply were not hiring new, talented engineers. Honda and Toyota, on the other hand, recruited heavily.

Edited December 12, 2008 by StrangeSox

[Balta1701]

Explain to me how an $800/ vehicle (and at roughly 2M/ year for Ford alone, that's 1.6B a year) isn't a significant competitive advantage, and please justify $80k a year + incredible benefits for unskilled labor.

Because $800 a year when your vehicles are already priced $3000 or so less than a comparable foreign car (according to the data I posted 2 days ago that no one has yet refuted) isn't going to make a large difference. It wouldn't be trivial, but if people are already buying the more expensive vehicle for other reasons, then cutting your price a few additional hundred dollars isn't the answer.

 

When I bought my Civic, I knew I could get a better deal on a small car from GM or Ford. But I wasn't even going to consider a GM vehicle after the piece of CR/AP that I had in high school and after how I was treated by that dealership. Ford I might have been more open to, but I quickly narrowed my list to just the Toyota and the Honda versions, and started shopping.

[StrangeSox]

I'm not going to argue the point about perceived quality, because I agree with that 100%.

 

I still don't see any explanation for 1.6B not being a competitive advantage.

[Balta1701]

I'm not going to argue the point about perceived quality, because I agree with that 100%.

 

I still don't see any explanation for 1.6B not being a competitive advantage.

Ok, here's another way to look at it. Say GM et al. raised their prices right now by an amount equal to the additional amount you say they pay out to their employees per vehicle. That would then have allowed them to spend all that money hiring engineers that you say Honda and Toyota are spending. If they have a $3000+ price advantage per vehicle right now, they'd still have a $2200 price advantage over the competition, and they'd have all the engineers they want to make their products better.

 

The fact is, that's not what they chose to do. They chose to race to the bottom in quality and intelligence and planning for the future.

[StrangeSox]

I'm sorry, but that is still not an explanation for a 1.6B disadvantage in labor costs, or why someone with a screwdriver should be paid $80k/ year. You don't think sales would be affected by a price increase of $800? $800 on the cost of a car is a ridiculously huge amount of money when you have that sort of volume. Engineers would kill that have a bonus $800 in the design budget. And its not just high wages that are the problem. Union work rules in the plants are absolutely ridiculous.

 

BTW, the article you quoted stated $2500, not $3000, and there is no actual data given for that number. I tried looking for any other comparison of cost and came up blank.

Edited December 12, 2008 by StrangeSox

[mr_genius]

i love how this somehow becomes the workers fault.

 

the UAW demanded they make SUV's and gas guzzlers. the UAW contracts have crippled these American car companies. The UAW is a major factor. This is a fact. The executives at these companies suck too.

 

no bailout. i don't want to subsidize these corrupt unions and incompetent executives, i don't care how much money in bribes they give to the Democrats.

Edited December 12, 2008 by mr_genius

[mr_genius]

When I bought my Civic, I knew I could get a better deal on a small car from GM or Ford. But I wasn't even going to consider a GM vehicle after the piece of CR/AP that I had in high school and after how I was treated by that dealership. Ford I might have been more open to, but I quickly narrowed my list to just the Toyota and the Honda versions, and started shopping.

 

you don't even buy american cars but want us all to bailout these companies? if these companies are not competitive they need to fail. thats how things will adjust themselves correctly. merely tossing money into a failed system over and over does nothing.

[Balta1701]

you don't even buy american cars but want us all to bailout these companies? if these companies are not competitive they need to fail. thats how things will adjust themselves correctly. merely tossing money into a failed system over and over does nothing.

The problem with that logic is the house of cards. Many/most of the foreign auto companies that have factories here and abroad that make parts use similar suppliers down the chain. If you cut 50% of their orders by killing off the American auto companies, those companies go under as well. And then that even takes a shot at the foreign company. And then on top of that, you're doing it at the worst possible time for the economy as a whole. If all you did was delay their bankruptcy by 2 years, and let them fall apart in 2010, then you might avoid digging the gigantic hole in the economy by spreading the pain out over time.

[mr_genius]

The problem with that logic is the house of cards. Many/most of the foreign auto companies that have factories here and abroad that make parts use similar suppliers down the chain. If you cut 50% of their orders by killing off the American auto companies, those companies go under as well. And then that even takes a shot at the foreign company. And then on top of that, you're doing it at the worst possible time for the economy as a whole. If all you did was delay their bankruptcy by 2 years, and let them fall apart in 2010, then you might avoid digging the gigantic hole in the economy by spreading the pain out over time.

 

If the auto companies were serious about becoming viable they would have got their bailout, but they decided to play hardball and lost. They need to accept terms that will be acceptable. They need to accept pay that is equal to the successful manufacturing auto companies in the United States. The failed UAW pay structure should not be subsidized at the expense of the successful companies, why should a souther auto worker being tossing in for their overpaid Michigan counter parts?

 

The true house of cards is the continued threats of doom and gloom if companies do not get endless bailouts. If they need to file for bankrupcy thats what they need to do. GM is burning 2 billion a month, there is no way we should be handing them billions and billions until they decide the market is good enough to restructure. When the market does pick up they will not restructure because 'it's all good now'. But when the market hits a bump again they will crash and burn once again because they have absolutely no durability.

Edited December 12, 2008 by mr_genius

[Balta1701]

The true house of cards is the continued threats of doom and gloom if companies do not get endless bailouts. If they need to file for bankrupcy thats what they need to do. GM is burning 2 billion a month, there is no way we should be handing them billions and billions until they decide the market is good enough to restructure. When the market does pick up they will not restructure because 'it's all good now'. But when the market hits a bump again they will crash and burn once again because they have absolutely no durability.

I believe I could have heard the exact same phrase after the failure of Bearstearns. We followed that advice when we let LEH fall without a bailout. That simply destroyed the entire financial system.

 

We can debate another time whether it's a good idea to allow these companies to become to big to actually shut their doors. The reality is, they're too big to let them shut their doors, especially at this particular time in the economy.

[mr_genius]

I believe I could have heard the exact same phrase after the failure of Bearstearns. We followed that advice when we let LEH fall without a bailout. That simply destroyed the entire financial system.

 

We can debate another time whether it's a good idea to allow these companies to become to big to actually shut their doors. The reality is, they're too big to let them shut their doors, especially at this particular time in the economy.

 

but wait, i thought the bank bailout would fix the credit market and everyone would buy cars and houses? because, as we all know, bailouts are the only way to save the economy or any industry.

[Balta1701]

but wait, i thought the bank bailout would fix the credit market and everyone would buy cars and houses? because, as we all know, bailouts are the only way to save the economy or any industry.

Had it been designed and implemented better it might have helped, but there was no way it was going to stop the recession. The difference with these bailouts at this point is whether we're talking a recession or a depression.

[mr_genius]

Had it been designed and implemented better it might have helped, but there was no way it was going to stop the recession. The difference with these bailouts at this point is whether we're talking a recession or a depression.

 

but this auto bailout has an equally bad design. does it really fix the economy to spend money in inefficient ways which do not accomplish their intended goals? so we should follow up a poorly designed bank bailout with a poorly designed auto bailout?

 

 

Edited December 12, 2008 by mr_genius

[mr_genius]

Where do you draw the line? Should every industry get a bailout, i'm sure they can all threat a 'great depression'. Honestly, if there is going to be another great depression these poorly designed bailouts and massive deficits are only going to make it that much more worse. They won't prevent it.

[Balta1701]

but this auto bailout has an equally bad design. does it really fix the economy to spend money in inefficient ways which do not accomplish their intended goals? so we should follow up a poorly designed bank bailout with a poorly designed auto bailout?

In terms of the bank bailout I'm not certain. But I think the reality is...with the size of even the largest auto bailout packages they were talking about, $35 billion or so, if we're talking about something in the neighborhood of 2-3 million jobs, then we're talking about $10,000 a job to delay having the impact of that bankruptcy hit at a time when everything else is going to hell. Even if all it does is delay the inevitable for these companies, then having the government spend $10,000 per person to keep a couple million people working for another 2 years is a reasonable move given the fact that the federal reserve has run out of stimulus ammunition already. That's probably cheaper per job than almost anything we're going to get out of the stimulus package that the New President will be signing.

[mr_genius]

In terms of the bank bailout I'm not certain. But I think the reality is...with the size of even the largest auto bailout packages they were talking about, $35 billion or so, if we're talking about something in the neighborhood of 2-3 million jobs, then we're talking about $10,000 a job to delay having the impact of that bankruptcy hit at a time when everything else is going to hell. Even if all it does is delay the inevitable for these companies, then having the government spend $10,000 per person to keep a couple million people working for another 2 years is a reasonable move given the fact that the federal reserve has run out of stimulus ammunition already. That's probably cheaper per job than almost anything we're going to get out of the stimulus package that the New President will be signing.

 

It really isn't feasible. These companies are losing 6 billion per month, they need to limit their costs or they get no assistance. It's that simple, the union merely needs to accept that they will be making as much as their counterparts in the United States and have similar benefits; or they can lose their job. It's up to them. Other auto companies will take over the market share and these manufacturers make cars in the US as well. Cars will be made here in the US, just not by the UAW.

 

last year GM and Toyota sold an equal amount of cars, but Toyota made 12 billion and GM lost like 36 billion. This is the main problem here, a bailout without effective cost cutting initiatives is pointless. These jobs are going away without them, the bailout will encourage this type of reckless business model thus adding to a bad market economy.

Edited December 12, 2008 by mr_genius

[Balta1701]

It really isn't feasible. These companies are losing 6 billion per month, they need to limit their costs or they get no assistance. It's that simple, the union merely needs to accept that they will be making as much as their counterparts in the United States and have similar benefits; or they can lose their job. It's up to them. Other auto companies will take over the market share and these manufacturers make cars in the US as well. Cars will be made here in the US, just not by the UAW.

 

last year GM and Toyota sold an equal amount of cars, but Toyota made 12 billion and GM lost like 36 billion. This is the main problem here, a bailout without effective cost cutting initiatives is pointless. These jobs are going away without them, the bailout will encourage this type of reckless business model thus adding to a bad market economy.

You're ignoring so many other variables there that I really don't have time or ability to point them out right now, but I just wanted to add this; if the type of car they sell is slightly different on average, or one type has to be discounted much more heavily (say, you have to slash the profit margin on an SUV because it's the only way you can move the products you're making) then it won't matter that they're making equal numbers of sales, the company with the more intelligent planning will win regardless.

[mr_genius]

You're ignoring so many other variables there that I really don't have time or ability to point them out right now

 

yet you still refuse to acknowledge the most important overriding variable; they are losign money at a rapid pace and begging for a bailout. they are in no position to be making demands or to be stubborn. they can't compete as they are currently set up, short term, short sighted, solutions will not create long term economic stability. if these companies want to be bailed out they need to show viability otherwise there is no point in giving them tens of billions. by the way, they will be back in 2 months for another bailout.

Edited December 13, 2008 by mr_genius

[kapkomet]

It's as simple as this...

 

The legacy car company business model is dead. Until they recognize that and MORE IMPORTANTLY do something about it, they will not make money. The bailout is not the point, other then we're on the hook for their stupidity (oh, wait, just like everything else now).

[Rex Kickass]

It's as simple as this...

 

The legacy car company business model is dead. Until they recognize that and MORE IMPORTANTLY do something about it, they will not make money. The bailout is not the point, other then we're on the hook for their stupidity (oh, wait, just like everything else now).

 

What I can't believe is what so many people here are advocating, essentially going back on the word of a company who expected and received decades of loyalty from their employees in exchange for health benefits and a pension. It's sad that this is seen as unacceptable by so many here.

 

Toyota/Honda/Nissan's advantage? They don't have nearly a century of history behind them of building cars in the US and don't have those legacy costs. In 15 years, they will.

 

Chrysler got a bailout loan thirty years ago and it worked for them for quite some time.