Alternatives to loans for Detroit automakers
Senate Republicans – not all of them, but a vocal majority – made it clear over the past weeks that they felt Detroit was filled with dinosaurs who couldn’t make a good car if their lives depended on it. They blocked attempts to get emergency loans with reasonable conditions (5% interest, and no merging or selling out) to the automakers, which now, in return for bridge loans, have to get creditors to take 1/3 of what they are owed, pay workers (including those with 20 or 30 years’ experience) salaries and benefits equal to non-union shops, and give up much of their equity. Even then, because of a terrible car market – caused not by automakers, but by constant bank de-regulation for 28 years – many analysts are saying that GM, Ford, and Chrysler will not survive.
A big problem, aside from a sudden credit crisis and the “coming home to roost” of decades of outsourcing, is that nearly half of Americans refuse to buy from domestic brands, and even more are not willing to believe that domestics can make fuel efficient cars (though, for example, Chrysler makes the best-mileage minivans).
Why not hit the problem directly instead of using loans?
- Federal monetary policy to stop strengthening the dollar and instead work on weakening it, to make imports more expensive and exports more lucrative. That would help nearly all sectors of the economy and could bring back some lost industry.
- Federal legislation making it easier for automakers to drop brands, to help GM and Ford cut costs (bye-bye, Saturn and Mercury!), by overriding state legislation. (They can do that – it’s interstate commerce.)
- Import tariffs on all auto-related imports, including those coming in as components in imported cars – equal to those which other nations impose on our exports.
- Assessing imported cars from companies owned by non-NAFTA socialist nations (that is, China, Germany, Sweden, Korea, and Japan) with tariffs equal to the cost of health care for the employees to balance things out.
- One-year tax deductions on domestic vehicles, up to $2,000, applying to vehicles made by companies headquartered in the U.S. and built within NAFTA countries.
- Federal invalidation of all tax incentives to foreign automakers building plants in the U.S.
- A ban on states and cities providing tax or cash or infrastructure incentives to foreign automakers.
- Start a huge pro-domestic-industry publicity campaign, sending out talking points liberally spiced with quotes from the Founding Fathers about the importance of a vibrant domestic industry. This would take a while to have an impact, but playing on patriotism could work, if it was made a priority – instead of taking a back seat to free market ideologies that would make Adam Smith cringe.
Dave, I have to disagree with you here. There was an oversight organization at leas for Freddy adn Fannie but repeated attempts to raise issues with the those two governmental enterprises were always resisted by Democrats in the house and Senate. You surly have heard the names of Barney Frank and Chris Dodd by now. Also it was interesting that in the 12 or so times the Bush administration and the Republicans tried to do something about it one of the leading voices of concern was that of John McCain’s.
Then there is the head of a House committee (Frank) that has oversight over the FMs and other financial institutions was involved in a long term personal relationship with an executive at Fannie Mae responsible for marketing derivatives and you should see the obvious conflict of interest? How would you feel if Republican members of Congress were having sex with oil company lobbyists? Or physicians with their pharma sales reps?
I’m not talking about ALL Republicans. I’m talking about three particular Republicans, one of whom at least appears to have been as involved in criminal activity as any Congressman.
McCain might have raised his voice in the past, but I sure don’t hear him now. Nor did I hear him much during the campaign, except for the party-line “give them the $25 billion we’ve already said we’d give.” In any case, he’s not on the committee.
The oversight organization for the F-Macs isn’t relevant since that wasn’t part of the bailout; it already existed. Yes, Democrats (and some Republicans) resisted the necessary reforms.
The Bush administration has refused to let the automakers have access to the loans passed by Congress and has repeatedly said that it feels no aid is merited for Detroit. At the same time it’s tried to keep the moneys printed for banking secret – just as it kept the overall money supply indicator top secret. If you want to go beyond this committee, we can do it, but I don’t see the point.
Did you listen to the hearings yesterday?
Brands should NOT be dropped, particularly NOT Saturn, Buick, Pontiac, Cadillac, GMC, Mercury, Lincoln, Dodge, Jeep, as it keeps people in employment.
Aid is needed for Detroit, more than anything else in the crisis.
That’s assuming there’s any brand loyalty to Mercury and Saturn. Pontiac remaining to fill a niche makes sense to me. So does GMC (though I think they should start with the 2500 models to avoid Ford always getting first place with the F-series.)
There is always brand loyalty to the “alternate” brands. Here in Britain, people are buying Chevrolets, seen as a more sporting Vauxhall, and the Dodges are seen as a sportier Chrysler.
Getting rid of Plymouth was a bad decision for Chrysler: the name could have been retained, but not for rebadged Dodge/Chryslers.
Isn’t AN Other’s argument a good one??
They are all for bailing out their Wall Street buddies, who don’t make a dam thing, but want to put all the “restrictions” on the help for the auto makers. Congress….what a bunch of do-nothing clowns…..
To be fair, Congress is hardly acting as one unit. It seems there are a few “free market ideologues” combining with a few “my state is all that matters” ostriches and a very few “greener than greenies” that are blocking it. The greenies, in this case, don’t seem to be really offering much opposition.
Also, they have to deal with the White House, which said they would not support ANYTHING that doesn’t steal from the money already promised to the industry, so the emergency loan has to take from the loans that should already have been given out, but which are being blocked by the recalcitrant Energy Secretary. And who do you think HE takes orders from? It’s not Congress!
If they get the emergency package, we’ll see what happens in January-February.
Personally – I have NO problem with demanding Wagoner’s head. Jimmy Carter took Riccardo’s head and for good reason. Iacocca was needed at Chrysler and Lutz or someone else is needed at GM. In fact, I wouldn’t object if they demanded an entire Board changeover at GM, since they’re so supportive of Mr. Rick Ostrich.
Now, at Ford and Chrysler… how can anyone demand Mulally’s head when he’s only been there for a year and was smart enough to mortgage the company when he could? Likewise, Nardelli’s only got one year in the job. The board of Ford did their job when they hired the Man from Boeing.
I agree, wholeheartedly, and without reservation. One of my biggest peeves is people that say: “If they [domestic automakers] made decent reliable vehicles then people would buy their cars again, but they do not”. For years now our domestics are every bit as good as any thing the imports put out, maybe even better, for our country, but still North Americans will buy Hyundai’s, Kia’s, Toyota’s, etc. Personally, I think they are all junk, and will only ever own a North American Brand (Dodge, Ford, GM), if none exists in the future, I will simply stop driving. Double..!! I have even threatned to disown my children if they ever buy an import.
The other argument I hear alot about, from these people, is resale value, so what? Did you buy your vehicle to make a profit, or to resell later? If so, what can I say, it is a pretty weak argument, I buy cars because I enjoy them, and once they are done, time to buy a new one, I expect that the car will lose money, unles it is a classic or some specialty item.
In respect to buying an import here, and overseas there, here (because we are free & easy), most any vehicle can be imported & purchased, with little to no extra importation taxes, etc. (and in fact many import manufacturers get subsidized by our own North American Governments). Now try to buy a North American SUV, Pick Up, etc. in Japan, Korea, etc. No go, and you cannot even order one. Even if you can bring in a (true – big three), vehicle, then they will nail you with import duties, and so much red tape, you will be lucky to see it years! So WHY oh WHY do we support them, or at least why do we not encourage them not to import their cars by legislating more protection, for our own idustries. This is a matter of survival, and believe me (I guarantee), if the Far Eastern manufacturers were facing the same as us this is what they would do, no exceptions. Do not trust them, and have some guts to support our own, before any one else! The last time we said No to Japan, they attacked us at Pearl Harbour!
My last point, is shame, shame double even triple shame on those people that buy imports, rather than support their own people and industry. It does not matter how many plants they (the import car manufacturers), build & maintain, the bottom line is the money (the final capital) just goes overseas, anyways! So why provide incentives to them, and not our own manufacturers? Why not support our own industry, instead of putting them down. Our vehicles are better, they are made for our roads & conditions, and are made by our people in our own factories. Lets us stop the out-sourcing of parts, labour, and all things import. Let us go back to the way we were in the Fifties.
Maybe now people can see why there was such hatred distrust, & disgust for the whole concept of free trade, globalisation, and the G7 stuff. It is/was all a sham & scam operation, to keep the wealth in the hands of the few, and for the rest of us to suffer and pay. Tell your legislaturers, let them know, that we do not support them or their confused mistaken logic that helping Hyundai’s, Kia’s, Toyota’s CEO’s will help us. There was a reason talks were held in secret, and no protestors were allowed in…! We see the end result of deregulation, in our industries (airlines, autoplants, banking, insurance, essential utilities, education, etc.), and we do not like it. Go back to the way we were! Some things the government must maintain.
Mad as hell and not willing to take it!
Joseph E. Saad (Parts person)
Proud Canadian, but disappointed with our government/s!
Agree with the tarrifs on cars imported from outside North America but probably need to qualify by adding “on autos competitive with NAFTA-made cars” so as not to limit specialty cars like Smart or electrics etc.
Could we also apply tariffs to NAFTA manufactured cars with North American plants? Seems simple to do on paper but are we ready for all of the “foreign” auto plants to close and cost ever more jobs right now. And we would need to gauge the expected retributions of other countries with respect to trade in other products/services.
A North American car guy…….in Canada
To replace Wagonner, it depends who’ll suceed him. There an article at http://www.portfolio.com/news-markets/top-5/2008/12/08/The-Next-General-Motors-CEO about the possible candidates to replace him: Jack Welch, Lewis Campbell, Mark Fields, Tim Cook and….Carlos Ghosn.
Here are some questions to ponder. In a world of free trade and capitalism… why do we, the automakers, have to disclose all of our profit margins? Yet electronics, food, retailers in general do not? They don’t disclose how much of their profit goes where and for what. We do not walk into a supermarket and bargain with a manager on the price of a can of beans, the price is the price. We still shop for bargains, which is understood and accepted, but this whole notion of american car sellers having to whore themselves out to the marketplace because the populus feel as if the car industry is made up of crooks and dishonest people. Also,Let alone the notion of inferior products running amuck in the nation so that we all believe we make inferior products when we do not.
We have to relax and start holding everyone who handles are economic growth 100% accountable.
Do you think putting a muzzle on how much negative news can be broadcast per hour or day might help? lol
We have the audacity to sit and wonder why the market is in shambles when it is our own habits that got us here. If you vote somebody into office be responsible enough to admit that you made a mistake or make them accountable for their action or inaction! We don’t spend our time chasing down the real profiteers in oil and insurance! We are their parameters?
We cannot have a capitalistic society if Americans are scared or unwilling to spend the money they have earned. The retail market effects all, but obviously some more than others. Teachers, lawyers, construction (government), Grocery, post office, just to name afew are not directly influenced by current market conditions both real and imagined! We need to concentrate on positive solutions to current market trends for those that can spend. It is the american way.
Darren in Sales says:
“Here are some questions to ponder. In a world of free trade and capitalism… why do we, the automakers, have to disclose all of our profit margins? Yet electronics, food, retailers in general do not? They don’t disclose how much of their profit goes where and for what. We do not walk into a supermarket and bargain with a manager on the price of a can of beans, the price is the price. We still shop for bargains, which is understood and accepted, but this whole notion of american car sellers having to whore themselves out to the marketplace because the populus feel as if the car industry is made up of crooks and dishonest people.”
I think the reason is that the price of a car is not considered fixed like going in for a can of beans. Bargaining is the way cars have always been sold, so everyone wants to get as good or better deal than the next guy. I have bought other things by bargaining in the store: furniture, TVs, etc. You would be surprised that merchants will often bargain with you.
Not surprised at all. Like I said it is okay to barter having been a retail Guru for twenty years. But what about full disclosure of how all money is spent. Our invoices circle the internet like free birds and then the customer wants us to profit but not so much on them so we’ll let you have $100 gross profit because we feel like that is fair. And then expect the dealership to be able to be lucrative and survive. Anyone ever wonder why your foreign manufactures can offer free oil changes and loaners, because the cost is built in! So bargain away and shop just remember the person helping you on the other end can’t live on beans alone.
Let them die if they can’t survive without Goverment money. I love what American cars used to be- not what they’ve become. If the big three go away, eventually new American Auto makers will emerge. It is our way. Remember Tucker? Hudson? Studebaker? However- I really doubt that these companies will die without Tax Dollars. GM needs to file bankruptcy. Chrysler needs to find a partner. Ford is still kinda a secret. I wanna start a car company. Maybe I can get the Goverment to toss me a few billion. I think my start up could do better than what we currently have.
One of the things people need to recognize is that the Big 3 automakers have NOT failed in a free market. In a genuine free market, the wages, benefits, working conditions, and job security workers receive would be defined in a way that reflects the laws of supply and demand. That is, they would be based on what is actually necessary for the automakers to hire workers who have the skills they need and are willing to work hard. When government gives unions the power to impose demands far in excess of anything that can be justified relative to the laws of supply and demand, the result is an unfair burden that has nothing to do with the rules of a free market. In a genuine free market, if the UAW tried to impose outrageous demands, an employer could counter with a reasonable offer and say, “Here’s the deal, anyone who doesn’t like it is free to quit.” If workers decide they don’t want to come to work, the employer would be free to hire permanent replacements.
I’m not inherently against unions. A pure free market can enable employers to treat workers very badly, especially in areas with relatively high unemployment rates where workers are desperate for any job they can get no matter how badly they are treated. Unions can play a valuable role in ensuring that workers are treated reasonably fairly. This benefit exists not just for workers who are actually in unions, but also when employers feel a need to treat nonunion workers fairly so they won’t feel a need to unionize.
The problem with our system as it stands now is that there is no oversight to determine whether or not unions’ demands are reasonable. As a result, the same powers that can be a strong force for good when corporations are trying to treat workers unfairly can be an equally strong force for evil when unions demand agreements that are unfair to their employers, and indirectly to customers. As long as unions leave companies with enough money that they can make a profit, there is room for honest people who hold different economic philosophies to disagree about how the companies’ profits should be divided between stockholders and workers. But it is impossible to find a logically consistent economic philosophy that justifies giving UAW workers significantly better compensation packages than most other people who do similar work receive at the same time that their employers are losing so much money they need government assistance to avoid bankruptcy.
In addition to the issue of employee compensation, the UAW has been sabotaging the Big Three’s efforts to improve efficiency for decades. I remember back in the 1980′s when Japanese automakers were aggressively automating their assembly lines and the UAW fought to slow down the domestic automakers’ efforts to automate. Far too often, the union’s attitude has been to pursue whatever looks best for workers in the short term with little regard to the impact on the long-term health and competitiveness of the automakers. The cumulative effect of that attitude over a period of decades has been to weaken the automakers, leaving them more vulnerable than they should have been when the economy took a nosedive. And now that there is a danger of bankruptcy, the UAW wants taxpayers to subsidize their continuing to get gold-plated benefit packages instead of bringing their compensation packages into line with what most other people who do similar work receive.
I’m not saying that the situation is entirely the unions’ fault. One of the clearest evidences of management failure can be found in the minivan segment, where Honda and Toyota were able to develop minivans that could compete head to head with Chrysler’s but GM and Ford failed repeatedly. If the management at GM and Ford had been more aggressive and successful in improving their products, and if Daimler had lived up to its promise of a marriage of equals instead of pursuing policies that were heavily lopsided in Mercedes’ favor at Chrysler’s expense, the Big Three would be in significantly better shape.
But even there, the financial strength the UAW sapped away almost certainly undercut how much money was available for research and development. It’s a bit unfair for the UAW to eat away at the resources available to make better products and then claim that the problem is all management’s fault for not developing better products.
In any case, no matter how much the situation might reasonably be blamed on management, assigning blame doesn’t give the automakers any more money to work with. Blaming management makes it easier to justify using tax dollars to help workers keep their jobs. But it cannot justify using tax dollars to help people who work for the Big Three keep receiving significantly more expensive compensation packages than what most other people who do similar work receive. (Note that compensation for workers in the banking industry was already governed by the laws of supply and demand, so there was no need for government to demand changes to bring compensation into line with what the laws of supply and demand suggest is fair.)
If the UAW had been willing to accept that it is unfair for taxpayers to subsidize giving its members better compensation and more favorable work rules than what Americans who do the same kind of work for other automakers receive, the bailout legislation would almost certainly have passed. Similarly, if the Democrats in Congress had been willing to require the UAW to do its fair share toward making the American automakers more competitive, the legislation could have passed. But because the UAW insisted on keeping contracts that make it impossible for the Big Three to compete on a level playing field, most of the Senate Republicans viewed the risk of the automakers not being able to return to profitability as unacceptably great.
Looking specifically at DaveAdmin’s proposals:
1) The problem with weakening our currency is that we import so much that it would be extremely difficult for increases in exports to do more good than a reduction in the value we get for our money when we buy imported goods would cause harm. That’s especially true as long as we rely heavily on imported oil, the price of which goes up when the dollar gets weaker.
2) The words “legislation making it easier for automakers to drop brands” are so vague that it’s virtually impossible to judge whether or not the idea has merit. I don’t think the federal government should be interfering with automakers’ ability to drop brands that are not increasing sales enough to justify the cost of maintaining them, but I don’t like the idea of legislation that actively encourages a reduction in the number of brands either.
3) I’ve long believed that we should expect reciprocity from nations that have a trade surplus with us. I can understand nations wanting to protect key industries from being overwhelmed by (from their perspective) imports. And I can understand nations not liking the idea of running a big trade deficit. But as long as other nations aren’t importing any more from us than they are exporting to us, there is no danger of their industry being weaker with a fair trade policy than it would be without trade. Under those circumstances, protecting their own markets while at the same time taking advantage of our willingness to buy from them is indisputably unfair. Even if we might be better off in the short term allowing unfair trade, I think we’d be better off in the long term using the value of the U.S. market as leverage to push as many nations as possible to adopt reasonably fair trade policies toward us.
4) As much as it goes against my grain, I think the U.S. should probably join the club of nations with government-funded health care if we can find a way to do it without giving up the advantages of a market system. Republicans often talk about cutting taxes to stimulate investment, but having government take over health care expenses would have a very similar stimulus effect. After all, a thousand dollar reduction in a company’s health care costs is just as valuable as a thousand dollar reduction in its tax bill.
Granted, government funding would violate free market principles. But what we have now already bears little resemblance to a genuine free market. Most people’s choices of coverage are limited by where they work. Government encourages workers to ask for more expensive medical coverage instead of higher pay by not imposing limits on how much money for health coverage is tax deductible. Government and social customs say that companies are “supposed to” provide health coverage for their workers, giving companies that find ways to dodge that obligation (such as hiring workers part time instead of full time) an unfair advantage over those that provide insurance. Doctors and hospitals are forced to treat people who can’t afford to pay, which in turn makes it necessary for them to pass the costs on to people who do pay. People are much more likely to decide that a treatment is worth the cost if an insurance company is covering at least most of the cost than if they had to pay for it themselves – a problem that’s exacerbated when tax deductions favor insurance that covers everything over paying out-of-pocket for minor care. The result is an enormous disconnect between how capitalist economic theory says the system ought to work and how the system actually does work.
I would be very much against a system that takes away people’s right to choose their doctors and hospitals, including the right to pay extra to hire doctors who are viewed as being worth extra. (The possibility of earning more than a wage government establishes through its payments would encourage more people to become doctors, reducing the risk of a shortage of doctors.) I would also be very much against government financing more than a basic level of coverage because it’s much harder to control prices when people have an opportunity to benefit at other people’s expense. But I could support a government-funded system that is designed to avoid these traps.
5) My first instinct is to view a tax deduction for new car buyers as grossly unfair because it would give certain particular taxpayers an unfair financial advantage over other taxpayers who are in equal financial shape but make different choices. (Consider especially the unfairness of giving people who buy a new car this year a deduction when people who bought a new car last year didn’t get one.) The only way it could make sense would be if every other idea that anyone can come up with would be even worse.
6) In my opinion, offering specially favored tax treatment for particular businesses should be viewed as a violation of the Fourteenth Amendment’s requirement for the equal protection of the laws. Congress needs to pass laws that prevent states from pushing each other into bidding wars over who will offer the most tax advantages, because such bidding wars are grossly unfair to existing companies that don’t get the same advantages. That’s true of all industries, not just the auto industry.
7) The biggest difficulty with a “Buy American” campaign is that some cars with foreign nameplates are more American than some cars manufactured by the Big Three. For example, when and if I’m in the market for a new minivan, should I buy a Honda built in my home state of Alabama, or a Caravan built in Canada? The second biggest problem is that many Americans look at U.S. automakers and see an industry that’s been in a general pattern of decline for three decades, raising serious questions about its long-term viability even if we get it over the current hump. So a Buy American campaign would need to be accompanied by a campaign to persuade the American people that helping the automakers would be the beginning of a return to greatness, not just a holding action against inevitable defeat. Unfortunately, as long as long as the UAW insists on contracts that place the American automakers at a disadvantage, it’s hard to sell a vision of a brighter future.
Just a simple response to Nathan’s concern #7: Buying american means buying from a company whose main gross profit is realized in the U.S. and not in the outlying countries. Specifically, honda has already pulled its motorcycle line out of the U.S. for better profitability to the whole company based in Japan. Chrysler, conversely, with some plants in outlying countries still support the NORTH AMERICAN continent and its profits or lack thereof :-) are realized in this country. So, you consider heavily the originator of the minivan first and then ultimately buy the unit that works best for you and your family. Just like if you get a motorcycle, you’d be silly, if your buying a crotch rocket, not to consider Honda, Suzuki, or Kawasaki but don’t exclude Buell (harley-Davidson).
The countries and communites that do the best keep the money, approx. 85%, circulating internally. Buying American insures longevity and prosperity and the ultimate capitalistic option of being able to purchase and appreciate foreign products. And what americans are seeing a slump in the last 30 years? There has actually been a increase due to the availability of market place for foreign automakers that we have made to easy for them to participate in. How is it that in most of the auto segments have been led by americam automakers yet, perception is that these products we buy here are inferior, which fuels the naysayers to help convince the public through our very biased media to portray this perception as truth rather than opinion.
Comparing market shares between the American automakers and the Japanese automakers is not a valid apples-to-apples comparison because the only way the American automakers can maintain their market shares is with aggressive rebates and discounts that were destroying their profitability even before the financial crisis. If Toyota and Honda were just as aggressive as the Big Three in their pricing and rebating, and if they had the manufacturing capacity to build enough vehicles, they could have much larger market shares than they do now. But it would be stupid for them to expand their production capacity to a point where they would have to accept dramatically lower profit margins per vehicle. For example, if cutting their profit margin per vehicle in half would give them twenty percent more sales, they would make forty percent less profit than they do now.
Even before the financial crisis, General Motors and Ford were both in positions where they needed to cut their production capacity in order to bring it in line with the number of vehicles they could sell at high enough prices to make decent profits. The need for such a reduction is clear, solid evidence of decline. It doesn’t mean their vehicles are so bad that they deserve to go out of business right now. But it does mean that their vehicles are not good enough to hold on to their traditional market shares and still make a profit. If GM and Ford can’t figure out a way to stop the downward trend, either the companies will keep getting smaller and smaller until they eventually disappear or they will go bankrupt selling vehicles at such low prices they lose money. That’s why I think it’s important for the automakers to persuade the American people that they have solid, workable plans to turn things around.
I’ve deliberately left Chrysler out of this analysis because I’m hoping its problems are a legacy of Daimler’s interference, and that with Chrysler engineers able to do their jobs again, the company will be able to maintain its traditional market share and still make a profit once we get past the financial crisis. But even though I think it is Daimler rather than Chrysler that deserves at least most of the blame for Chrysler’s problems, Chrysler still needs to persuade the American people that it will be able to turn itself around now that it is free to make its own decisions.
I think Nathan has some valid points but I have to stress concern again. It is unfair to the american market not to discuss market share because that’s the way the beast works. Toyota is becoming very proud of its market share and has recently seen a huge decline for them anyway of profit in some of their segments. This will increase for as they become the dominant automaker. They have already begun some deep discounting and APR changes that are not like them at all.
They thought for sure that their new trucks would put them over the top and they would be able to steal huge market share numbers from the big three based on their reputation. As a result of hastily built truck they have now produced, for two years stright, a product line that has the worst reliable in quality among top selling trucks. Mass production, to handle consumer demands in this country, is where the issue starts. And the american automakers needed to cahnge their philosophy to change or stimulate consumer confidence by adopting the eastern philosohy of less is MORE! If the three suffer greater losses, due to our countries inability to agree on how to fund and create change, in this fownward spiraling market the aftermath will nothing short of a neclear holocaust with long reaching effects. Already here in Ohio alone, one lone steel parts making company has gone from 300 employees to 14, in less than 90 days. We need to get behind this bailout and tell our representatives in the senate and house to be about a solution. They have been claiming that they have been polling americans and over half of them are against the bailout to support their unwillingenss to really find a viable solution. Have you been polled lately. I consider myself average and I have not been asked. Speak and be heard.
I agree, especially as a company man, that chrysler really needs to be exempt in this process because of the damage done by the pillaging german manufacturer. The engineers are working hard to build better, higher quality product for all consumers. so on more personal note for my family sake and americans in general lets get back to action and hard work which is what made this nation great!
The problem with “less is more” is that there are pensions to be paid. I disagree with the stated Republican plan of simply not paying the promised pensions (you can bet that NONE of those millionaire senators will sacrifice their OWN pension for the good of the country) via bankruptcy.
Chrysler, GM, and Ford are shrinking not because of their business models but because they are players in a game where every other side gets to cheat.
I agree that it’s unfair not to pay attention to market share at all. I’m just saying it’s also unfair to focus on the issue of market share and ignore the near-fire-sale prices the American automakers were having to accept even before the financial crisis in order to maintain their market share. Any legitimate attempt to judge how people perceive the quality of different products must look both at the numbers of sales and at the prices people are willing to pay.
I would sympathize a lot more with the UAW’s desire to protect autoworkers’ pensions if the UAW had negotiated those pensions in a free market rather than by holding a gun to the automakers’ heads by threatening them with crippling strikes if they didn’t cave in to the union’s demands. The UAW has eaten the goose that laid the golden eggs by demanding compensation and work rules that are so much more favorable than what can be defended as fair relative to the laws of supply and demand that they seriously weakened the Big Three. When you eat the goose that lays golden eggs, you give up your right to keep getting golden eggs. You certainly don’t have a right to demand that the American taxpayers start buying golden eggs for you.
If you take away the right to strike, exactly what leverage do unions have? Do you think “shaming” automakers will work as it does in Japan?
Are you arguing here that $20 million a year for an executive is OK but $28 an hour for a guy who works ten-hour shifts in 110 degree temperatures is excessive?
Have YOU ever worked in a real factory?
“I agree that it’s unfair not to pay attention to market share at all.” … and I’m saying your comment has no relevance. The point is that the Big Three are losing sales and having to make uneconomic discounts because of unfair competition, and you’re off arguing against something nobody’s brought up.
I’m not sure you got the idea of what my less is more is driving at. Overprducing models based on our business models, based upon current trends or better yet, percieved trends, does not pay pensions! SALES pays pensions. We have such good product we (Chrysler) just need to create more demand and maintain the balance. When chrysler released the New Jeep Wrangler our profit penetration at the ground floor was at an average of $2600 a unit before hold back and we could not get them in fast enough. Then we tried to increase production so we could increase sales. And it worked until the market switched because instead of keeping the momentum going we cut back the rebate to create more profit and yet still continued to build as the market stalled. GREED or lack of economic sense drove the sales profits on the wrangler down. If this happened with one of the best remodels we’ve seen, what has been our trend on less popular units? Less is more allows the natural tendencies of the marketplace to create a higher demand thus allowing us to make more profits. And the dealerships then order more products and all pensions get paid. Some of our counterparts like SHOA (autoparts manufacturer) mass produce as the orders come and they modify their shifts to accomodate the surge in orders. We need to be able to respond quicker to market needs and get back to basics. Less is more. :-)
OK, that makes sense.
The reason I brought up the UAW is that it is impossible for the Big Three to compete on a level playing field as long as the UAW keeps forcing the Big Three to accept contracts that are significantly worse for the automakers than what workers at other automakers with plants in the U.S. view as acceptable. When the issue of unfair competition is raised, the power of the unions is a very important part of that issue.
I don’t like the idea of completely eliminating the power to strike because that would shift the balance of power too much in the employers’ favor. The problem is that we don’t have any oversight to distinguish between situations where workers are merely trying to protect themselves against unfair treatment and situations where workers are trying to impose demands that are unfair to employers or to customers.
In case you haven’t noticed, union leaders routinely push workers to demand more than the workers would have been willing to accept as fair without union agitation. This is especially obvious when we see the UAW pushing workers in transplant factories to join the union and demand more instead of being happy with their current contracts.
In the early years of the union movement, the actions of unions were in response to legitimate concerns of workers. Workers hated working long hours for low pay under a threat that if they didn’t accept those terms, the employer could always find someone else who would. Workers wanted working conditions to be safer, and not to be any more unpleasant than the nature of their work made necessary. Workers wanted the security of not having to worry about being fired for unfair or arbitrary reasons, or just because they were human beings who make mistakes occasionally. The role of unions was to take the workers’ legitimate concerns and try to negotiate contracts that addressed those concerns.
But somewhere along the way, unions went wrong and started promoting an attitude of entitlement. They started promoting the idea that instead of just trying to reach fair agreements, workers should use union power to try to squeeze as much as they possibly can out of their employers without regard to any objective standards of fairness. Worse, the unions redefined the entire concept of “fair” by promoting the idea that any contract a union can force an employer to accept should be considered “fair” as a matter of definition.
There are a number of ways we can examine whether or not union demands are fair relative to objective standards. Can employers meet the unions’ demands and still give investors enough of a return to make their investments worth the risk, or are the unions demanding so much that they destroy the incentive for investment, or even force investors to accept losses in order to meet the unions’ demands? How do the pay and benefits unions want compare with the pay and benefits generally available for other workers who do similarly difficult, dangerous, or unpleasant work? Are the compensation and working conditions an employer is willing to offer without the threat of a strike so bad that the only reason why people might be willing to accept them is that no other decent jobs are available, or is the employer’s offer good enough that significant numbers of people who already have reasonably good jobs would be happy to quit their current jobs and accept the offer if they were given the opportunity?
I don’t object to unions having the power to strike when their demands pass these kinds of objective tests. But when unions’ demands clearly fail these objective tests, either by demanding that investors accept losses or by demanding compensation that is clearly greater than what is needed for an adequate number of workers to view the jobs as good jobs, I believe that the use of strikes to manipulate workers’ compensation is just as unethical and unjustifiable as price fixing by corporations.
Comparisons between CEO salaries and worker salaries are a red herring because as long as a CEO is worth his salary, paying the CEO twenty million dollars does not take away from a company’s ability to pay assembly line workers their twenty-eight dollars an hour. In theory, if the same CEO would be willing to do the same work for a lower salary, the company would have more money to pay its workers. But in practice, the reason why big companies pay CEOs high salaries is that they believe the CEOs who want the high salaries will do enough better job than other candidates would to be worth the higher salaries.
I’ll certainly grant that as a matter of abstract theory, it is unfair that a handful of top CEOs have a combination of skills and recognition of their skills that makes their work worth many times more than what most people’s work is worth. But that kind of unfairness is an inescapable part of how the world works. Efforts to “correct” that kind of unfairness have consistently caused more harm than good because if people are not rewarded for doing the most valuable work they are capable of, they tend not to do work that is as valuable, with a result that society as a whole ends up being worse off in the long term. Our current approach of allowing CEOs to earn a lot of money, but spreading a portion of the benefits of that wealth to the rest of society through taxation, works much better in actual practice.
A more important concern in practical terms is problems involving CEOs being able to enhance their incomes by promoting unrealistic expectations that cause a temporary boost in stock prices, or by adopting slash-and-burn tactics that hurt workers at least as much as they benefit stockholders. Under such circumstances, CEO compensation can be far in excess of the actual net economic value of the ways the CEOs use their skills. I also suspect that there is a problem of boards of directors tending to think too much in terms of, “This is who we want, what will it take to hire him?” and not enough in terms of, “Can we find someone almost as good who would be willing to work enough cheaper to be a better choice?”
But these kinds of issues related to CEO compensation do not have anything to do with the question of what kinds of compensation and working conditions autoworkers need for the automakers to be able to find an adequate number of workers who view the jobs they offer as good jobs (not just jobs they are forced to accept because they can’t find anything else). Personally, I wouldn’t want a job working in an auto factory because I have education and talents that open the door to better jobs. But that doesn’t mean there aren’t thousands of other people who would love to have a job as good as working in a Big Three auto plant under the same terms the “transplant” factories offer.
Which all ignores the fact that labor costs are only a small fraction of vehicle production costs and not the dominating factor the media makes it out to be. Exchange rates appear to be a far larger issue.
Small fractions add up. It’s hard to be profitable when you adopt the attitude, “This waste is just a small fraction of our total costs, so we aren’t going to worry about it.”
The need to pay attention to small fractions is an important argument in why we should demand that China give us access to their market if they want access to ours, and why we should do something about the disparity between how the U.S. handles health care and how other countries do. Sales to China would only be a small fraction of total sales of cars built in the U.S. And while the advantage of “free” health care might look big on the surface, most of it disappears when you consider that foreign companies have to pay their employees higher salaries before taxes in order for the pay to come out the same after the taxes to pay for the “free” health care system are subtracted out. Also, the tax incentives states offer (as distinct from investments in infrastructure that merely provide new factories with the same infrastructure that existing factories already have) are a small issue compared with total auto sales.
There are a lot of ideas that, if considered individually, can be dismissed as too small to make much difference. But if we pay attention to the little things instead of ignoring them because of their small size, they would add up to enough to make a difference.
I agree with most of the points you make about the alternative except for 4, 6, and 7. I do like the other point very much.
I feel that the points I disagree with are a form of protectionism. The reason I say this is that I do not believe that protectionism allows us to compete properly because it gives a false prop.
I buy everything that I can made in U.S.A.. It is hard because there are very few things at a personal consumer level except for big ticket items. I will be getting a new car in the next month and I will buy American also. It is a no brainer. I do believe that there are some people who would buy a foreign auto no matter if a U.S. car was made of gold and half the price because they are in love with the idea that the foreign auto industry is better. I disagree whole heartedly and I would rather my eyes burn out of my head than look at a wannabe; exaggeration of course but I cannot stand the thought.
That being said, I want to tell you why and how I feel protectionism hurts us. I am an aerospace machinist and my skill level is probably a 7 with a 10 being a master machinist. I have a journeymans card and I have my tool and die certification. This is so that you can know where I am coming from not to brag. We have people who come from Ford, GE and sometimes GM. These are people who come from the lower seniority, 14 years or less. They claim to have the same credintials and years of experience but it seems that 99% are terrible machinist who whine about what is required of them and the pay. If we had to up our price on our machining so that we could afford to have these people, we would soon be missing contracts. Thier jobs are protected for the most part because the ones who do stay end up going back to the companies after a certain amount of time.
What I am getting at is people need to be competitive. I am not talking competing on an non-level playing field. Instead of cutting tax breaks for other companies and protecting us from them(foreign auto co.) they need to cut taxes for existing companies and quit having so many regulations that choke out the industry. I believe the government is one of the big blames for this and they need to get thier hand out of the business. Requiring business to do things that are good for the social reasons does not add up to profitability but it is what we get now.
Level the playing field and let us compete. We are Americans, we do not need a crutch that is not what made our country great. All the people who believe that other countries make so many more wonderful things and have a better way of life by socializing things, I feel they should go live there and let us thrive.
Why, exactly, is protectionism bad in the US but not in every other “free market economy” in the world. The US Free Market thinking is peculiar only to us in the US. Every other country in the world rejects it in some way. The only free market that works in totality is in a flea market because nobody actually needs anything from there! Everything else in this world is either regulated, manipulated or corrupted in some way.
I’ll add that this “protectionism is evil” religion seems to be a matter of faith, rather than tested science. My guess is that protectionism is like capitalism and socialism: if you push it to an extreme (either totally free market or totally protectionist), it’s bad; but you need some balance. Not many people think we should have no government roads, dams, etc…. or the VA, badly run though it can be. Ask people whether they want the socialist USDA or FAA to go away for the sake of pure capitalism… and the same applies to protectionism vs free market.
I don’t think there are a whole lot of extreme positions or pure ideologies that are right. Nor, as I’ve said before, do I think that applying a label to something automatically means we have to reject it.