Tuesday, December 16, 2008

Ideology Over Sanity -About Bankruptcy and The Big Three

MarketWatch had a very gloomy headline last week: More Tribunes, Lehmans likely in coming months. The truth contained in that headline makes it even gloomier. Then we have the chatter - if not the pushing - of the Big three Automakers towards bankruptcy court, this drive towards bankruptcy seems likely. Some recapping of the news follows.

Rescue Bid for Detroit Collapses in Senate comes from The Wall Street Journal:
"The collapse of the talks represents a major defeat for three companies and an auto union that once wielded immense political clout. Even after two appearances in Washington by the GM, Ford and Chrysler CEOs, and a show of solidarity with the UAW, the auto makers were unable to convince many skeptical lawmakers to change their minds and support a bailout.

Only a handful of Republicans in the Senate had been willing to support the rescue package. Some raised concerns about government intervention in the marketplace. Others demanded the bill be strengthened to exact concessions from the industry.

Congress also remains bitter over the handling of the $700 billion financial rescue, which lawmakers on both sides feel they were pushed into approving and are displeased with the results."
The financial bailout has all the problems associated with anything the Bush Administration has done these past seven years: colourlessness shrouded in big noise.

I am on the side of those who think the bankrupting the Big Three is a dangerous idea. Unlike service industries (and those being financial services and newspapers) and even unlike the favorite of television pundits, the airlines, these manufacturers have a long chain of suppliers. Therein lies the practical problem with pushing the Big Into Bankruptcy. The practical problem has a basis in bankruptcy law that I wrote more about here.

I assume GM's (or Ford's or Chrysler's) suppliers have made what will turn out to be preferential transfers which will be forced from their creditors and those creditors will moving towards bankruptcy court themselves. And then their creditors. Just like a row of dominoes they may all be heading to bankruptcy court.

The price seems far too high to me for games of myopic idealism such as this from Jane Q. Republican and her GM Bankruptcy: A Golden Opportunity:
"Sounds like a fresh start would include liberation from the stranglehold of unionization. That element alone is reason enough to allow this ship to sink."


"The federal government should not be acting in the role of arbiter in matters of competitive industry.

But the United Automobile Workers union, which has joined the automakers to push for a bailout, might find grounds for a strike if a bankrupt G.M. asked a court to throw out its labor contracts.

Like the air-traffic controllers before them, they should strike. Until industry stops bowing to this method of union coercion, it will continue. The US does not negotiate with terrorists. American industry should adopt a parallel policy. The threat of a UAW strike should have no bearing on a decision to allow GM to fail naturally."
Let us welcome back the economic prosperity of the 90's, the 1890's. She fits into this paragraph from Eugene Robinson's The Senate GOP Seems Set on Hastening the Death of Detroit:
It may be that General Motors, Chrysler and Ford are lumbering, Jurassic beasts that deserve their looming extinction. But only a free-market fundamentalist, a lunatic or a Senate Republican -- perhaps that's redundant -- would conclude that now is the moment to hasten Detroit's demise."
It seems especially strange when the UAW has made concessions (UAW Boss Avoids Question on Health Concessions):
"The bulk of that money would have been due in January 2010, but the United Auto Workers agreed Wednesday to delay indefinitely the next installment of VEBA payments by General Motors, Ford Motor Co. and Chrysler.

Corker also said the UAW needs to give up supplemental pay for laid-off workers that, when combined with state unemployment, brings the laid-off workers to nearly full wages.

Under last year’s contract with the UAW, the Detroit automakers transferred retiree health care obligations to a union-run fund. GM, for example, agreed to shed a $51 billion liability by contributing $35.3 billion to the trust.

Gettelfinger said Wednesday’s announcement also included a big concession: suspension of the Jobs Bank. That contractual provision requires the automakers to pay up to 95 percent of wages and benefits to laid-off autoworkers."
The UAW has gone far from the days of Walter Reuther. We could argue if that is a good thing or not, and how they have changed but the workers know the extent of their power. GM can close a plant and move it to Mexico (or China or wherever) much easier than a factory worker can move home and family. The UAW shows itself as being more rational than the Senate Republicans. That the workers and their union are not suicidal seems to be the stumbling block for the Republicans.

Has no one read any of Delorean's On Clear Day You Can See GM? Did anyone ever buy a J car? That GM (and the other two) has been in a pretty much self-satisfied mess for decades is pretty well-known. Things have changed. Again from Eugene Robinson's The Senate GOP Seems Set on Hastening the Death of Detroit:
"To state the obvious, no one is eager to use hard-earned taxpayer dollars to bail out the bozos of Detroit. Yes, I know that American cars are better than they used to be, and, yes, I know that the much-heralded Chevy Volt is on the way. But our domestic auto industry has been thoroughly out-thought and out-hustled by the foreign competition, and no infusion of public funds is likely to change this pattern.
No one I have heard has mentioned how our lower than natural gasoline prices protected the Big Three developing electric cars or higher mileage gasoline engines. No one mentions the tariffs that protected them well into the Seventies. Maybe all this past government protection ought to lessen the Republican criticism now? Hard for me to calmly ignore the enablers complaining of the addict's weaknesses.

I have not driven a GM vehicle since 1984. I drive Fords. Which to me, growing up in Anderson, Indiana, remain a foreign automobile. GM's style sucked pretty much except for the Saturn line.

I agree with this point from Republicans Bankrupt GM, Chrysler.:
"Now, don’t get me wrong, I understand opposition to the proposed bailout. Such opposition is both reasonable and principled. Failed companies should fail. That is the free market. That is capitalism. The only reason this bailout got any traction at all is the workers GM and Chrysler employ and the disastrous affect of letting GM and Chrysler fail will have. Over 2 million workers across the United States will lose their jobs in a weeks’ time. Whole towns where the local GM or Chrysler plant is the main driving force of the local economy will be destroyed. Businesses that make parts and supplies for GM and Chrysler will go under in a month or two. The untold number of people who work for those companies will be unemployed."
I guess one way for the Republicans to give everyone a tax cut is to knock them down a few tax rates. The Republicans ignore how much those union workers pay in taxes. The same taxes that fund the Wall Street bailout and the no-bid Halliburton contracts. Along these liens read When It's a Clear Day and You Can't See GM from a Republican, Paul Craig Roberts ( I guess not all Republicans are sociopaths.)

Let us not forget that all this has a foreign aspect:
GM, Chrysler face bankruptcy by end of the year:
"The Australian Industry Minister, Kim Carr, who recently negotiated a $6.2 billion package to support the Australian industry, said he believed the US Congress would sort out a deal. 'It is not a question of if but when a settlement will be reached,' he said.

Andrew McKellar, the chief executive of the Federal Chamber of Automotive Industries, said it was hard to determine what effect there would be on Australia's car makers, of which Holden and Ford are fully owned subsidiaries of the US companies.

GM employs 252,000 people worldwide but economists fear the collapse would have a ripple effect through the US economy as parts suppliers and car dealerships went to the wall, causing huge dislocation throughout America."
How will this affect the world economic crisis? Does the Republican Party care about pushing the whole world into a depression?

The other foreign aspect is that it is not only American car makers who are having trouble. All car makers are having trouble.
Honda cuts North American production again:

"Honda says it is making more production cuts in North America as it adjusts to lower demand.

Honda Motor Co. is lowering production by another 119,000 vehicles, bringing anticipated production for its fiscal year ending March 31 to 1.3 million cars and light trucks. The company already has cut production by 56,000 units this fiscal year.

The No. 2 Japanese automaker says that figure is still its fourth highest production in 27 years of vehicle building in North America. Honda builds cars and parts in eight plants in the U.S. - including an Indiana plant in Greensburg- and Canada and Mexico.

Honda and other foreign automakers have not been immune to the collapse in car demand in the United States. Honda reported its sales fell 32 percent in November."
Which leads me to believe that there is a general problem with the auto industry as well as the specific problems with the Big Three. Bankruptcy will not help that problem.

Union busting seems the interest of the Senate Republicans. Eugene Robinson points out what I think is a crucial bit of hypocrisy on the part of the Senate Republicans:
Funny, I don't recall a cry from Senate Republicans for salary caps on the stockbrokers whose jobs were saved in the Wall Street bailout. Nor, to my knowledge, have they demanded that white-collar workers in the auto companies take pay cuts. I do recall lectures from some Republicans in the Senate about how inadvisable it is for government to meddle in the workings of the free market. In my book, renegotiating labor contracts qualifies as meddling.
The only rational conclusion is that the Senate Republicans want to kill the UAW. Not that they have any concern with anything else. Maybe those Nixon/Reagan/Bush Democrats will think through what Republicans really want from them: financial suicide.

Bankruptcy offers only an illusion of a solution for the business problems of the Big Three. It does offer the end of the UAW for the Republicans.

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