General Motors

[Embar Angylwrath]

My position hasn't changed from what I said last week. I don't support extending loans to the companies with no strings attached. Any money must be tied to drastic restructuring. I think that's going to require a government backed "bankruptcy" because in the current credit climate declaring Chapter 11 protection will lead immediately to Chapter 7 liquidation.

Then we agree.

Partha, care to babble a bit on this? Do you agree with Lurker and I that bankruptcy is the best thing for the B-3?

[Jarochai Alabaster]

Not that I'm even remotely informed or educated on economics, but I feel the need to chime in at least something here.

How is the bailout in any way a good idea? Isn't one of the primary tenets of capitalism that those who follow sound business practices, as a general rule, will thrive while those who don't will flounder? Doesn't a big bailout of any company serve to send the message to other companies that they can do whatever the fuck they want because if they fuck up bad enough the government will come save them?

If someone could explain in simple english how the bailout is an incentive to perform properly and intelligently in business, I'd really appreciate it.

[Harlowe]

Not only will they get bailed out, their executives can still get a sweet bonus/golden parachute.

[Partha]

My position hasn't changed from what I said last week. I don't support extending loans to the companies with no strings attached. Any money must be tied to drastic restructuring. I think that's going to require a government backed "bankruptcy" because in the current credit climate declaring Chapter 11 protection will lead immediately to Chapter 7 liquidation.

Then we agree.

Partha, care to babble a bit on this? Do you agree with Lurker and I that bankruptcy is the best thing for the B-3?

Did you even read his post? Or the one I wrote that said there would have to be givebacks? I don't think so. But I DO think that your desire to punish unions is driving your "free market prinicples" here.

[Partha]

Not only will they get bailed out, their executives can still get a sweet bonus/golden parachute.

Actually, you can make that a condition of the loan. Leading Democrats like Pelosi and Reid and even some moderate Republicans have said they have no problem with loaning the money if it can be shown that they will be fiscally responsible. Heck, it can even be put in the bill language.

[Partha]

If someone could explain in simple english how the bailout is an incentive to perform properly and intelligently in business, I'd really appreciate it.

Because the government is the only one who can and will loan the money to them. That means they get to set the terms of the loan. They don't HAVE to just hand them a check, you know. That was a one-time 'Bush panic save Wall Street' specialty.

[Partha]

http://www.tnr.com/politics/story.html? ... dfc3323682

But then what's the source of that $70 hourly figure? It didn't come out of thin air. Analysts came up with it by including the cost of all employer-provided benefits--namely, health insurance and pensions--and then dividing by the number of workers. The result, they found, was that benefits for Big Three cost about $42 per hour, per employee. Add that to the wages--again, $28 per hour--and you get the $70 figure. Voila.

Except ... notice something weird about this calculation? It's not as if each active worker is getting health benefits and pensions worth $42 per hour. That would come to nearly twice his or her wages. (Talk about gold-plated coverage!) Instead, each active worker is getting benefits equal only to a fraction of that--probably around $10 per hour, according to estimates from the International Motor Vehicle Program. The number only gets to $70 an hour if you include the cost of benefits for retirees--in other words, the cost of benefits for other people. One of the few people to grasp this was Portfolio.com's Felix Salmon. As he noted yesterday, the claim that workers are getting $70 an hour in compensation is just "not true."

The agreement sought to do so, first, by creating a private trust for financing future retiree benefits--effectively removing that burden from the companies' books. The auto companies agreed to deposit start-up money in the fund; after that, however, it would be up to the unions to manage the money. And it was widely understood that, given the realities of investment returns and health care economics, over time retiree health benefits would likely become less generous.

In addition, management and labor agreed to change health benefits for all workers, active or retired, so that the coverage looked more like the policies most people have today, complete with co-payments and deductibles. The new UAW agreement also changed the salary structure, by creating a two-tiered wage system. Under this new arrangement, the salary scale for newly hired workers would be lower than the salary scale for existing workers.

One can debate the propriety and wisdom of these steps; two-tiered wage structures, in particular, raise various ethical concerns. But one thing is certain: It was a radical change that promised to make Detroit far more competitive. If carried out as planned, by 2010--the final year of this existing contract--total compensation for the average UAW worker would actually be less than total compensation for the average non-unionized worker at a transplant factory. The only problem is that it will be several years before these gains show up on the bottom line--years the industry probably won't have if it doesn't get financial assistance from the government.

[Embar Angylwrath]

Yes.. The New Republic.. kinda like linking to, well you know.

Please Partha, post more!

[Lurker]

It's a good article, Embar. You should read it. You would learn why the UAW isn't eager to make concessions to solve the current crisis. See... they already made the concessions a year ago and their wage / benefits will be in line with the foreign companies by next year.

[Ddrak]

The analysis by TNR does seem about what I was saying - company paid pensions are an albatross around Detroit's neck. If you're going to have pensions then they either need to be independent private funds or government based. Putting them in the hands of companies is a nightmare for both the company (who have the directly opposing goals of keeping people alive that are costing them money for zero return) and for the retirees (who have to deal with the possibility of their health care vanishing based on things entirely out of their control).

Giving the pension plan to the union would be funny as hell. It would place the union in exactly the same spot the big 3 are in now.

Dd

[Embar Angylwrath]

It's a good article, Embar. You should read it. You would learn why the UAW isn't eager to make concessions to solve the current crisis. See... they already made the concessions a year ago and their wage / benefits will be in line with the foreign companies by next year.

No, that's not accurate. The timeline for the previous concession made by the unions will happen by the end of 2010, two years away, AND when all the concession kick in, the wage/benefit cost will STILL by about $9/hour more than non-union workers, or about 25% higher labor cost.

[Partha]

It's a good article, Embar. You should read it. You would learn why the UAW isn't eager to make concessions to solve the current crisis. See... they already made the concessions a year ago and their wage / benefits will be in line with the foreign companies by next year.

No, that's not accurate. The timeline for the previous concession made by the unions will happen by the end of 2010, two years away, AND when all the concession kick in, the wage/benefit cost will STILL by about $9/hour more than non-union workers, or about 25% higher labor cost.

http://www.reuters.com/article/business ... 7920071106

* Ford will pay $13.2 billion to establish a health care trust, known as a Voluntary Employee Beneficiary Association, or VEBA. The trust will take effect in January 2010. Ford's funding will include $6.5 billion in cash contributions beginning in 2008. The automaker also agreed to issue a $3 billion secured note and a $3.3 billion convertible debenture.

Furthermore, keep arguing that people should not have the ability to organize for better wages and benefits. Go on, I dare you.

[Ddrak]

Furthermore, keep arguing that people should not have the ability to organize for better wages and benefits. Go on, I dare you.

They should. Businesses should have the right to choose to employ union workers or not as well. Similarly, if Union demands result in the company going belly up then the union workers deserve to be unemployed.

What I completely disagree with is unions that make demands which result in companies being unprofitable, then pretending it's the company's fault. Similarly, forcing union membership on employees is also wrong - people should have the *choice* of whether they belong or not.

Dd

[Embar Angylwrath]

Furthermore, keep arguing that people should not have the ability to organize for better wages and benefits. Go on, I dare you.

They should. Businesses should have the right to choose to employ union workers or not as well. Similarly, if Union demands result in the company going belly up then the union workers deserve to be unemployed.

What I completely disagree with is unions that make demands which result in companies being unprofitable, then pretending it's the company's fault. Similarly, forcing union membership on employees is also wrong - people should have the *choice* of whether they belong or not.

Dd

You don't get it Dd. Unions should be a constitutional right, and the costs of the those unions should be ignored. If they aren't ignored, then the costs of the unions should be paid by the taxpayers, ...

oh wait...

[Ddrak]

I thought Unions were a constitutional right, just like Churches.

Dd

[Partha]

What I completely disagree with is unions that make demands which result in companies being unprofitable, then pretending it's the company's fault.

How long have the companies been unprofitable, Dd?

In GM's case, it's last profitable quarter was the 2nd quarter of 2007, with the 3rd quarter loss posted being tax writeoffs. Ford posted a profit 1Q 2008. If the union demands were so bad, the damage would have shown up well before then.

Similarly, forcing union membership on employees is also wrong - people should have the *choice* of whether they belong or not.

Um, in order to have a union in a shop, a majority have to vote in a union. Would you call the recent election 'forcing government on citizens'?

[Ddrak]

How long have the companies been unprofitable, Dd?

I wasn't specifically referring to GM to be honest, was more relating my experience with a bunch of union induced closures over here (where unions are a lot stronger) that has resulted in entire industries vanishing from Australia.

In the case of the Big 3 though, they've been less profitable than the foreign companies for a long time. Like I said, I primarily blame pensions for that and I'm pretty sure the unions were involved in keeping pensions around for as long as they have been (but I could be wrong). The real damage to the companies has been done over the last 50 years and is just all coming now as the market falls and the company pension plans drag the entire companies down with them.

I wouldn't have an issue with unions if they stayed local to a particular company, and wouldn't have an issue if the company wasn't forced to employ union workers (employment should be independent of union status, just like it is independent of religion, race, etc.).

Um, in order to have a union in a shop, a majority have to vote in a union. Would you call the recent election 'forcing government on citizens'?

Apples and oranges. Unions are *not* government (as much as they might like to think they are). Would you agree with a church doing the same thing - taking a vote in, say, GM and forcing out anyone who was in a minority religion? How about taking a vote to keep the non-whites out? Why should belonging to a union affect your employment - it's stupid and (in my opinion) unconstitutional as freedom of association should mean you are free to NOT associate with a union if you choose.

Dd

[Arathena]

What I completely disagree with is unions that make demands which result in companies being unprofitable, then pretending it's the company's fault.

How long have the companies been unprofitable, Dd?

In GM's case, it's last profitable quarter was the 2nd quarter of 2007, with the 3rd quarter loss posted being tax writeoffs. Ford posted a profit 1Q 2008. If the union demands were so bad, the damage would have shown up well before then.

Similarly, forcing union membership on employees is also wrong - people should have the *choice* of whether they belong or not.

Um, in order to have a union in a shop, a majority have to vote in a union. Would you call the recent election 'forcing government on citizens'?

All government involves the submission of the will of the governed to the governors. In a democratically oriented setting, we merely allow the majority the chance to be tyrannous, as opposed to choosing by race, or wealth, or accident of birth. Yes, ~67 million people have forced a president on the 58 million others who showed up to vote (and the ~200 million who did not or could not vote).

However, the unfortunate truth is that when a union shop is unionized, if non-union positions exist in perfect parallel to unionized positions, the union cannot cause the injury necessary to force concessions to the union. After all, all the company has to do to nullify the threat that the union causes it is make sure it has enough of the non-union personnel to blunt the blow of the strike and train the scabs when they step in. Remember- the purpose of the union is to create an environment where the company is forced to treat the members of the union fairly by holding the threat of financial death over the company. To ensure that this is achievable, frankly, yes, the unions have been allowed to force membership, backed up by law.

A truckload of horse shit still stinks whether you're calling it horse shit or organic fertilizer. Just because the second is useful to someone doesn't make it stink less either.

[Partha]

As a free market advocate would point out, there are several places one can go get a job building cars without having to join a union, Dd.

[Ddrak]

As a free market advocate would point out, there are several places one can go get a job building cars without having to join a union, Dd.

Much like there were several places a non-white could go to school, right?

Dd