Double standard in debate over saving GM
Big 3 automakers have certainly made a terrible mess of things, but the debate over saving them reflects a double standard that often works to the detriment of blue-collar industries and, more importantly, their blue-collar employees. There is a bias among economic-development policymakers and pundits in favor of white-collar businesses – reflected in huge tax breaks for office construction, and commentary that gives blunders committed on Wall Street an easier ride than those committed in Detroit. This is one reason it was a lot easier to form a consensus about helping Wall Street than it’s been to reach one about aiding Detroit.
To illustrate, here are two recent Tom Friedman columns. He ably summarized the Big 3 automakers’ sins:
“How could these companies be so bad for so long? Clearly the combination of a very un-innovative business culture, visionless management and overly generous labor contracts explains a lot of it. ” He urges the harsh steps proposed by the Wall Street Journal’s former Detroit bureau chief Paul Ingrassia. He concludes: “somebody ought to call Steve Jobs, who doesn’t need to be bribed to do innovation, and ask him if he’d like to do national service and run a car company for a year. I’d bet it wouldn’t take him much longer than that to come up with the G.M. iCar.”
Friedman was much more mild in an October column on the collapse of Wall Street: “We need to get back to collaborating the old-fashioned way. That is, people making decisions based on business judgment, experience, prudence, clarity of communications and thinking about how — not just how much.”
David Brooks had a good column in the New York Times at http://www.nytimes.com/2008/11/14/opinion/14brooks.html/?_r=1&oref=slogin
I must say I agree with him. Bankruptcy is the way to go. It was once said that federal employment was secure through retirement. Not anymore. Congress even changed the retirement setup for new employees beginning around 1984 or so — not as generous as the old Civil Service Retirement System. Now defined contribution, not defined benefit.
At what point do adults take responsibility for their decision to remain with an employer. When times were good, nobody complained.
Now when times are tough, they want the rest of us to “bail them out?” We have unemployment insurance. Obama wants to expand health insurance, a move I support even if I’d be required (eventually) to fork over more taxes.
Other employees who’ve lost their jobs have transitioned to new realities. I can’t believe our auto workers can’t do the same. Won’t be easy. We’d likely see family disruptions, maybe even divorces. But life will go on. Better for some, not as good for others.
Brooks offers good perspective.
Okay, so let’s see if I’ve got this straight…since a bunch of CEOs in the century-old auto industry in the U.S., dealing with generations of workers (including lots of retirees who do not populate the stateside factories of the Japanese and other foreign factories) didn’t make wise choices in the 70s and 80s regarding the development of technologies (although have begun in recent years to make up for their past mistakes); and since labor leaders did exactly what they are supposed to do according to Catholic social teaching: to wit, get just wages and benefits for their workers and their families, especially in light of a government which is allergic to “socialism” when it comes to health care, disability, maternity, sick pay and other benefits that human beings are entitled to (see Rerum Novarum, Quadragesimo Anno, Laborem Exercens, Centesimus Annus, Economic Justice for All); and since none of the expert economists/pundits saw the disaster/tsunami which has overtaken the country/world in the past three months, with the foreclosure/banking/credit/consumer confidence crisis bringing everything to a standstill, with the stock market falling 50% in one year…with all this…oh, and with the bailout of the “little people” on Wall Street at AIG, and other poor folks with their hats in their hands (poor things)…let’s take it out on the millions of blue collar auto workers in and around metro Detroit and other place in the U.S. and Canada, all the small manufacturing tool and die shops that rely on the auto industry for their livelihoods, the local grocery stores, small businesses, restaurants, mom and pop stores, local bars and oh yes, local parishes (many of ours in metro Detroit are facing serious drops in income this year and layoffs of lay staff). Thanks for believing in “the common good,” Church!!
Not even Mr. Brooks really outlines every piece of both the dilemma, the process that has led to this, and the path out of this.
Pension, Pension, Pension (version of location, location, location) – this is where a large part of the current cash is going. Realize that high school educated folks can retire by 50 or 55 and expect not only pensions but health coverage before medicare kicks in – supported and defended by the UAW which he does not mention. It is not just auto CEOs but also UAW which has prolonged this slow slide into irrelavancy. Is there any other industry asking that their pre-65 retirees be paid and covered?
In Texas we let the banking industry go down in the 1980′s; no one tried to save Enron. It happens.
By the way, have not bought Detroit in 25 years and don’t ever plan to buy Detroit – why waste the money on poor products, gas guzzlers, and high repair fees that will last for the short lifetime of the Detroit product.
The question is: which is less damaging to the country–and possibly the world at large–that GM be allowed to face bankruptcy or that the tax payers provide some sort of bridge loan(s) to solvency. I have no claim to economic expertise. I have little sympathy for the American auto industry. Nonetheless, having listened to the arguments pro and con, I am now persuaded that an aid package, provided it is sufficiently stringent, is the least harmful course. GM would not recover from bankruptcy. No one will buy an auto from a bankrupt auto company. Moreover the demise of GM would have a ripple effect that would make the end of Lehman Brothers look like nothing.
“By the way, have not bought Detroit in 25 years and don’t ever plan to buy Detroit …”
We don’t usually talk cars on dotCommonweal, but my 6-year-old Ford Focus was a very good choice. There are quality American cars that get good gas mileage.
David Brooks writes, “If Detroit gets money, then everyone would have a case. After all, are the employees of Circuit City or the newspaper industry inferior to the employees of Chrysler?”
Does he know how the New York Times Co. was able to afford its new Midtown Manhattan skyscraper? It’s heavily subsidized by taxpayers.
Joseph Gannon nailed it: the common good is what matters!
In the 80s (and its long aftermath). on their way to a leaner and meaner existence, many American steelmakers and other manufacturing concerns managed to sock the United States government with their pension cots, via the PBGC (a government agency set up to insure pensions through mandated contributions from the sponsors of insured plans). I have often wondered why GM didn’t try this, but it hasn’t (it could be that there are various legal and contractual constraints — it’s a technical area). Instead, much of its current debt was very recently assumed to ensure that its pension plan will not have to be bailed out by me and you, something that federal law already requires us to do.
Food for thought.
I live in Michigan and have seen many ups and downs in the auto industry. When there’s a downturn, the companies and analysts often start pointing fingers at the UAW and blaming the pensions, early retirements and workmanship of the hourly workers as the fault.
Mr. DeHaas even wonders how it is that someone with a high school education can possibly deserve early retirement.
Let’s get real.
The ranks of management of seriously bloated in most of these companies. It is common for managers to be given the golden parachute at age 50 or 55. These folks generally move to warmer states where the golfing is better and they can live in gated communities.
UAW workers stay in Michigan, spend their pensions in Michigan, vacation in Michigan, send their kids to Michigan schools, and to colleges and universities here. Since the 1930s, the UAW has been responsible for raising wage and working standards in just about every shop in the state.
The auto industry has been seriously out-of-touch with reality for decades, but that’s hardly the fault of the UAW. The Big Three have not been interested in designing cars that run on alternative fuel sources, they have not been interested in safety, they have not been interested in curbing emissions. Gains made on these fronts have largely been made by government safety and environmental regulation.
The UAW did not design bad cars, nor do they purposely engage in shoddy workmanship. In fact, a good deal of the workmanship has been taken out of their hands by those who design the assembly lines that crank out mediocre product that costs more than I paid for my house. (Although I drove a Chevy Citation and two Saturns more than 150,000 miles each with about 35 highway mpg.)
I agree that whatever is decided has to be viewed in terms of broader national interest, but I feel pretty conflicted about what that decision should be.
A hand-out to GM might decrease the rate at which the state’s failing, but I think most of us here know that the only real solution is to diversify the economy enough to loosen the stranglehold the auto industry has on the state.
But I’m not optimistic about diversification. It has been difficult to bring in new business as the infrastructure continues to crumble; smaller manufacturing companies (Whirlpool, Kellogg’s Herman Miller, Dow) close, downsize or move; and the brain-drain continues.
Jean,
I have always read such great things about Herman Miller. What is the story with them leaving Michigan?
Some very smart people actually do have a plan that makes sense:
http://www.portfolio.com/views/blogs/market-movers/2008/11/16/gm-the-bailout-vs-bankruptcy-meme?tid=true
Jean-
So no blame can be laid at the feet of the UAW? I think that there is a lot of blame to go around.
After reading more on this topic, I think Chapter 11 is the way to go for big auto. It is broke and it needs a major overhaul.
Full disclosure–I have never driven an American car. Hondas and Toyotas for me. And unless Detroit changes dramatically, I will probably go to my grave in a Japanese auto (and maybe be buried with it too).
Anthony
Anthony, who will provide the financing for that overhaul? In a normal market environment (read: not now), something called debtor in possession financing emerges through which the debtor “works out” its debts and determines which assets and contracts to salvage etc.
We are in a liquidity crisis. There will be no overhaul because there will be no d.i.p. financing. Chapter 11 will quickly lead to Chapter 7. You can still favor no bailout, but please don’t be in denial about what that will most likely lead to.
The hardest thing will be to contain a bailout. And it seems to me that those who oppose bailout altogether would better spend their time coming up with the conditions that will prevent it from becoming permanent or politically untouchable (things I definitely oppose as well).
“since labor leaders did exactly what they are supposed to do according to Catholic social teaching: to wit, get just wages and benefits for their workers and their families, especially in light of a government which is allergic to “socialism” when it comes to health care, disability, maternity, sick pay and other benefits that human beings are entitled to (see Rerum Novarum, Quadragesimo Anno, Laborem Exercens, Centesimus Annus, Economic Justice for All);”
Nobody is talking about depriving workers and their families of human rights. The whole point of the exercise is to figure out a way to preserve hundreds of thousands of current jobs. Those jobs provide wages and benefits that give access to healthcare and those other fundamental rights to those workers and their families. Unions aren’t exempt from the requirement to care for the common good. That may mean that current benefits will need to be dialed down by a click or two.
I agree that it isn’t just unions – there is plenty of blame to spread around for this debacle.
“There is plenty of blame to spread around for this debacle.”
Very true. I’m not blaming the unions or management. I’m blaming both.
Years ago, one of my instructors used to tell us how his kids would complain to him from time to time about not getting something they wanted: “Daddy, that’s not fair!”
And the instructor would reply, “Of course, kids, life is not fair. A fair is a fancy country picnic.”
I’m not anti-union; I’m not anti-management. There’s room for both.
But life is not fair. We lick our psychic and financial wounds. We pick ourselves up — maybe with help and encouragement of family, friends, and strangers.
But life goes on.
I know.
I’ve been there.
Just read a BUSINESS WEEK on-line article reporting that Chrysler CEO Robert Nardelli said Nov. 13 that his company likely could not survive without a govt bailout.
He made this announcement at a “conference” in Palm Desert, CA!!!
Kind of like the AIG execs at their “conference” at a posh hangout in Arizona!
Talk about arrogance!!!
Didn’t Chrysler build up out of bankruptcy? People bought their cars big time. Municipal, County and state pensions are clearly questionable when they are contrasted with the rest of the population. Especially among law enforcement groups.
Life is not fair but we certainly do not want to be the ones who are unfair or who encourage others to continue to be unfair.
Just a thought – if the playing field for union organizing were more level, perhaps major employers like Wal-Mart would be unionized, and the prospect of UAW jobs disappearing wouldn’t be so dire for assembly line workers.
Joe Petit, Herman Miller has been a well-run company with a high degree of employee loyalty, but it will be laying off some 400-600 employees by January.
Anthony, don’t put words in my mouth, please. I didn’t say the UAW was blameless; I said that blaming labor is the standard m.o. every time there’s a slump in the auto industry. Labor doesn’t set policy, design cars, run R&D or handle innovations, or set management salaries and perks. Management does.
Bill Mazzella
I seem to remember that Chrysler, then headed by Lee Iacoca, got a large loan from the government and avoided bankruptcy. We owned two Dodge cars at the time and were friendly with a local dealer. He gave good service and we were concerned that he might go out of business.
This WSJ article advocates bankruptcy for GM as the only practical solution. It addresses the question of DIP financing.
If you’ll permit a tinge of cynicism: the fact that both the company and the union oppose bankruptcy is probably a sign that it’s a good solution.
http://online.wsj.com/article/SB122688631448632421.html
When Chrysler got federal help years ago, much of it consisted of Uncle Sam buying gobs of Chrysler motor vehicles for its fleet.
Barbara: They can always do a prepack and avoid the need for the DIP altogether. I like that option – that would be the ideal to my mind. Otherwise, why can’t the Feds do the DIP? I would much prefer that if nobody else steps up – the taxpayers get super-priority and all the other typical bells-and-whistles protections. The key is keeping the administrative costs of the estate down as I can see a reorg of an estate this size having administrative claims spiraling out of control once the vultures start circling. The US Trustee for this case, should it ever be filed, should be empowered to beat-back the unscrupulous attorneys so often associated with bankruptcies sucking the estate dry. That’s another beauty of the prepack option.
IF THE GOVERNMENT IS WILLING TO SAVE WALL STREET AND THEN CHANGE THE GAME PLAN IN MID STREAM SOMETHING IS WRONG.
THE REPUBLICANS WANT TO RETURN OUR GREAT COUNTRY BACK TO THE DAYS OF SLAVE WAGES. ALL OF THE PUNDITS ARE CRYING THAT THE UNIONS ARE MOST OF THE PROBLEM BUT IN REALITY IT IS MANAGEMENT. THEY WANT THE FAST BUCK AND NOT WORRY ABOUT DOWN THE ROAD (QUALITY WISE). THEN THEY CAN TAKE MULTI-MILLION DOLLAR BONUSES. THEN BLAME THE WORKERS FOR THE PROBLEMS.
HOW MUCH OF EACH CAR PAYS FOR ALL OF THE PERKS FOR ALL OF THE BIG SHOTS?
PAT BUCHANNON TALKS ABOUT BUYING AMERICAN BUT DOES HE STILL DRIVE HIS MERCEDES BENZ?
WE CANNOT ALLOW ANY OF THE BIG 3 TO GO UNDER. IT WOULD BE CATASTROPHIC FOR THE ECONOMY. BUT THAT IS WHAT THE REPUBLICAN PARTY WANTS SO THAT THEY CAN BREAK THE UNIONS THAT GAVE WORKERS THE CHANCE TO MAKE A GOOD WAGE.
IF THE AUTO COMPANIES FAIL THE COUNTRY WILL GO INTO BANKRUPTCY.
LONG LIVE THE UNIONS
Many opinions before big 3 execs testify and the Senate debates and then stalls (at least for a time) some aid with strings.
Everyone is unhappy with both some parts of labor and management on this. How much % of blame one assesses is probably due to ideological presups.
The issue should be going forward and what’s best for total econom,y – the common good -sorry to be repetitive.
It’s not just the unions and management who are to blame. It’s also the pubic who wanted and bought the gas guzzlers. So it sees to me we a
have some resposiility in this matter.
Pity the children of the 6 million workers who would lose their jobs. Yes, other workers are losing their jobs, but when your relatives and friends are also out of work, as will happen in Detroit, things will be even harder than in areas where the whole economy has not been wiped out.
I think Ann Olivier is right (above). The public went for bigger American vehicles, starting with the minivan craze and continuing with SUVs. I’ve seen a number of smaller and mid-sized sedans made by GM and Ford in Europe that I wish were sold in the U.S. They’re not because they wouldn’t sell (pre $4-a-gallon gas).
I think I had better say that I have changed my mind. After some further reading I now think that the US auto industry will never be competitive without the aid of a restructuring that can most readily be effected under Chapter 11 bankruptcy. So called bail-out money would be better spent on job training and unemployment payments.
“I think Ann Olivier is right (above). The public went for bigger American vehicles, starting with the minivan craze and continuing with SUVs. I’ve seen a number of smaller and mid-sized sedans made by GM and Ford in Europe that I wish were sold in the U.S. They’re not because they wouldn’t sell (pre $4-a-gallon gas).”
But Toyota, Honda and Nissan also sold a lot of SUVs in the US (and in large part they were assembled in the US). Yet when the price of fuel skyrocketed, they were able to switch gears and bring more fuel-efficient autos to market. And they had hybrids on the market years before the Detroit automakers.
Unfortunately, the domestic auto makers got out-generaled. Again.
I’ve read that import restrictions supported by the UAW prevents American auto makers from bringing those more fuel-efficient sedans into the US market.