Big Surprise: Unions Want A Bailout Deal For Detroit

And now, the shoe is on the other foot. It should come as no surprise that the UAW is now putting pressure on Congressional Democrats to support a bailout of Detroit. After all, if the Big Three go into Chapter 11, all of those union contracts will be torn up and would have to be renegotiated, assuming whomever comes in to replace the Big Three want to negotiate at all.

Thus, the union bosses like Ron Gettelfinger would lose their large salaries and would have to come up with really good explanations about things like why the new owners have to pay workers for not working.

David Goldman at CNN notes:

The UAW called on Congress to provide a low-interest bridge loan to get the companies through the end of the Bush administration until President-elect Barack Obama can put in place a bigger bailout package that will help restore General Motors, Ford and Chrysler to solvency.

But the UAW is a major reason why Detroit is in such bad shape. The unions have bled so much capital away from the companies that there is no money left for modernizing or improving the productions lines. Further, the union negotiated contracts have artificially inflated the prices of American autos to the point that now foreign carmakers have the majority of the market share.

If the unions are for a bailout of Detroit, then those of us living on Main Street U.S.A. should be against it.

You can access the complete article on-line here:

UAW To Congress: Get A Deal Done
David Goldman
CNN.com
November 20, 2008

Another Reason For Opposing A Bailout Of The Big Three Automakers

Jobs bank programs. I doubt anyone can give one good reason why we should pay people not to work. But that is what is happening up in Detroit and one of the many reasons why the American automakers are failing.

The following excerpt comes from a story first published by the Detroit News back in 2005. It should have been a clear warning sign to anyone who read it.

Ken Pool is making good money. On weekdays, he shows up at 7 a.m. at Ford Motor Co.’s Michigan Truck Plant in Wayne, signs in, and then starts working — on a crossword puzzle. Pool hates the monotony, but the pay is good: more than $31 an hour, plus benefits. “We just go in and play crossword puzzles, watch videos that someone brings in or read the newspaper,” he says. “Otherwise, I’ve just sat.” Pool is one of more than 12,000 American autoworkers who, instead of installing windshields or bending sheet metal, spend their days counting the hours in a jobs bank set up by Detroit automakers and Delphi Corp. as part of an extraordinary job security agreement with the United Auto Workers union.

“Extraordinary” doesn’t even begin to cover it. I doubt that other workers in the United States get such a sweetheart of a deal. But, it is the rest of the United States that pays for this program in the form of higher priced cars.

More:

Detroit automakers declined to discuss the programs in detail or say exactly how much they are spending, but the four-year labor contracts they signed with the UAW in 2003 established contribution caps that give a good idea of the size of the expense. According to those documents, GM agreed to contribute up to $2.1 billion over four years. DaimlerChrysler set aside $451 million for its program, along with another $50 million for salaried employees covered under the contract. Ford, which also maintained responsibility for Visteon Corp.’s UAW employees, agreed to contribute $944 million. Delphi pledged to contribute $630 million. In August, however, Delphi Chairman and Chief Executive Officer Robert S. “Steve” Miller said the company spent more than $100 million on its jobs bank program in the second quarter alone. “Can we keep losing $400 million a year paying for workers in the jobs bank and $400 million a year on operations? No, we cannot deal with that indefinitely,” Miller said in a recent interview with The Detroit News. “We can’t wait until 2007.”

Steve Miller got it right. Has Detroit learned any lessons from this? Maybe some small ones. The jobs bank was cut in 2007 under a collective bargaining agreement with GM, but it was not done away with.

Given that the Big Three are going to the Feds begging for a bailout, it was obviously too little, too late.

You can access the complete article on-line here:

Jobs Bank Programs — 12,000 Paid Not To Work
Bryce G. Hoffman
The Detroit News
October 17, 2005

No Bailout For The Big Three Automakers

Most of us were pretty adamant that we did not want our tax money going to bailout failing financial institutions on Wall Street, especially since those same institutions were failing due to government regulations that forced them into bad business practices. Here we are several weeks later and it is looking like that bailout is going to go down in history as a huge, $905 billion failure.

Now, Congress is talking about bailing out the Big Three automakers, General Motors, Chrysler and Ford. I am against this bailout for essentially the same reasons as being opposed to the Wall Street bailout: bad business practices being forced upon the automakers, not by government, but by the United Auto Workers Union.

Plain and simple, because of the lunacy of the union negotiated contracts, American automakers cannot compete with foreign automakers and produce a quality car for the same low price. Thus, Detroit is in big trouble with no way out.

Investor’s Business Daily, giving credit to former Clinton Administration official Robert Riech, goes through the issues that the union brings to American automakers and why those issues prevent Detroit from competing in the world market.

Reich says that if a bailout is to be given, then the unions must be willing to give back many of their contract perks. I say that these same issues show exactly why no bailout should be given at all and the Big Three should be allowed to go into Chapter 11.

From the IBD editorial page:

[T]he companies’ poisonous contracts with the United Auto Workers union have to be torn up. The problem is that the UAW, under President Ron Gettelfinger, remains adamant: No givebacks. This is financial lunacy. Thanks in part to managerial incompetence, but mostly due to pricey union contracts, it costs American carmakers too much to build cars here; they can’t compete. When you fold in health care, pensions, hourly pay, vacations and the rest, average total compensation for a Big Three autoworker is $73.21 an hour, according to data cited by University of Michigan economist Mark Perry. Toyota, Honda and Nissan pay a still-generous $44.20 an hour in total compensation — a cost edge of nearly 40%. Is it any wonder that Ford, GM and Chrysler can’t compete? Or that, after paying their workers, they never have enough cash left to retool?

That last paragraph shows how union contracts are holding the automakers back. The automakers cannot afford to retool because they are doing things like paying laid-off workers 90% of their salaries for not working.

More:

These aren’t temporary problems. They’ve been brewing for decades, as management agreed over and over to labor deals that now financially strangle the industry. Yet, UAW’s Gettelfinger claims the weak economy is to blame for the industry’s woes. Nonsense. As blogger (and former corporate CEO) Jim Manzi notes, American carmakers in 1960 owned 90% of the U.S. auto market. This year, for the first time ever, that share slipped below 50%. Japan’s Big Three — Honda, Nissan and Toyota — make anywhere from $900 to $1,600 in pretax profit on each car they make in North America (mostly in southeastern states, with non-union contracts). America’s Big Three, by comparison, lose anywhere from $400 to $1,500. Truth is, they’re being out-hustled and out-priced in their own backyard due mainly to labor agreements that have driven up costs and become a millstone around their neck.

Chapter 11 will allow the Big Three to tear up those union contracts and start fresh. That is what is needed more than anything else.

Jack and Suzy Welch at Business Week make the case for Chapter 11 as well.

A government handout, however, isn’t the way to make that happen. Washington would impose conditions and promise strict oversight, but it simply can’t push through the kind of transformative change the industry needs. There would be too much political opposition, and regardless, the bailout sums being bandied about—$25 billion of taxpayer dollars, for starters—would only keep the Big Three heaving along, basically as they are. It’s a life-support solution, not a cure. That’s why the boards of the automakers should take the courageous step of putting their companies into bankruptcy. Some creditors might make the case for liquidation, but given the diminished worth of the automakers’ assets, that’s an unattractive scenario. Instead, creditors would most likely opt for the government stepping in as the debtor-in-possession financier supporting the reorganization. Talk about a fresh start. For more than a decade, U.S. carmakers have chipped away incrementally at massive legacy costs. But reorganization would open the doors to meaningful structural change through the renegotiation of contracts with creditors, dealers, and unions. And it would offer better odds of paying back taxpayers.

A bailout is not going to work and it certainly will not encourage the UAW to do the right thing and allow a massive reorganization of the Big Three’s management and production practices.

A majority of Americans were against the Wall Street bailout and it turns out that we were right to be opposed. But the Democrats in Congress are itching to repay the UAW and other unions for their political support during the elections, and they want to repay them with our tax dollars.

We need to send another message to Congress that this bailout is not acceptable. We need to tell Congress that the interests of the American people must take precedence over the interests of a bloated and self-serving labor union.

You can access these articles on-line here:

If No Givebacks, Then No Bailout
Investor’s Business Daily Editorials
November 17, 2008

GM: The Case Against A Bailout
Jack and Suzy Welch
Business Week
November 18, 2008

Divest From The Failures And America’s New Credo: Qua Mei? (Where’s Mine?)

It’s going to happen. Wall Street is going to get bailed out at a cost of $700 billion to the taxpayer. It makes me sick to think that Congress, with their ultra-low approval rating, is going to saddle more bills on us and that those bills are going to be passed along to our children and grandchildren.

Well, we voted for change in 2006 when the Democrats took over and now we are really getting that change. It just isn’t the change that the Dems promised us.

On the way into work today, I heard a caller on a morning talk show suggest something that we should all look into. He offered that we should all pull whatever money we have out of the banks being bailed out and invest it instead in a bank or institution that operates on more sensible business practices. That sounds like a very good idea. We need a list of all the banks that will be partaking of this bailout so that we’ll know which ones to pull our money out of.

You may ask: “Why pull your money out if they are getting bailed out?” Because they will get right back into the same trouble as they will continue to operate under the same bad business principles that got them here in the first place. Remember the Chryler bailout back in the early 80′s? I do.

Here are some that I know of:

• American International Group (AIG)
• Goldman Sachs Group Inc.
• Merrill Lynch & Co.
• Deutsche Bank AG
• Morgan Stanley

We, as a people, should not in the least bit tolerate having these institutions around if they are simply going to suck money out of us every ten or fifteen years. Since the government won’t get rid of them, we need to do something.

I have already called my investment broker and asked him to look into which of my investments are held by the above institutions. When he finds them, he will pull me out of them and reinvest the money more sensible institutions.

I recommend that you all do the same.

Now that I’ve gotten that off my chest, let me share with you some more reasons why we should divest from these failing lenders.

D.F. Krause from North Star Writer’s Group has penned an open letter to Congress in which he asks “Where’s mine?” Along the way, he notes some of the more ludicrous bailouts that are taking place with Congressional support.

From his column:

I also see that Congress wants to loan $25 billion to the Big Three automakers. Gosh, why don’t they just borrow the money from banks? Oh. Right. I forgot. Their credit ratings are garbage and no bank in its right mind would loan them money – especially when they’re so busy doing all these subprime mortgage deals! I guess banks aren’t very smart, but even they know better than to loan money to GM, Ford and Chrysler.

The only time I ever hear the words “bank” and “smart” in the same sentence is when the banks are being criticized, and rightly so.

Remember when you bailed out Chrysler 30 years ago? Now they want money again. What a surprise! And how did they talk you into that one? By promising that at least this time they won’t bring Lee Iacocca with them?

That line may have been written sarcastically, but it is absolutely true. Bailing out businesses that practice bad habits will lead to more bailouts in the future. Those businesses should have been allowed to fail.

Wall Street invested billions in bad mortgages. GM, Ford and Chrysler wasted billions and made crappy cars no one wants.

Where does it all end? Right at the foot of the American taxpayer.

You can access the complete column on-line here:

Qua Mei? America’s New Credo: ‘Where’s Mine?’
D.F. Krause
North Star Writer’s Group
September 29, 2008