Nov 21st, 2008
Bailing out the big three auto makers is like giving new pipes to crackheads
Blue collar workers are the heart of America and (and a good portion of my readership) so I understand the fear that the big three automakers going under would mean massive unemployment. I also want American businesses to succeed, especially ones such as GM that employ thousands of workers. The problem is the big, bloated car giants spend money like there is no tomorrow. Giving them more money will simply give them more to waste. The proposed government bailout is not going to fix their problems and here are some reasons why:
1) It would not fix their flawed business models
GM workers earn and average of $70/hr in pay and benefits. That is simply too much. Thats more than (in the US) the average engineer, construction worker, teacher, project manager and blogger (ha!). Its not just assembly line workers either, the CEO Richard Wagoner makes about $24 million a year.
GM goes through $2 billion a month. A month! What good would 8 billion do them? Then there are the huge pension plans that no other industry could possibly afford to give.
2) Their cars aren’t very competitive
Guess which of the big three are on Kelley Blue Book’s top 10 brands? That’s right, none. They don’t hold their value and don’t stand up for the most part to similar foreign cars.
3) The idea that it would help American workers is a sham
The automakers are already outsourcing. See Ford’s 3 billion plant they are going to build in Mexico city. (The biggest foreign investment in Mexico’s history).
4) Government car bailouts have been tried and they DONT WORK
In England Leyland car company has having problems identical to our big 3. They owned over 1/3 of the entire market share. The government put in 16 billion to keep them afloat. So who here has heard of Leyland? Any takers? That’s because they went out of business anyway.
- 6 Comments
- Politics
I really liked what Seth Godin had to say about it today:
http://sethgodin.typepad.com/seths_blog/2008/11/what-to-do-abou.html
Your fact about them earning $70 per hour is incorrect. The automakers average payout amounts to $70 per hour due to the penison plans and heathcare. The average employee earns ~$28 per hour plus ~$10 per hour in benefits. The problem is that for nearly every worker they also pay a retiree benefits with medical being the biggest hitter. The fewer workers the more the average goes up.
Many of your comments are factually untrue.
1) “the CEO Richard Wagoner makes about $24 million a year.” - For 2008, Wagoner made a salary of $2.2 Million. Not chump change by any means, but good luck finding a highly educated person with enough talent to run an auto company who will work for $50,000 a year. Also, Wagoner just took a pay cut to $1 a year.
He also is due to receive stock options if the company is profitable, but that won’t be happening this year for sure (or next).
Source: http://blog.mlive.com/statewidebusinessstories/2008/03/gm_board_restores_ceo_rick_wag.html
2) Using the Kelley blue book “Residual Value” list is arguably not the best way to rank “top 10 best car brands” as you claim. Why not look at recent (2008) JD Power initial QUALITY results?:
“Let’s look at today’s reality. In its launch year, the Chevrolet Malibu led the ultra-competitive midsize segment in the 2008 J.D. Power and Associates Initial Quality Study, which is unprecedented in the industry. The Malibu’s performance far exceeded that of both Honda and Toyota in the same segment. Chevrolet, Cadillac, Pontiac and Buick, which represent 82 percent of the cars and trucks we sell ranked above industry average in the 2008 J.D. Power and Associates Initial Quality Study. You might be surprised to find that all of our eight brands in today’s SSI study – Chevrolet, Buick, Pontiac, GMC, Saturn, Hummer, Saab and Cadillac – ranked above industry average. That’s right, not just our luxury brands, but every brand. ”
Source:
http://fastlane.gmblogs.com/
3) “In England Leyland car company ” - Gov’t bailouts haven’t worked - Why not look to a more local example, of Chrysler in 1979? That LOAN kept people in work, at the factories, and they paid that loan amount back early, and regained profitability.
4) I agree with you that the average auto worker makes too much. This is being addressed to some extent already through last years negotiations. More work is needed in this area, and hopefully a gov’t intervention will force the unions hand even more to reduce benefits.
5) “The idea that it would help American workers is a sham” - No one can predict the future, but it is safe to say that for the next many months, there are 3 Million US jobs that are a lot safer than they would be if the entire industry went bankrupt.
GM is far from perfect, and has plenty of improvement to make. They need to make the right changes, and they need to make them fast. No one is excited about having to extend them a loan to survive, but the alternatives of spending hundreds of billions in bankruptcy and increasing unemployment if they fail is simply not a viable option.
It has become very fashionable to kick the US auto industry while they are down, and this post is just another example of someone putting forth an easy to write, poorly researched, “Me Too” article, that mirrors the general media’s enthusiasm for bashing the auto industry.
Ahh, a UAW shows up. I was wondering how long.
1) I was basing his salary off of 2007. And that figure is total compensation. The low end estimate of his total compensation is 14 million. I would say he “ran” the company straight into the ground. Of course part of the blame goes to the US government for ridiculous regulations.
2) There is no doubt that American cars have improved and I buy American cars (SRT4, Jeep, etc) but quite frankly they still have a lot of catching up to do to Japanese car companies.
3) Read your history. The 1979 bailout was essentially a bankruptcy. “Chrysler Corporation has gone bankrupt by every normal definition of the word. In the past three years, Chrysler has renegotiated its debts and restructured its organization in a way that greatly resembles a company going through Chapter 11 bankruptcy. Its creditors, like those of bankrupt firms, were forced to swallow sizable losses.” (James Hickel, 1983)
You are obviously biased for whatever (transparent) reasons. I, like the average American taxpayer has had enough of bailing out poorly run institutions. Frontier went into bankruptcy and is stronger for it. The car companies can do the same.
Thanks for the follow up Jesse.
I am not a member of the UAW, nor have I ever been in any union for that matter. I am a college educated engineer in my 20’s who happens to be working in an industry outside of the autos. The only bias I have is that I am biased towards products manufactured by companies based in the US.
Some of us (I am also an average American taxpayer) are a little disturbed by the constant barrage of negative press the American autos have gotten, not just over the course of this year, but for the last decade. Many improvements in quality have been made, but few media outlets focus on those. We do hear plenty of news about how the great the Toyotas of the world are doing. This has led to a great deal of Americans believing that the quality gap between foreign and domestics is huge, when in fact, that gap has narrowed considerably in the last decade.
I think you and I can agree on one thing, and that is that regardless of how we get there, we need to have competitive American car companies in this country. Regardless of a if it’s a loan, a bailout, or a bankruptcy, these companies need to succeed.
Thank you for the reply, and I look forward to reading more discussions similar to this on your page.
It is just not the auto manufacturers getting billions of our hard earned money just look at what is going on with the banks. They have received money through T.A.R.P. and instead of using it to help cover the none performing assets so that they would not have to raise credit card holders interest rates. They are using it for what ever the feel will benefit them the most. You should read this article I sent to the credit card companies right after they received the bailout. You can find it at http://www.dealingwithyourdebt.com/