$15 Billion Now, $? Billion Later?

Congress sent the Big 3 CEOs packing a couple of weeks ago, and wanted them to come back this week with a business plan. They did that, and showed where and why they needed a combined $36 Billion in loans & lines of credit. After careful review, Congress deemed that they were only going to advance $15 Billion (maybe), which is only going to hold them over until March.

President-Elect Obama has stated that he doesn’t want the automakers to fail, but he also doesn’t want the automakers to come back later to ask for more money. Obviously, the current Congress isn’t listening to either the automakers needs nor the Messiah-in-Waiting.

There is also talk of having a “car-czar” to oversee the distribution of the loans. From The Oakland Press:

House and Senate aides also were haggling over how the government-led restructuring should take place — either under a powerful “car czar” or a board — and who should name the official or team overseeing it. The White House wants a trustee named by Bush to wring concessions from the automakers and their unions before any loan money can be released, congressional aides said, while Democrats want Obama to choose an overseer.

I’m wondering what other hoops the automakers are going to have to jump through, although there are a couple of clues.

The first is from the Associated Press

The emerging measure would speed short-term help to General Motors Corp. (GM), Ford Motor Co. (F) and Chrysler LLC, while empowering the government to order a wholesale restructuring of the industry and imposing tight restrictions on the Big Three, according to congressional officials and others close to the talks. They described the developing plan on condition of anonymity because the details were not final.

This means that as part of the loan conditions, the automakers will have to follow direction, for right or wrong, in order to comply with the terms of the loan. And we know how well the government manages things, don’t we?

 

Just look at the state of the deficit, Medicaid, Medicare, and Social Security, and you should understand what my concerns are.  If that doesn’t convince you, then the recent no strings attached bailout (yes, bailout) of Wall Street should.

The second is more detailed from Real Clear Politics:

Coming back to Detroit, there may be a pragmatic solution, one that takes some of the apocalypse-now threat of major economic decline out of play. Senator Bob Corker and others have proposed a federal oversight board that would in effect become a bankruptcy court. Strict conditions would be imposed on the carmakers, especially regarding compensation — the single-biggest reason for Detroit’s decades-long decline.

Corker wants Detroit to have the exact same compensation levels as the Japanese transplants in the non-union Southern states. That means moving hourly labor costs down from roughly $70 to $48. It means reopening the UAW contracts that have created the huge pay-gap between Toyota and GM. It means putting an end to excessive pension and healthcare benefits.

According to Professor Mark Perry of the University of Michigan, GM healthcare benefits add $1,500 to the price of every vehicle, while pension costs add another $700 per car. That will have to end. The lucrative jobs bank that pays laid-off workers 95 percent of their compensation also will have to stop. And bondholders will have to be satisfied with a complete renegotiation of GM’s $62 billion in debt, including the union retiree healthcare fund that is under-funded by $30 billion.

There still will be considerable job losses for downsized Detroit carmakers. They’ll have to cut a huge chunk of their dealer networks. Domestic brands will have to be sharply reduced. But essentially, as would be the case under Chapter 11 bankruptcy, the federal government will provide short-term financing while Detroit goes through its radical restructuring. It looks like bankruptcy lite, and it will completely change the direction of the former Big Three.

So now comes the crux of the matter.  Retiree pensions and healthcare, negotiated in good faith by the companies and Unions, are now on the table.  The retirees are going to get hosed big time.

And I already know that the UAW is suspending and will dismantle the jobs bank.

One small additional comment:  I certainly do not get $70 per hour compensation, nor does the contract provide for it for any Union worker.  The next post or two will address this widely misreported figure and where it might come from.

Where I see the ultimate ending to this is that the government will most likely finish killing the automotive industry while pretending to save it.  It has been trying for years to do that with CAFE standards and endless regulations.  It’s almost time for the coup de grace.

As for me, if I get a buyout package, I’m most likely going to take it.  I don’t need the stress of trying to figure out if I’m going to be employed the next day or not, and I’ve given up on any pension that I might receive.  I’m sure the Federal regulators will see to that.

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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.
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2 Responses to $15 Billion Now, $? Billion Later?

  1. Take the buyout package!

    Inflation later could eat it up, but that would be at least one year down the road, IMO.

  2. Tom says:

    AOW – My wife is advising the same thing – take the money and find another job.

    The real problem is that Michigan isn’t the place to find a new job – high unemployment and the job market is flooded with out of work engineers.

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