Should Congress bail out the auto industry?
November 18, 2008 - 6:33am.
Senate Majority Leader Harry Reid (2nd R) makes a statement beside newly elected Senators Jeff Merkley (L), Jeanne Shaheen (R) and Kay Hagan, on Capitol Hill Monday (Jim Young/Reuters Photo)
Senate Democrats took the first step toward bailing out the nation's crippled auto industry on Monday by proposing a $25 billion loan program, a plan that faces stiff political headwinds with millions of jobs potentially riding on the outcome.
With the year's congressional calendar down to a few days, lawmakers and the Bush administration sparred over the best way to extend help to General Motors Corp, Ford Motor Co and Chrysler LLC.
"We're surprised that Senate Democrats would propose a bailout that fails to require automakers to make the hard decisions needed to restructure and become viable," White House spokeswoman Dana Perino said.
The Senate bill would, however, impose conditions. The government would take warrants for shares in exchange for aid, which would come with limits on executive compensation and a prohibition on the payment of dividends.
Automakers would also have to submit plans on how they intend to remain competitive, pummeled by plunging sales, little access to credit and a weakening economy.
Executives from the three companies are expected to amplify their calls for help at congressional hearings beginning on Tuesday.
Carl Levin of Michigan, the plan's chief advocate in the Senate, said the proposal to amend the Treasury Department's existing $700 billion rescue plan for financial services firms is the most efficient way to help auto manufacturers.
House Democratic leaders, led by House Financial Services Committee Chairman Barney Frank, released a draft of almost identical legislation later on Monday.
But the White House and many Republicans favor amending another law -- one approved in September to extend automakers $25 billion in technology loans to retool factories and make more fuel efficient cars.
MARKET FEARS
A rescue package for U.S. automakers could avert another stock market plunge like the one seen after Lehman Brothers' collapse in September.
"The reason people think failure could be cataclysmic is that there are so many companies that are tied to the auto industry," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.
The Senate proposal comes as GM said it would delay incentive payments to its U.S. dealers by two weeks in an effort to "gain some cash liquidity" for the fourth quarter.
The payments for dealer incentives, which are made on a weekly basis, will be delayed from November 28 until December 11, GM spokesman Pete Ternes said.
Liquidity is the key concern for the automakers as their remaining cash reserves dwindle.
"If General Motors is unable to solidify government aid this week and is forced to wait for the next administration, we would become more concerned about working capital related liquidity risks... ," Citigroup autos analyst Itay Michaeli said in a note to clients on Monday.
The companies and their allies in Congress argue a bailout is justified on grounds they back one in 10 U.S. jobs.
GM, Chrysler and Ford employ close to 250,000 people in the United States and supporters claim they touch more than 4 million other jobs including suppliers, dealers, car haulers and rental companies.
Many parts suppliers and dealers have agreements with transplanted automakers as well, potentially interrupting the business of competitors to the Big Three in the short term.
A potential threat to the integrated supplier network prompted Japan's Honda Motor Co Ltd to support an aid package for its U.S. rivals.
BAILOUT SKEPTICISM
But segments of the public disagree that a rescue is in order. In interviews, Americans said the planned rescue was unfair and would make it harder to reform the U.S. automakers.
"They need to restructure. If they get bailed out they are not going to do it," said Eric Smith, a paint contractor interviewed in Chamblee, Georgia, on the outskirts of Atlanta.
U.S. automakers say they are urgently trying to overhaul their businesses to meet a global demand for fuel efficient products, like better performing gasoline engines, electric cars and more hybrids.
But industry executives say they may never get there unless the bailout is approved. They add that the shock of any collapse will shake the economy.
If the auto industry comes under severe pressure, GM Chief Executive Rick Wagoner said in a television interview on Sunday, "the impact on the whole U.S. economy will be devastating."
All three companies have rejected reorganizing under bankruptcy protection.
For the Senate measure to pass, it must gain support from both Democrats and Republicans in the narrowly divided chamber where 60 votes are needed to overcome any procedural hurdles.
Aides and lawmakers have expressed doubt about the Democratic effort with so little time and White House opposition.
Nevertheless, two prominent Republicans senators signaled they would be willing to consider a plan. Pennsylvania's Arlen Specter said he was open to supporting the automakers under certain conditions, and Christopher Bond of Missouri, expressed a similar sentiment and said action was needed now.
"I'm pleased to see there seems to be broad support for assisting the auto industry despite disagreements," Bond said.
Bush, whose limousine is made by GM, opposes a bailout using Treasury rescue funds that the administration argues are, by law, intended only for distressed financial services companies.
President-elect Barack Obama, who will be sworn in January 20, has encouraged an aid package, but not a blank check. Obama has said conditions should also include labor, suppliers and lenders so that "we are creating a bridge loan to somewhere, as opposed to a bridge loan to nowhere."
Shares of GM closed up 5.7 percent to $3.18 on the New York Stock Exchange, while Ford slipped 4.4 percent to $1.72. Chrysler is privately held by Cerberus Capital Management LP
(Additional reporting by David Bailey and Soyoung Kim in Detroit, Tom Ferraro and Rick Cowan in Washington, Matthew Bigg in Atlanta, Andrea Hopkins in Greensburg, Indiana and Patrick Fitzgibbons in New York; editing by Mohammad Zargham and Tim Dobbyn)
Copyright © 2008 Reuters Limited
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How about this for a start?
How about this for a start? Trucks should be made to take natural gas. I noticed in Phoenix that many of the Gas Companies trucks have a sign saying they are using natural gas. This is a possible start for all three American Brands of trucks to convert. If they can do it, the next step would be for all passenger cars and everyone would be happy. That this has not been done, shows that all three American auto manufacturers need new management or not a penny of tax payers money.
Malcolm, in speculation
This good idea will have to
This good idea will have to overcome the chicken-and-egg problem of gasoline/diesel engines have no problem finding gasoline or diesel fuel but there isn't a distribution system for Natural Gas. Where I live, the local transit company has been using CNG buses for years and one of the largest employers in the county has a fleet of CNG vehicles. Each of them maintains their own fueling station. I live 20 miles away and there is no natural gas in my township -- people cook and heat with electricity, oil, and propane (and a lot of wood and a little bit of coal for heat).
Allowing America's big 3
Allowing America's big 3 auto makers to fail may seem devastating to many; but, it is inevitable. Like the ever present mortgage and financial crises, these behemouths have been allowed to perpetrate their poor planning and products on the American buying public for far too long. Rather than planning for a 'green' future, the backward thinking, cigar smoking fat cats who run these companies have chosen to continue manufactoring their gas guzzling, smog spewing road hogs.
Now that the reality of their mistakes is staring them in the face, they expect the American tax payer to bail them out of the crisis of their own making. The American tax payer doesn't owe these jokers one damned dime! These companies must be allowed to fail and to restructure. This process is normal for western capitalism -- it's called the survival of the fittest.
Instead, our law makers could use the intended bail out money for improving the infrastructure in our major cities. These funds could provide much needed mass transit and research to improve and to advance 'green' technologies. It could be used to get millions of cars and trucks off the roads. This would dramatically reduce our dependence on foreign oil and significantly reduce green house gas emissions. It would mean our nation's elected officials are investing in a 'green' future for our planet. It could fund new technologies, create new jobs and help establish a bright future for our children.
But, no, they will bail these companies out; they will invest in the past; and, by so doing, they will condemn this nation and our children to a 3rd world future....
I have a hard time believing
I have a hard time believing that any bailout would make the big 3 become competitive with Toyota/Honda, even after you take out the union pensions cost. Do people not buy their cars because they cost more, or because they have poor design? Its not the union that chose the type of build or designed it.
If we want to protect jobs we should take these workers and put them to work on building our infrastructure. Create something useful instead of more cars that no one wants.
I believe that, under
I believe that, under different circumstances, both your reservations and suggestions make good sense. In the current economic meltdown, they do not. The auto industry has not retooled substantially, though several have come out with hybrids and other options. in addition, more gas station and supply end businesses like must still be able to provide gas to those who can't afford to by the newer cars.
To support redirection to different cars will require a commitment of the American people as a whole, as well as of the service station businesses, and others businesses that would be affected, to change. People are already being priced out of the home buying market, being forced from their existing homes due to foreclosure. Now are they, am I, to be required to purchase a car I can't afford?
I am a good example. I am 60 ... certainly not old, or so I would have thought had I remained well. But 20 years ago I developed a chronic pain condition called Fibromyalgia, and several other chronic illnesses. I eventually had to quit working, and all my attempts to return to work fell apart. I was advised to apply Social Security Disability, which I did, practically being dragged by my doctors, kicking and screaming. Because I lost 10 to 15 years of possible fruitful work, my SSDI check is barely livable. I have prescription drug, Part D, but am now in the "Donut Hole," and having to make decisions about which medications I can stop taking.
My brother-in-law and sister are another good example. Randy has worked hard all his life; MaryBeth has mainly been a stay at home mother. They have a house in Northern Virginia and were beginning to think about retiring. Randy was let go from his job. Due to his age, it may be difficult for him to find work. My sister is also disabled by the illnesses that struck me down, so she can't work. Soon the unemployment and the cobra medication benefits will run out. They may lose their home, after all they have done in hard work and commitment. (And I will reveal that I am a Democrat, and they are Republicans, so the distress is not hurting just one side or the other.)
So, many of us are part of and affected by what goes on in the auto-related industries. I lost %50 of my retirement fund before I realized what was happening in the market and told my broker to sell everything and send me a check. I did not have a big enough pot to wait for the market to "come back." One month I lost $10,000; the next month I lost $12,000. Soon there would have been nothing left to lose if I hadn't taken it out of the market. There are many people like me and my sister's family, who were raised middle class, but border on being poor, and one step away from homelessness.
How would we buy hybrid cars? There has to be a transition with financial breaks for those who have the money to purchase hybrids or other types of differently fueled cars. For the poor, in the meantime, there still need to be service stations that sell gas. Perhaps the service stations should also be getting tax compensation or some kind of compensation to retool their stations to serve both gas and other fuels, during the transition.
This is not an easy fix. The auto industry survival is crucial to our whole economy. And as an ant at the bottom, I think the automakers deserve the help. ~ Linda in Lowell (MA)
NO!!! $75 an hour for a HIGH
NO!!!
$75 an hour for a HIGH SCHOOL education??
$100K a year to spin bolts?
Job Banks?
How do you tell an American car from a foreign built car?
The paint peels off within 5 years.
Detroit hasnt built a quality product in decades.
If Detroit restyles itself into the model of Southern American companies like Toyota and Honda, maybe then I would support this bailout.
The fat times in Detroit are OVER!!
Who gets paid $75 an hour?
Who gets paid $75 an hour? If that is true, which I doubt, I'd be interested in learning what their level of experience and skills are to merit such.
Union people enter into CONTRACTS with their employers. Union people EARN their pensions. Corporations raiding pensions for temporary liquidity is THEFT. Dissolition of worker pensions is breach of contract.
What have the auto company executives done to EARN their outrageous salaries? Why are they rewarded for their lack of vision? They cut costs by lowering quality, stifling innovation, outsourcing workers. They do NOTHING to reclaim the knowledge and skills of retiring workers or incorporate the good ideas from the floor into the industrial designs.
When sports franchises fail, they don't fire the talent, they fire management for failing to unify the talent. The same is true for the auto industry. Don't fire the talent. Fire the useless management!
Yeah, I saw the $75 an hour
Yeah, I saw the $75 an hour and wondered. The reality is that an autoworker can earn about $82K. The total cost to the employer is about $73 an hour, not $75/hour. That includes payroll taxes, overhead, employer pension contributions, and health benefits. This difference is typical of a large company.
According to a news show I caught just a bit ago US employees of the foreign auto companies cost out at $48 an hour, a difference of $25/hour per employee.
That's $200 a day per employee. If a plant has say 2,500 employees that's half a million EVERY day. And that doesn't include any overtime pay. The difference in profits would be $130 million dollars a year for that hypothetical plant.
What's driving the high employee costs? The unions. And the greedy employees who work for the big three. I just watched a disingenuous statement by some union boss who said, "Why should we take a hit when no one else is? Why point fingers at the auto workers?
I have an answer and a message for the auto union members: Because you people priced yourselves out of the market. Why the hell should I as an auto buyer subsidize the life styles of the effetely snobbish auto workers who believe that in this economy they are entitled to gross pay (direct plus indirect costs) of $50,000 per year more than an employee of Toyota or Honda?
Employee wages are only a
Employee wages are only a part of employee costs. You've only just clarified the difference. Apparently you've "seen" the total costs and breakdown. Provide us with a link to your data to make your case.
Anti-union sentiment is merely ignorance of what unions have won to make YOUR life safer, healthier and provide more quality family time in your "pursuit of happiness."
If you enjoy a 40 hour workweek and overtime pay in excess of that, thank the unions. If you may address workplace health or safety concerns without fear of repercussions, thank the unions. If your employer provides any insurance or retirement benefits, thank the unions.
If corporations were beneficent, there would be no need for unions, but they aren't. Detroit automakers long history of worker exploitation is what drives workers to unionize.
The two main reasons why foreign automaker have lower employee costs are: 1) the automakers negotiated HUGE tax breaks by bringing industry to areas with depressed economies. 2) In these depressed economies, competition for jobs lowered the level of acceptable wages and benefits.
Comparing the wages of US auto workers to those of foreign auto workers is comparing apple to oranges. When you compare wages make sure you compare them relative to the local cost of living. For example the median home price in Oakland, CA is $450,000 vs. $157,000 in Birmingham, AL, so clearly one would need to earn more in Oakland in order to afford the cost of living. Most of the foreign auto makers have plants in rural communities with low local costs of living.
Contrary to your false assertion that union workers are snobbish, they are not. They are merely battle hardened from dealing with assholes. Unions haven't priced themselves out of anything, it takes at least two parties to negotiate a contract. Automakers AND unions agree to the terms of the contract.
Why shouldn't you subsidize other's lifestyles? Because the union lifestyle sets the standard for yours! If you enjoy being treated like shit, working for low wages with no health care for your family, then by all means support worker exploitation! If its good enough for them it should be good enough for you!
They bail and We The People
They bail and We The People drown in the morass of the imbalanced budget and national debt.
Why should we pay the bill for mismanaged companies who ignore the customers' needs and fatten their executives' golden parachutes?
Let each Representative and Senator forfeit their salaries for their term and then see what happens. Hell, they do nothing constructive, why pay them?
Failure IS an option There
Failure IS an option
There are many levels of failure. The one we're talking about here is called Chapter 11. It permits a temporary reprieve from creditors to allow for restructuring of the company and hopefully a return to profitability.
That doesn't require any money or guarantee from the taxpayers. It's just a provision of U.S. law that permits a soft restart.
There's no reason that any U.S. corporation can't go this route before lining up at the trough for taxpayer handouts.
-Warren
If Chapter 11 requires
If Chapter 11 requires sending Wagoner, Lutz and other top executives a-packing, I'm all for it. These blind buffoons need to go! American automakers need, more than anything else, a vision for the next twenty years (at least).
Tour an auto plant some
Tour an auto plant some time. I once had a complete tour of the GM plants (engine, assembly, etc.) in Pontiac (Joslyn & Walton roads). I'll never forget the foundry. What a frightening place it was - molten steel, incredible heat, hell on earth. What wages would you require to work in such a place?
Like a bolt out of the blue, fate steps in and sees you through -- Jiminy Cricket
If the corporate humunculus
If the corporate humunculus fails, it disappears...but not the manufacturing part. The parts of GM, Ford and Chrysler that are functional and profit-making can be reassembled into a more efficient company.
The fat, give-a-damn days for the company and the unions are over - but the American car-making factory is still there and just waiting for competent management and a responsible work-force.
Most sincerely,
T. J. Flapsaddle
True. And in the long run
True. And in the long run Americans will still need to buy cars, and most of those cars will still be made somewhere in the U.S. Maybe not made by some of the 'big three' names, but made by U.S. workers with much U.S. content. Let those who can manage effectively run the businesses.
Thanks, Storky, for your
Thanks, Storky, for your explanation. You are spot on. I am a retired teacher from MI now living in NJ. My teacher salary, as well as the salary of all Michiganders, was based on the salary of auto workers. That was the standard. I think people forget how hard the auto workers had to fight--and die--for the right to unionize, to be able to bargain for decent pay and safe working conditiions. We are aiming our anger at the wrong people. It is the executives and CEOs who are making millions, not the workers. The workers have been taking cuts in benefits and pay for a long time.
There is one thing that no one has mentioned: foreign auto makers do not have to pay health insurance costs for their workers.If our corporations had any brains (they are considered "persons" under the law),they would realize that universal health care would save them a bundle.
We are currently bailing out the biggest banks, which are failing due to their own greed and fraudulent practices. The auto companies are guilty of not being innovative enough and making cars that people want (they do not force people to buy Hummers or other SUVs). Their employees are not to blame, but they will suffer the greatest loss if the AU goes under. They and many more millions of workers across the country whose jobs are tied to the AU.
Some 20 or 30 years ago, MI bailed out Chrysler with teacher pension money. Chrysler recovered and paid back all the money. Will the banks pay back all the taxpayer money we have given them? Don't hold your breath.
Full disclosure: Until recently, my husband worked for GMAC-re, GM's most profitable subsidiary, which had been sold to Cerberus. Now it has been sold again. Fortunately, my husband was re-hired by the new company, but who knows for how long. We will have to pay for our own health insurance for a month--and I have heart problems. My husband has been a loyal employee all his life, working late hours every day--with no extra pay. At age 61, where would he find a comoparable job, or any job at all? We are feeling the pain.
How about the .gov agrees to
How about the .gov agrees to pay the salaries of all employees below management level for a year or 2, as a loan. Let the Jefes fight like rats on a sinking ship.
Oh wait, the corporate owned DC Mafia only give money to their rich friends. Never mind.