Editore"s Note
Tilting at Windmills

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March 30, 2009
By: dday

MORE ON THE AUTO PLAN... Things are moving fairly quickly on the auto company front. Within an hour or so of President Obama's announcement about two struggling automakers, Chrysler announced the framework of a deal with Fiat, while GM's new leaders immediately stepped into their positions. Clearly the President's call for Chrysler to find a merger partner or be forced into bankruptcy focused their minds a little bit.

Obviously, there is concern that a double standard is being applied to the auto companies when compared with the larger banks, and I agree. On the substantive merits of this proposal, however, I think Obama had few alternative options. Emptywheel, who lives in Michigan and has worked for auto companies in the past, had a good take.

...here's what Obama seems to be announcing today:

• Chrysler will be forced into a marriage with Fiat in the next month or be denied any additional aid--which will surely put it into bankruptcy
• GM (which failed to get the required concessions from the UAW and bond-holders) will have 60 days to come up with a new, more aggressive turn-around plan
• At the end of 60 days, the government may require a "quick rinse" bankruptcy (one month) to get GM's stakeholders to take their losses

Thus far, it's tough to tell whether this is a good plan or not. As far as Chrysler, they can't survive alone. So the forced marriage gives it one chance to avoid bankruptcy that otherwise seems inevitable. I don't think Fiat will take the deal, so I expect Chrysler to enter bankruptcy within the next month.

As for the GM plan, they are finally talking about dealer concessions (which a "quick rinse" bankruptcy would help, too), which was the element that everyone had thus far ignored. And some of this tough love with GM seems to be a logical next step given bond-holders' intransigence since December. GM had been, thus far, unable to get its bond-holders to accept the losses they had told GM, in November, they would take, so Obama is threatening to use a court to make them do so--followed by UAW concessions [...]

In other news, here are the assessments of the GM and Chrysler plans. They strike me as eminently reasonable assessments. My biggest complaint, thus far, is that the Administration does not mention "health care" in either of the assessments. They mention legacy costs, but not health care. So thus far, they seem unprepared to deal with the fundamental competitive disadvantage that we're asking our manufacturing companies to shoulder.

It seems to me that the UAW - and by extension line workers - have been making nothing but concessions throughout this ordeal. Heck, even Brian Kilmeade on Fox and Friends admitted that the salaries for domestic auto workers are in line with the Japanese, and the main differences come in health care costs. The facts are that manufacturing industries in this country remain at a competitive disadvantage because we are the only industrialized nation where employers are burdened so excessively with the cost of health care, and productivity does not fill the gap. So forcing dealers and bondholders to the table so that the costs of restructuring are shared makes sense, as does reforming health care to increase global competitiveness.

A few other parts announced by Obama were intriguing - he put a government guarantee on warranties of GM and Chrysler cars, which could help them keep customers should they fall into a quick rinse bankruptcy; he assigned a Director of Auto Recovery to "support the workers, communities and regions that rely on the American auto industry"; and he sought to revive the "cash for clunkers" proposal that has succeeded in other nations, particularly Germany, in boosting auto sales:

As he rolled out one last reprieve for the nation's troubled automakers, President Obama also restarted a legislative push that ran out of gas during last month's stimulus talks: a $10,000 rebate offer to car owners who traded in their old models for more fuel-efficient wheels.

The "cash for clunkers" plan was originally proposed by Sens. Dick Durbin (D-IL) and Tom Harkin (D-IA), at a total cost of about $16 billion. It was dropped from the stimulus amid GOP opposition, but Obama said today that he would "work with Congress to identify parts of the recovery act that could be trimmed to fund such a program and make it retroactive starting today."

Senate leaders sounded warm to this idea today. Increasing fuel economy at the low end by getting the biggest emitters off the streets actually does more to reduce greenhouse gas emissions than moving someone from a moderately efficient vehicle into a hybrid. So this makes some sense economically as well as environmentally.

I think a lot of people hope that the President would show the same tough love to the banking industry that he did with the auto industry today, and that is the main headline. However, there is an outline of how this can possibly work for the better for the auto industry and the workers who rely on it.

dday 5:46 PM Permalink | Trackbacks | Comments (11)

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Detroit has needed this prodding for a very long time, as our domestic auto makers have refused to plan product around energy consumption rather than popular design for the past 2 generations! This industry knew in 1971 it needed to change production and product if it wanted to compete, and what did it do? It produced the Pinto and the Vega - two death mobiles as a response to the Japanese imports.

38 years have elapsed since then, and what have we gotten over the same period of time - a move back to V8 engines and a federal tax break for vehicles over the 6000 lb. weight.

No, though I do see a bit of a double standard between the financial and auto "bailouts" I see tough love for Detroit, and I'm hoping eventually I will see criminal indictments for our wonderful financial CEOs who kept making rules up as they went along until all they did came crashing down upon us all. I want to see predatory lenders in the docket. I want to see derivatives traders brought before the docket. I want to see more financial CEOs do the honorable thing and resign for their failures.

But most importantly, I want to see the greediest among us get humbled before my eyes - and I know that will take time. -Kevo

Posted by: kevo on March 30, 2009 at 6:06 PM | PERMALINK

Seems more to be the ("Legacy")pension funds they lost gambling on the slots...ahh...errr stock market, last time the Bush family fleeced the American banking system. Boy Howdy!!, I can't wait until Jeb runs for POTUS.

Posted by: Ned Pepper on March 30, 2009 at 6:06 PM | PERMALINK

I still don't understand why the "retention bonuses" paid to AIG executives are sacred and untouchable, but the health benefits of auto workers can be reduced as much as necessary.

Both are contractual obligations that were accepted by employees in lieu of higher salaries. Both are supposed to be paid by corporations that are being kept alive by federal tax dollars. But only one is being targeted by Repugs, Dems and the corporate-controlled media.

Looks like class warfare to me. . . .

Posted by: SteveT on March 30, 2009 at 6:15 PM | PERMALINK

I think a lot of people hope that the President would show the same tough love to the banking industry that he did with the auto industry today, and that is the main headline.

What's going on today with the auto industry can serve as a blueprint for dealing with the banks, and with Wall Street. They know it, too, which helps to explain the big slump in the Dow today---those clowns always get their panties in a bunch whenever the merest threat of accountability is hung over their heads.

As for the stakeholder concessions in general, and more specifically with regards to the UAW, someone ought to suggest to the unions that bankruptcy could effectively negate not only the "legacy costs" of pension and health-care, but could also open the "Pandora's Box" that Big Labor fears the most: Dozens of union plants suddenly becoming non-union, all contracts become null and void at the stroke of a bankruptcy judge's pen, and every last union member effectively becoming at "at-will" employee.

THAT is the precedent that the UAW dare not risk; that is the precedent that destroys them forever, as GM could quite easily seek to "mothball" all operations for a year or two, R-&-D prep and retool the physical plants of their choice (without having to negotiate with labor) for building an energy-efficient fleet, and then rehire from the ground up, declaring all former employees to be part of "a dangerously-antiquated production model...."

Posted by: S. Waybright on March 30, 2009 at 6:22 PM | PERMALINK

Emptywheel is wrong. Fiat took the deal.

Posted by: MNPundit on March 30, 2009 at 6:42 PM | PERMALINK

We need to pass EFCA, and we need it now. Enough is enough, the working people need their rightful voice...

Please take a minute to show solidarity with the UAW, and help them meet their "million member mobolization" goal...


Posted by: Ohioan on March 30, 2009 at 6:58 PM | PERMALINK

"A few other parts announced by Obama were intriguing - he put a government guarantee on warranties of GM and Chrysler cars, which could help them keep customers should they fall into a quick rinse bankruptcy"


More than 80% of potential car buyers surveyed stated they would not buy a vehicle from a manufacturer in bankruptcy or that had gone bankrupt. So a government guarantee on warranties won't help, and what about parts for a vehicle purchased from a bankrupt manufacturer ?

If GM enters bankruptcy, they will eventually end up being liquidated. That will cost the taxpayers HUNDREDS OF BILLION OF DOLLARS, a whole lot more than GM was asking for in mere LOANS, and forget about any economic recovery, as the ripple of job losses will be MAMMOTH.

Posted by: Joe Friday on March 30, 2009 at 7:20 PM | PERMALINK

The Fiat deal was cooked. This was arranged between Obama and Sarkozy to push both economies - note that both governments will now put more money into their car companies. Paul Krugman should like this aspect of it as it puts more money in both economies.

However, no car company will prosper without the credit markets unfreezing and I have zero confidence that the Geithner plan will do the job.

Despite all the finger waving at GM and Chrysler, don't forget the Toyota had their first loss ever. Almost no one can buy cars without a loan.

Posted by: MichMan on March 30, 2009 at 7:24 PM | PERMALINK


"Sarkozy" ?

FIAT is an Italian auto manufacturer (Fabbrica Italiana Automobili Torino).

Posted by: Joe Friday on March 30, 2009 at 7:45 PM | PERMALINK

This is a reasonable plan.. this should've been done 3 months ago.. but instead, the Bush admin. wasted billions with a plan that lacked a time line and accountability. And the threat of bankruptcy must be real, whether it's a good company/bad company solution, or some other form.

Posted by: Andy on March 30, 2009 at 10:38 PM | PERMALINK

I respect Emptywheel but she appears to be wrong on the FIAT deal. FIAT and Chrysler have a framework in place and are working out details. The delay has been waiting to see where the feds would come down.

FIAT has every reason to want to see this deal work. FIAT wants back into the US market when it recovers. FIAT wants US plants and dealers in place; they would have built their own already if they thought that was feasible. Chrysler has what they need and because Daimler killed the Chrysler small car projects, such as Razor and Sling Shot in favor of Daimler's "Smart", Fiat has no Chrysler competition in their segment. Same goes for Alfa Romero at the high end, thanks again to Daimler killing the Phaeton, ME 4/12, Chronos and Firepower.

After Daimler sucked them dry and spit them out [always remember Chrysler was MORE profitable than Daimler when they bought them, per vehicle and in total profits] Chrysler was left with those segments that Daimler let them build, not the complete company of 1998.

What other option does FIAT have? Their next best option is to buy Saturn and their less efficient and less flexible plant and assume their smaller dealer network and warranty costs on GM built Saturns. Worse, they would have to fill their mid-range for 2-3 years with Opals [i.e. Saturn Astra, Vue & Aura] who compete in Europe.

Posted by: OKDem on March 31, 2009 at 12:13 AM | PERMALINK



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