A Rant on the Automotive Situation

It’s been a long weekend, and I’m PO’ed about this past week on so many different levels it isn’t even funny.  So let me explain a little further, or rather, rant.  However, be careful in reading this post – full Hazmat gear with an extended air-supply is recommended because this is going to be a long ride and it will get toxic.

As has been widely reported in the news, the CEOs of Chrysler, Ford, and GM with the head of the UAW went to Washington to pass the hat for loans to help keep their respective companies afloat and people employed.  Of course, they showed up in their nice Armani suits via their individual company jets.  Smooth move, morons…  Worse, they didn’t have any answers on how $25 Billion was going to be used and repaid.

What also showed up in the Detroit Free Press was the news that 50 Chrysler executives are going to get bonuses.  That’s right, bonuses!  The article states:

About 50 Chrysler executives are owed bonuses under a retention agreement hatched last year by DaimlerChrysler as it was looking to sell the Auburn Hills-based unit. The bonuses range from $200,000 to $1.89 million. The bulk of the bonuses are paid if people stay until August 2009, the two-year anniversary of Cerberus Capital Management taking majority control of Chrysler.

“Retention agreements are a standard business practice and are put in place to protect a potential buyer from losing key managerial talent,” the company stated.

I have no problems with reasonable executive bonuses providing that the executives are doing a good job.  But they weren’t doing a good job to begin with – that’s why DaimlerChrysler was selling the division.  Why the hell keep people around that are driving the company into the ground, and reward them for doing it?  Perhaps these asses should have been sent packing for poor performance in the first place…

Then I read about the Congress-critters hypocrisy as well as watch it on the various news channels.  I think that Mitch Albom of the Detroit Free Press stated it best in his column “If I had the floor at the auto rescue talks” with the following excerpts:

First of all, before you ask, I flew commercial. Northwest Airlines. Had a bag of peanuts for breakfast. Of course, that’s Northwest, which just merged with Delta, a merger you, our government, approved — and one which, inevitably, will lead to big bonuses for their executives and higher costs for us. You seem to be OK with that kind of business.

Which makes me wonder why you’re so against our kind of business? The kind we do in Detroit. The kind that gets your fingernails dirty. The kind where people use hammers and drills, not keystrokes. The kind where you get paid for making something, not moving money around a board and skimming a percentage.

You’ve already given hundreds of billions to banking and finance companies — and hardly demanded anything. Yet you balk at the very idea of giving $25 billion to the Detroit Three. Heck, you shoveled that exact amount to Citigroup — $25 billion — just weeks ago, and that place is about to crumble anyhow.

Does the word “hypocrisy” ring a bell?

Sen. Shelby. Yes. You. From Alabama. You’ve been awfully vocal. You called the Detroit Three’s leaders “failures.” You said loans to them would be “wasted money.” You said they should go bankrupt and “let the market work.”

Why weren’t you equally vocal when your state handed out hundreds of millions in tax breaks to Mercedes-Benz, Hyundai, Honda and others to open plants there? Why not “let the market work”? Or is it better for Alabama if the Detroit Three fold so that the foreign companies — in your state — can produce more?

Way to think of the nation first, senator.

And the rest of you lawmakers. The ones who insist the auto companies show you a plan before you help them. You’ve already handed over $150 billion of our tax money to AIG. How come you never demanded a plan from it? How come when AIG blew through its first $85 billion, you quickly gave it more? The car companies may be losing money, but they can explain it: They’re paying workers too much and selling cars for too little.

AIG lost hundred of billions in credit default swaps — which no one can explain and which make nothing, produce nothing, employ no one and are essentially bets on failure.

And you don’t demand a paragraph from it?

Besides, let’s be honest. When it comes to blowing budgets, being grossly inefficient and wallowing in debt, who’s better than Congress?

So who are you to lecture anyone on how to run a business?

Ask fair questions. Demand accountability. But knock it off with the holier than thou crap, OK? You got us into this mess with greed, a bad Fed policy and too little regulation. Don’t kick our tires to make yourselves look better.

For another article along the same lines, here are some excerpts from The Oakland Press:

No wonder people don’t trust politicians.

Suddenly, before approving any financial help to automakers, members of Congress demanded answers from them that they never demanded from Wall Street. Everything they wanted to know was reasonable: What kind of changes are they going to make in their day-to-day operations? What structural changes have they agreed to? What limits are they going to put on executive salaries? What guarantees exist that we’ll get our money back?

Again, those are all good questions, and questions Congress should ask. But Congress members were hypocrites in demanding answers to those questions from Detroit automakers when they had so recently approved a $700 billion bailout of Wall Street banks and financial institutions with nary a peep.

There’s nothing wrong with putting strings on federal dollars. But here’s my question: Why the huge double standard? Wall Street firms, remember, also screwed up.

For Republicans, we know the answer: because Wall Street is nonunion, and Detroit is all-union. Because Wall Street is white-collar and Detroit is blue-collar. Because Wall Street is upper-class and Detroit is middle-class. And Republicans would rather swallow glass than help a middle-class, blue-collar union member.

But self-righteous Democrats decided they’d rather help George W. Bush kill 3 million to 5 million more jobs, cause 775,000 retirees to lose their pensions, and force two million workers to lose their health benefits.  You think the economy’s bad now?

Imagine how much worse it will be when U.S. automakers go belly up, wiping out 20 percent of all retail sales in America, eliminating one out of 10 American jobs and destroying what little is left of America’s manufacturing sector.

So the Big 3 and the UAW are going to come back during the first week of December and restate their case to get the loans.  And I predict that they will.  I’m just wondering what is going to be the price for the loans.  I have no doubts that there will be pounds of flesh to be paid, and most of it will be from the people that make the product.

There is such an anti-Union sentiment out there in the news and the blogs that I am just shocked at the level of venom being spewed.  Yes, Unions have their bad side as well as their good side.  But just remember this:  Union members are people, wanting to make a living to support their families.  They are just like you, wanting to be paid for the work that they do, and to have that compensation increase with skills and time put into the company that they work for.  They want to have job security in an uncertain time to be able to put their kids through college, take vacations, and have a decent house.  In other words, just like non-Union people, they want to have their shot at the American Dream.

And yes, there are a few bad apples.  But there are the same number of bad apples in non-Union industries as well.

But one of the “concessions” that the UAW may be forced to implement for Congress to approve loans to the Big 3 is the jobs bank.  This program had been scaled back from an indefinite support to a maximum of two years.  From another article in the Detroit Free Press:

Until the union’s 2007 contract, workers could remain in the jobs banks for years. But under the new contract, the union conceded to tighter conditions, under which workers’ jobs are protected by the jobs bank for just two years, and less if employees turn down transfers.

Jobs banks come from an era when automakers’ manufacturing processes were being modernized to include technological improvements and the companies needed to win labor support for such innovations that seemingly would mean a loss of jobs.

“The jobs bank notion was created long ago with the idea of being a temporary location for people who were being displaced by upgrades in technology,” Cashman said. “That whole premise seemed to have died long ago, and jobs banks have been, from the perspective of folks down here, kind of abused ever since.”

UAW members say they have foregone increases in pay and benefits over the years in exchange for the job security provided by the jobs bank and would expect to see significant concessions in executive pay and from other constituencies if they are to give up that protection.

What the above article doesn’t state is that job banks were also used when plants shut down to change vehicle models.  During that time, workers also attended training for the new equipment being installed to build the new vehicles.

I’ve also heard a lot about wages and cost difference between the foreign and domestic automakers.  From an article in The Oakland Press:

Figuring out labor costs is tremendously complicated because the contract has many provisions that change based on U.S. auto sales and production rates. Also, GM is estimating costs for the Japanese automakers.

But GM, which negotiated the four-year deal that serves as a template for UAW deals with Chrysler and Ford, says its total hourly labor costs dropped 6 percent this year from pre-contract levels, from $73.26 in 2006 to around $69 per hour. The new cost includes laborers’ wages of $29.78 per hour, plus benefits, pensions and the cost of providing health care to more than 432,000 GM retirees, GM spokesman Tony Sapienza said.

The total cost will drop to $62 per hour in 2010 when the linchpin of the contract — a UAW administered trust fund — starts paying retiree health care costs.

But that’s still $9 more than the $53 per hour that GM estimated Toyota now pays in the U.S., and the gap could be even wider. Toyota spokesman Mike Goss said the company’s total labor costs at its older U.S. plants are around $48, with about $30 per hour in wages.

The remaining difference largely is due to “legacy” costs, the cost of a 100-year-old company paying its retiree pensions, Sapienza said.

“While legacy seems to be a dirty word of late, it also means we support hundreds of thousands of people via pensions, health care and good jobs,” he said.

There’s also the “jobs bank,” a feature of the UAW contract that drew fire from senators, in which workers get 95 percent of their base pay and all of their benefits if they are laid off or their plant is closed. In the past, workers could stay in the jobs bank forever unless they turn down two job offers within 50 miles of their factory. GM’s new contract imposes a two-year time limit, and workers are out of the jobs bank if they turn down one job within 50 miles or four jobs anywhere in the country.

GM has about 1,000 workers in the jobs bank now because it’s been thinned out by early retirement and buyout offers. At its peak, the jobs bank had 7,000 to 8,000 people, Sapienza said.

To be fair, Toyota also has paid workers whose plants were temporarily closed due to slow demand for their products. Employees attended training during the shutdown.

GM, which has been restructuring for about five years, had about 125,000 U.S. hourly employees in 2003 and expects to have 62,500 by the end of this year.

GM says it already is starting to see savings from the new contract because it has hired more than 1,000 workers who are paid $14 per hour, less than half the average UAW laborer’s rate. Most, if not all, of those workers will be laid off, though, as GM cuts production because of the sales slump. The company expects more long-term savings as it hires more lower-paid workers in the future.

Yes, the UAW has given up a lot of benefits and wages to help the Big Three compete.  And what has been their reward?  Bonuses to executives for a job well done in negotiating concessions from the Unions.  And yet, it’s still not enough.  They still bitch and moan about how the Unions are screwing them over while they gleefully count their bonuses.

The cause of much of the grief that the automotive industry as a whole (and I’m including the “other” automakers in this) is the government’s role in the current financial crisis as well as laying the groundwork & continued policies that work against the United States.  As discussed in some previous posts (here, here, and here), politicians in government have not done us any favors.  Indeed, I believe that they have created much of the problems that we are facing as an industrial country.

For instance – Pat Buchanan wrote this article (link pending) and had this to say about government’s role in the demise of the domestic auto industry:

To hear the media tell it, arrogant corporate chiefs failed to foresee the demand for small, fuel-efficient cars and made gas-guzzling road-hog SUVs no one wanted, while the clever, far-sighted Japanese, Germans and Koreans prepared and built for the future.

I dissent. What killed Detroit was Washington, the government of the United States, politicians, journalists and muckrakers who have long harbored a deep animus against the manufacturing class that ran the smokestack industries that won World War II.

How did Big Government do in the U.S. auto industry?

Washington imposed a minimum wage higher than the average wage in war-devastated Germany and Japan. The Feds ordered that U.S. plants be made the healthiest and safest worksites in the world, creating OSHA to see to it. It enacted civil rights laws to ensure the labor force reflected our diversity. Environmental laws came next, to ensure U.S. factories became the most pollution-free on earth.  It then clamped fuel efficiency standards on the entire U.S. car fleet.

Next, Washington imposed a corporate tax rate of 35 percent, raking off another 15 percent of autoworkers’ wages in Social Security payroll taxes.  State governments imposed income and sales taxes, and local governments property taxes to subsidize services and schools.

The United Auto Workers struck repeatedly to win the highest wages and most generous benefits on earth — vacations, holidays, work breaks, health care, pensions — for workers and their families, and retirees.  Now there is nothing wrong with making U.S. plants the cleanest and safest on earth or having U.S. autoworkers the highest-paid wage earners. That is the dream, what we all wanted for America.

And under the 14th Amendment, GM, Ford and Chrysler had to obey the same U.S. laws and pay at the same tax rates. Outside the United States, however, there was and is no equality of standards or taxes.

Thus when America was thrust into the Global Economy, GM and Ford had to compete with cars made overseas in factories in postwar Japan and Germany, then Korea, where health and safety standards were much lower, wages were a fraction of those paid U.S. workers, and taxes were and are often forgiven on exports to the United States.  All three nations built “export-driven” economies.

The Beetle and early Japanese imports were made in factories where wages were far beneath U.S. wages and working conditions would have gotten U.S. auto executives sent to prison. The competition was manifestly unfair, like forcing Secretariat to carry 100 pounds in his saddlebags in the Derby.

Japan, China and South Korea do not believe in free trade as we understand it. To us, they are our “trading partners.” To them, the relationship is not like that of Evans & Novak or Fred Astaire and Ginger Rogers. It is not even like the Redskins and Cowboys. For the Cowboys only want to defeat the Redskins. They do not want to put their franchise out of business and end the competition — as the Japanese did to our TV industry by dumping Sonys here until they killed it.

While we think the Global Economy is about what is best for the consumer, they think about what is best for the nation.  Like Alexander Hamilton, they understand that manufacturing is the key to national power. And they manipulate currencies, grant tax rebates to their exporters and thieve our technology to win. Last year, as trade expert Bill Hawkins writes, South Korea exported 700,000 cars to us, while importing 5,000 cars from us.  That’s Asia’s idea of free trade.

How has this Global Economy profited or prospered America?

In the 1950s, we made all our own toys, clothes, shoes, bikes, furniture, motorcycles, cars, cameras, telephones, TVs, etc. You name it. We made it.

Are we better off now that these things are made by foreigners? Are we better off now that we have ceased to be self-sufficient? Are we better off now that the real wages of our workers and median income of our families no longer grow as they once did? Are we better off now that manufacturing, for the first time in U.S. history, employs fewer workers than government?

We no longer build commercial ships. We have but one airplane company, and it outsources. China produces our computers. And if GM goes Chapter 11, America will soon be out of the auto business.

Our politicians and pundits may not understand what is going on. Historians will have no problem explaining the decline and fall of the Americans.

So when we no longer make our own products to trade, where is the money going to come from?  A service-based economy that does nothing but shuffle money around before it heads offshore?  That certainly won’t last for long…

Buchanan’s statement “To hear the media tell it, arrogant corporate chiefs failed to foresee the demand for small, fuel-efficient cars and made gas-guzzling road-hog SUVs no one wanted…” also strikes a chord.  If no one wanted these vehicles, then why did Detroit make SUVs for years? Because the public wanted to buy them – that’s basic supply and demand economics.  And I would like to meet the person with the crystal ball that foresaw the high fuel prices that helped create the situation that the automotive companies find themselves in.  20/20 hindsight is the only sight that these buttheads have…

What I see happening is that the politicians in Washington are more interested in serving themselves and/or the world instead of this country.  Why else would they not even blink at doubling foreign aid from $25 Billion to $50 Billion that will never be paid back and then grill the domestic automakers over a loan no riskier than the loans made by Fannie May and Freddie Mack?  Where the **** are their priorities?

Where I see the domestic automotive industry heading and ending up is not going to be a good place.  The focus that I have been observing is that Chrysler and GM are almost being forced to merge, and that will impact many more than just the projected 35,000 people between the two companies.  The ripple effect between suppliers and dealers will extend that out to some large but unknown number of people.  If a merger doesn’t happen, I see that Chrysler will be chopped up & unloaded by Cerberus, and GM may file Chapter 11 even if the government loans are approved.  In either case, I do not have much hope for my department or my job to survive any type of transition along these scenarios.

When I moved to Michigan almost 9 years ago, it was to join a company so I could retire from with a decent pension.  Now, it is highly doubtful that I will see that pension much less retire.  I do not anticipate either company to survive this mess intact.  So…

I finished updating my resume (again!) and sending it off to a couple of people that I’ve contacted this past week.  What I did not want to do is start over again at a new place at my age.  And this will not make retirement, if any, any easier for my wife and myself.

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About Tom Roland

EE for 25 Years, Two Patents - now a certified PMP. Married twice, burned once. One son with Asperger's Syndrome. Two cats. Conservative leaning to the Right. NRA Life Member.
This entry was posted in Automotive, Business, Government, Michigan, Opinion, Politics, Union and tagged , , , , , , , . Bookmark the permalink.

3 Responses to A Rant on the Automotive Situation

  1. localsoandso says:

    Yep, I’d say you’re PO’d alright. Great post. Here’s a couple more points: Everybody says GM was short-sighted building SUV’s. Porsche and BMW were building them too. Has anyone ever called Porsche short-sighted? Also, the bankers, who used to fund the Republican Party, went 5 to 1 Democratic in the last election. You can always trust the politicians to go where the money is.

  2. Brenda Stone says:

    I hope that they don’t bail them out becuase the next thing you know they’ll be bailing out the arlines!

  3. Tom says:

    If the big three go away, then 1 in 10 jobs will disappear and the economy will tank even further than what the bankers have done so far.

Comments are closed.