Let them fail!

[Michael OLeary]

Rumours are flying around about talk of a merger between GM and Chrysler.  The Nissan-Renault group is also looking at Chrysler.
The thing about a merger between GM and Chrysler, is that GM would be the one with most of the wealth and power.  If a merger were to take place, there would a whole bunch of redundant companies, and poor selling companies.  And they can be just as expensive (exaggeration) to terminate as they are to operate (Oldsmobile, Plymouth) and it is very hard for the mother company to retain the customers of the deceased brands.  On the bright side, there would a lot of technology sharing and streamlining of production.  No matter what, a lot of money will be spent...and hopefully for the companies it pays off.

It's all speculation however (at least when the public is involved...I have no clue what goes on behind closed doors), but mergers could be worth their while.

So, if GM and Chrysler merged, and then they started to drop redundant suppliers, what kind of a "bail-out" package do you think they'll be offering those second and third tier manufacturers and their employees?

 

[Koenigsegg]

So, if GM and Chrysler merged, and then they started to drop redundant suppliers, what kind of a "bail-out" package do you think they'll be offering those second and third tier manufacturers and their employees?

I'd say nothing.  I'm not sure what the employees of Olds and Plymouth got...if anything.
The Big Three seem to really want money handed to them, but it doesn't look like they want anything to do with helping the people they let go.

But I couldn't really tell you what they would do, I may just be cynical.
For some reason I think in the past employees got a lump sum amount of money.  Not all that much though.  Or maybe I'm thinking of a different company.

 

[Kirkhill]

I wonder what makes Cerberus, or anyone else for that matter, think that GM or Nissan-Renault will have any better luck with Chrysler than Daimler had?

 

[KingKikapu]

These companies will go under....now or later. How much public money are we goigng to waste in the process ?

Depends on what you call waste.  If it protects the world from a serious credit/financial calamity, then it's worth it.  If it doesn't protect us, then certainly you would be right.

None of what I just said had anything to do with the well being of these companies.  They can die when we can afford them to, and I wouldn't lose much sleep.  Is this really the right time for it though.  If it is, be prepared to have damn good reasons.

Them being crappy car companies is not one of them.  

 

[Michael OLeary]

Sorry Koenigsegg, that should have had a "rhetorical" smilie.  

I don't expect to hear about any hand-outs from the Big 3 if they start to drop suppliers.

The irony is that the difference in manpower figures offered by E.R. Campbell above (reposted below) probably include a lot of manufacturing capacity that GM owned in 1962, but let go to independent status to cut their own costs since.  I would expect the others went through similar restructuring.

GM, on the other hand, has gone nowhere. In 1962, it sold 4.2 million automobiles and employed 605,000 people. In 2005, GM sold 4.5 million cars and employed 335,000 people—26 per cent of the market, with 11 major competitors.

 

[Edward Campbell]

Even the world’s biggest automaker, Toyota, is not shielded from the economic storm according to this report, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s Globe and Mail:
--------------------
http://business.theglobeandmail.com/servlet/story/RTGAM.20081222.wtoyota1222/BNStory/Business/home

Toyota forecasts its first operating loss

CHANG-RAN KIM

Reuters

December 22, 2008 at 5:03 AM EST

NAGOYA, JAPAN — Toyota Motor Corp. forecast a first-ever annual operating loss, blaming a relentless sales slide and a crippling rise in the yen in what it said was an emergency unprecedented in its 70-year history.

Toyota, the world's biggest auto maker, had been expected to issue its second profit warning in less than seven weeks after domestic rival Honda Motor Co. also cut its outlook again last week, but the downward revision was bigger than predicted.

“This is very, very, very bad,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. “There's a chance they could fall into the red in the next business year as well.

“This is also not just a problem for Toyota. What is good for Toyota is good for the Japanese economy.”

Auto makers around the world face their toughest business environment in recent memory, caught in a sharp reversal of demand as the financial crisis spreads, squeezing credit and consumer sentiment.

Toyota cut its group operating forecast to a loss of ¥150-billion ($1.7-billion U.S.) for the year to end-March, after shocking financial markets last month by slashing its group operating profit forecast by ¥1-trillion to ¥600-billion.

It made a record profit of ¥2.27-trillion last year.

Toyota now expects group net profit of ¥50-billion instead of ¥550-billion.

Toyota shares closed down 0.2 per cent ahead of the announcement in a firmer Tokyo market. Its Frankfurt-listed shares fell 2.4 per cent in light trade.

Like the rest of the industry, Toyota has idled factories, slowed assembly lines and delayed manufacturing projects, such as the start of a Mississippi plant under construction to build the Prius hybrid model, and said it would continue those moves until the tide turned.

“We are facing an unprecedented emergency,” president Katsuaki Watanabe told a year-end news conference. “This is a crisis unlike the crises of the past.”

Toyota will postpone all projects to expand capacity, move 16 of its 75 global assembly lines to a single shift, and cancel directors' bonus payments for this year, among a wide range of steps aimed at improving near-term profitability, he said.

Even the electric hand dryers at the company's Nagoya office building have been unplugged in an effort to cut costs.

Mr. Watanabe stopped short of projecting what global car sales and earnings would do next year, saying only that Toyota hoped to return to profit and cut capital spending to below ¥1-trillion next year, compared with the ¥1.4-trillion planned this year.

“Conditions next fiscal year could be more severe given the yen's strength and worsening market conditions, unless the company and the government cope flexibly with external factors,” Shotaro Noguchi, auto analyst at Mitsubishi UFJ Securities, said.

Toyota lowered its U.S. dollar assumption for the remainder of the year to ¥90 and its euro assumption to ¥120, versus current rates of ¥90 and ¥126.

Honda made a similar move last week, cutting its annual profit forecast by 67 per cent, and outlined a list of counter-measures such as putting off non-urgent investments to prop up its profitability.

In the United States, auto makers are in even bigger trouble, with President George W. Bush throwing General Motors Corp. and Chrysler LLC a lifeline of up to $17.4-billion to stave off bankruptcy.

India's Tata Motors Ltd. has agreed to inject “tens of millions” of pounds into Jaguar Land Rover to prevent an immediate cash flow crisis, the Financial Times reported.

Elsewhere, Japanese small-car makers Suzuki Motor Corp. and Daihatsu Motor Co. announced more production cuts, of 29,000 units and 16,000 units, respectively, by the end of March, along with a reduction of non-permanent workers. Germany's BMW was also considering further production cuts, an executive said.

Bridgestone Corp., Japan's largest tire maker, on Monday cut its operating profit forecast for 2008 by 24 per cent to ¥118-billion on slower tire demand for new cars and replacement purposes.

Its French rival Michelin said it faced costs of nearly €150-million ($209-million U.S.) as it cuts back operations to cope with a decline in tire demand.

Departing from past practice, Toyota did not disclose its sales and production forecasts for the coming calendar year, saying it was impossible to predict where the bottom for the global vehicle market lay.

“We need to be prepared for the tough conditions to continue, and maybe even worsen,” Mr. Watanabe said. He said Toyota was undecided about what to do with its dividend, which rose to a record ¥140 last year and is widely feared to fall.

For 2008, Toyota estimated group-wide global sales, which include sales at units Daihatsu and Hino Motors Ltd., at 8.96 million vehicles, down 4 per cent from last year.

For the business year to March 31, Toyota lowered its vehicle sales forecast to 7.54 million vehicles from 8.24 million. It sold 8.913 million vehicles last business year.
--------------------

Do not look for any recovery, anywhere in the auto sector, until 2010. While China (still growing at 6.5%+) and, perhaps, India might be able to absorb a lot of ‘surplus’ production the big, rich European, Japanese and North American markets are, effectively, back at 25 year old consumption/production levels.

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions (§29) of the Copyright Act from today’s Globe and Mail, is a report that should warm the heart of those who blame it all on the workers:
--------------------
http://business.theglobeandmail.com/servlet/story/RTGAM.20081222.wautos22/BNStory/Business/home

Compromise may be only choice, CAW head says

OMAR EL AKKAD AND KAREN HOWLETT

From Monday's Globe and Mail

December 22, 2008 at 4:07 AM EST

OTTAWA AND TORONTO — The head of the Canadian Auto Workers union is signalling he may be prepared to compromise on the contentious issue of pay and benefits for auto workers, a day after Ottawa and Ontario announced a $4-billion lifeline for Detroit car makers.

CAW president Ken Lewenza signalled that his union may have no choice but to follow in the footsteps of its larger U.S. counterpart, much as the Canadian government followed Washington's lead on the auto bailout package.

"When you include our productivity, when you include some of the advantages we have in Canada, we're in pretty good shape, but that doesn't stop the fact that you have to watch what people are doing throughout the world," Mr. Lewenza said in an interview yesterday.

"What the [United Auto Workers union in the United States] would do, for example, would have an impact on us, what they would do in Japan ... would have an impact on us."

If the Bush administration calls on the UAW to bring its compensation into line with that of Japanese auto makers, and the CAW is forced to follow suit, some analysts have estimated that the resulting cuts for the Canadian union members could range from $15 to $25 an hour.

Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty announced on Saturday that they are providing $4-billion in emergency loans to General Motors of Canada Ltd. and Chrysler Canada Inc., in lockstep with the $17.4-billion (U.S) bailout package U.S. President George W. Bush unveiled a day earlier. The loans represent Canada's one-fifth share of the Detroit car makers' production in North America.

"We are doing this on the assumption that we cannot afford, either in the U.S. or Canada, a catastrophic short-term collapse," Mr. Harper said at a news conference in Toronto. "But on the other hand, we are doing this with the knowledge that the auto makers must change the way they are doing business."

The loans come with strings attached. GM and Chrysler must present plans by Feb. 20 outlining how they will restructure their operations so that they can remain viable. They have until the end of March to present evidence that the plan will actually proceed, including striking a deal with the CAW, showing how they plan to cut costs.

The Detroit Three car makers have asked for at least $6-billion (Canadian) to help their Canadian subsidiaries cope with a massive decline in vehicle sales. According to the terms of the loans, GM will get $3-billion, while Chrysler will receive $1-billion. They will receive the money in three instalments, beginning next Sunday.

(Ford Motor Co. of Canada Ltd. is in better financial shape than its Detroit rivals and is seeking a $2-billion line of credit.)

GM and Chrysler will receive all of the money by the end of February. In return, Ottawa and Ontario are putting them on a short leash. The companies must put limits on executive compensation and report any transactions exceeding $125-million.

Ottawa and Ontario will also become shareholders of GM and Chrysler. They are to receive warrants for non-voting, common shares in the companies, equal to their 20-per-cent share of the U.S. bailout package.

The federal and Ontario governments are hoping to retain Canada's 20-per-cent share of domestic production. But the big unknown is whether they can do so as the auto sector braces for another tough year. Opposition politicians seized on that uncertainty yesterday.

"Our point is that if we put up 20 per cent of the money, we should have a guarantee that Canada has 20 per cent of the production and the jobs," Toronto-area Liberal MP John McCallum said on CTV's Question Period yesterday.

Both auto makers and their suppliers expressed widespread approval of the package. "The support announced today sends a significant signal of stability in the face of the economic and credit challenges faced by Canada's auto sector," GM Canada President Arturo Elias said in a statement, entitled GM To Earn Canada's Trust.
--------------------

Good, even excellent wages and benefits do not harm well managed corporations and high wages and good benefits are, broadly, beneficial to the economy as a whole.

Hounded by a pack of (conservative) economic illiterates, the CAW will not lead a race for the bottom.

 

[Greymatters]

Misleading title - very little of the article focused on the union, and what did focus on the union was vague at best...

 

[a_majoor]

Mark Steyn sums things up in his incomparable way:

http://article.nationalreview.com/print/?q=YTMxODc2NzY0OTNhODNhNmUwMjY5MzU2NzliMjA2NDY=

Can You Still See the USA in Your Chevrolet?
Route 66 is looking ever more like a one-way dead-end street to Bailoutistan.

By Mark Steyn

‘See the USA in your Chevrolet!” trilled Dinah Shore week after week on TV.

Can you still see the USA in your Chevrolet? Through a windscreen darkly.

General Motors now has a market valuation about a third of Bed, Bath And Beyond, and no one says your Swash 700 Elongated Biscuit Toilet Seat Bidet is too big to fail. GM has a market capitalization of just over two billion dollars. For purposes of comparison, Toyota’s market cap is one hundred billion and change (the change being bigger than the whole of GM). General Motors, like the other two geezers of the Old Three, is a vast retirement home with a small loss-making auto subsidiary. The UAW is the AARP in an Edsel: It has three times as many retirees and widows as “workers” (I use the term loosely). GM has 96,000 employees but provides health benefits to a million people.

How do you make that math add up? Not by selling cars: Honda and Nissan make a pre-tax operating profit per vehicle of around 1600 bucks; Ford, Chrysler and GM make a loss of between $500 and $1,500. That’s to say, they lose money on every vehicle they sell. Like Henry Ford said, you can get it in any color as long as it’s red.

In the 20th century, most advanced nations made automobiles but only America made them mythic: “Drive the USA in your Chevrolet!” sang Dinah. “America’s the greatest land of all!” America had road movies. With car chases. Thelma and Louise drove their vehicle off the cliff and, unlike the Old Three, they didn’t demand American taxpayers come along for the ride. But, if you didn’t want to hit the open road, you could just hang around being cool. In Chuck Berry’s immortal quatrain:

    Riding along in my automobile

    My baby beside me at the wheel

    Cruising and playing the radio

    With No Particular Place To Go…

Not if you were a European teen. Cruising was an American activity. A Saturday night out for a Brit meant hanging around at a rain-streaked bus shelter hoping the night service would show up. Even if you had a particular place to go, you had no means of getting there.

So many areas of endeavor that once embodied the youth and energy of this great land are now old and sclerotic. I include, naturally, my own industry. I loved the American newsrooms you saw in movies like The Front Page, full of hardboiled, hard-livin’ newspapermen. By the time I got there myself, there were no hardboiled newspapermen, just bland anemic newspaperpersons turning out politically correct snooze sheets of torpid portentousness. The owners of The Los Angeles Times and Chicago Tribune recently filed for bankruptcy protection. The New York Times is mortgaging its office to fund debt repayment. The Detroit Free Press is cutting out home delivery except on Thursdays, Fridays and Sundays, thereby further depressing sales of delivery trucks in the Motor City.

The newspapers blame the Internet, just as Detroit blames Japan. But the Japanese have problems of their own. One day they’ll get theirs. That’s the beauty of capitalism. Nothing is forever. The big railroad barons smoking cigars and enjoying pheasant under glass in the dining car on the Atchison, Topeka, and Santa Fe thought Henry Ford was a schmuck. Who’d want to ride around in that thing? Next thing you know everyone’s getting their kicks on Route 66:

    You’ll see Amarillo

    Gallup, New Mexico

    Flagstaff, Arizona

    Don’t forget Winona

    Kingman, Barstow, San Bernadino…

Ah, California. The Golden State! To a penniless immigrant called Arnold Schwarzenegger, it was a land of plenty. Now Arnold is an immigrant of plenty in a penniless land. What’s the motto on the license plates? “Ah’ll be back …for more of your money!” In California you don’t have to be an orange to have your pips squeezed. The Terminator makes Gray Davis look like Calvin Coolidge. Care to terminate a government program, Governor? Hey, great idea! We’ll hire 200 people to do an impact study on terminating the Department of Impact Study Regulation and get back to you in a decade. And when Governor Girlyman has run out of state taxpayers to fleece for his ever more bloated bureaucracy, he’ll go to Washington to plead for a federal bailout of Cantaffordya.

California! The state that symbolizes the American Dream! If you can make it there, you’ll make it anywhere! No, wait, that’s New York. “This is the worst fiscal downturn since the Great Depression,” announced Governor Paterson. So what’s he doing? Why, he’s bringing in the biggest tax hike in New York history. If you can make it there, you’ll be paying state tax on it, sales tax, municipal tax, a doubled beer tax, a tax on clothing, a tax on cab rides, an “iTunes tax” on downloads from the Internet, a tax on haircuts, 137 new tax hikes in all. Call Albany today and order your new package of tax forms, for just $199.99, plus 12% tax on tax forms and 4% tax-form application fee partially refundable upon payment of the 7.5% tax-filing tax. If you can make it there, you’ll certainly have no difficulty making it in Tajikistan.

Hey, and who needs to make it there when you can just get appointed there? Governor Paterson is said to be considering appointing Princess Caroline of Kennedy to Hillary Clinton’s vacant Senate seat. After two and a third centuries of republican experiment, America has finally worked its way back to the House of Lords. “Friends Say Kennedy Has Long Wanted Public Role”, Anne Kornblut assured readers in an in-depth Washington Post tongue-bath. She hasn’t “long wanted” it to the extent of, you know, running for dog catcher in Lackawanna and getting — what’s the word? — “elected”, but, if you have a spare Senate seat, she’s graciously indicated that she’d be prepared to consider accepting it. As lady-in-waiting Anne Kornblut pointed out, she is highly qualified, being “the author of several books”. It’s true! She’s an experienced poetry editor. She edited The Best-Loved Poems Of Jacqueline Kennedy Onassis. Jackie Kennedy wrote poems? Of course! She wrote so many poems that some are better loved than others.

See the USA from your Chevrolet: An hereditary legislature, a media fawning its way into bankruptcy, its iconic coastal states driving out innovators and entrepreneurs, the arrival of the new Messiah heralded only by the leaden dirge of “We Three Kings Of Ol’ Detroit Are/Seeking checks we traverse afar”, and Route 66 looking ever more like a one-way dead-end street to Bailoutistan. Boy, I sure could use a poem by Jacqueline Kennedy Onassis right now, even one of the lesser-loved ones.

“I feel like I lost my country,” said the Hudson Institute’s Herbert London the other day, wondering whatever happened to the land of opportunity and dynamism. But I’m more of an optimist. Maybe Princess Caroline will be appointed CEO of GM and all will be well. Or maybe Bed, Bath And Beyond will put wheels on the Swash 700 Elongated Biscuit Toilet Seat Bidet.

And on that cheery note let me wish you a very Hopey Changemas.

© 2008 Mark Steyn

 

[KingKikapu]

Jesus Christ, Market Capitilization!?!!  What's next?  Measuring a company's worth by net book value!?!?!


I literally just smacked my hand to my forehead.

 

[a_majoor]

Jesus Christ, Market Capitilization!?!!  What's next?  Measuring a company's worth by net book value!?!?!

Pretty amazing, huh? Most Canadians would seem to think so as well:

http://freedomnation.blogspot.com/2008/12/why-would-politicians-support-auto.html

Why would politicians support the auto bailout if the majority is against it?

I can't stand the corporate welfare that has exploded over the last few months. It seems like politicians don't understand the harm that bailouts or subsidies do to people. They are taking capital away from the economy and giving it companies that have already proven that they are failures. This strikes down any entrepreneurial spirit that Canada has; this stops new jobs from being created.

I am heartened to learn that a majority of Canadians understand this, or if not this same point exactly, then they have come to the same conclusion. According to the National Post 58% of Canadians are against giving public funds to the auto industry.

There are two details in this poll that are important to consider.

The first is that at no point did the surveyor use the term bailout. According to the Post they used the word 'assistance.' This indicates that people are likely to see through most of the Liberal-NDP spin. The people aren't stupid. You can fool them certainly but you can't fool them forever. These bailouts have been going on for at least 20 years. People know that they aren't working.

The second thing to consider is the regional differences in opinion. To be more exact you should consider the fact that Ontario is the only place that has majority support for giving money to auto companies.

I'll be surprised if anyone finds this surprising. Many an Ontarian would either directly benefit from a bailout or knows someone who will. This is a little less abstract for them. In this we find the problem; the reason that most politicians are supporting the bailouts. A majority of Canadians may oppose it, even the support in Ontario is pretty thin. But the people who want it cares more than the people that don't.

An autoworker who lost their job is almost guaranteed to vote for a party that will give the corporations the most money. Everyone else may be pissed about it, but they are not guaranteed to vote for the party that gives the least or even no money. That is the calculation that every politicians make, and that is why most of our elected officials support something that most people do not.

 

[KingKikapu]

I meant I had a problem with the previous article using market capitalization as an accurate metric during an economic cluster****.

I'd smack the author upside the head if I could for that one.  Grossly misleading.

 

[Greymatters]

"An autoworker who lost their job is almost guaranteed to vote for a party that will give the corporations the most money. Everyone else may be pissed about it, but they are not guaranteed to vote for the party that gives the least or even no money. That is the calculation that every politicians make, and that is why most of our elected officials support something that most people do not."

I would disagree - political loyalties are formed by lifelong experience, not just a few bucks when times are hard.  Just because higher levels of business and government suck up to the money doesnt mean the rest of the population does...

 

[Michael OLeary]

I would disagree - political loyalties are formed by lifelong experience, not just a few bucks when times are hard.  Just because higher levels of business and government suck up to the money doesnt mean the rest of the population does...

That may well be true, and if so, the core vote for each party in a riding changes rarely.  But the "politickin' process" (not to be confused with the political process) doesn't pursue the core vote, they already have that. They seek to persuade the swing vote, which does react to sound bites, emotional appeals and short-term (real or imagined) issues.  That swing vote can determine who gets the closely contested ridings, and winning them relies upon that volatile voter sector without life long loyalties to one party or another.

 

[Greymatters]

...They seek to persuade the swing vote, which does react to sound bites, emotional appeals and short-term (real or imagined) issues...

True, there are always those who will be swayed by a coin waved in their face...

Wait, isnt the swing vote only a small percentage of the population?  So once again its an appeal to a minority? 

 

[Kirkhill]

Flash News - Kirkhill's synapses sparked again.

Quote partially remembered from someplace recently:  GM is a Pension Plan that makes cars on the side - something like 1,000,000 people receive benefits (health and retirement) from the labour of something like 50,000 line workers.

Also:  Reductions in the labour costs are necessary to maintain market competitveness

Also: Reductions in labour costs are possible through robotics

Also: Robotics are opposed by Labour as a loss of jobs

Also: Jobs are required for income.

Solution:

Designate employees as legacy shareholders of the corporation.

Release them all and supply them with a pension income and benefits (as opposed to dividends)

Fund their dividends by an entirely robotized assembly facility.

PS (offload some of the US health costs to the government - but keep private insurance as well)

It would make for an interesting world 2-3 generations hence with the heirs of current lineworkers having some of the inheritable advantages of an aristocracy......

PPS would the UAW find a voice as the agent of the aristocrats?

 

[chanman]

The presence of a large and ready supply of unsold automobiles raises an interesting question - getting less than break-even is still better than sitting on the cars as they deprecieate away, paying rent on storage lots, wages for mechanics to keep them in working order, etc.

Where will the cars go?  Selling them cheaply in emerging markets may be one option.  But that seems likely to trip anti-dumping provisions.  Of course, the idea of Chinese automakers bringing up a case of being pressed by the dumping of foreign cars is a development most people probably didn't forsee last year, eh?

 

[Colin Parkinson]

Start dropping them into the NWF,FATA. Use some as bombs, sell the 4x4, SUV's with tracking devices.  ;D

 

[a_majoor]

The WSJ on the woes of the "big three"

http://online.wsj.com/article/SB123060246925441479.html#

Why Detroit Has an Especially Bad Union Problem
Collective bargaining agreements mean the UAW can make or break Big Three CEOs.

By LOGAN ROBINSON

It's easy to blame the problems of the Detroit Three on their CEOs. Yet the three leaders come from different business backgrounds, with only Rick Wagoner at GM an industry man. Alan Mulally was a star at Boeing and has only two years at Ford. Robert Nardelli comes from General Electric by way of retailing (Home Depot), and has only about a year at Chrysler.

How is it that successful executives become so unsuccessful as soon as they move to Detroit? Also, how can we explain that whenever GM, Ford and Chrysler leave our shores, they compete well in foreign markets as varied as Europe, South America and China? What makes them viable competitors as soon as they cross the border?

One can point to state franchise laws, or to the federal government's Corporate Average Fuel Economy (CAFE) regulations. But the most striking difference appears to be that the Detroit Three are unionized, and the foreign transplants are, overwhelmingly, not. (The exceptions are the transplants that have historic ties to the Detroit Three, like NUMMI, the GM-Toyota venture in California.) Yet the issue can't just be about wage rates. The foreign transplants pay well, and the UAW has given significant concessions in recent bargaining.

It is perhaps the mode of doing business in a unionized company that remains a crippling disadvantage. The UAW is arguably the most successful industrial union of all time. But its very strength has allowed it to permeate into every aspect of manufacturing in the Detroit Three.

The collective bargaining agreement with the UAW is a heavily negotiated document the size of a small telephone book. It is virtually identical for each of the Detroit Three, owing to "pattern" bargaining, but it doesn't exist at all in their U.S. competition, the nonunionized transplants. Not only work rules, but fundamental business decisions to sell, close or spin-off plants are forbidden without permission. That permission may come, but only at a price, since everything that affects the workplace must be negotiated.

Both the UAW and the Detroit Three maintain large staffs of lawyers, contract administrators, and financial and human-resources representatives whose principal job is to negotiate with the other side. These staffs are at all levels, from the factory floor to corporate headquarters and the UAW's "Solidarity House" in downtown Detroit.
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The collective bargaining agreements are now renegotiated every four years; in each negotiation the power and penetration of the union grows. If the company asks to change the flow of work for any reason, from cost-savings to vehicle improvements, the local union president will listen politely, and then say something like, "We can help you with this, but what's in it for my guys?"

Typically, he will have a list of things he wants, some understandable (better cafeterias) some questionable (hire my nephew), but there is always a quid pro quo. These mutually sustaining bureaucracies exist to negotiate with each other.

In an environment of downsizing, the problem is exacerbated, as the entrenched bargaining structure causes innumerable inefficiencies. Typically each plant or warehouse is a "bargaining unit" and has a union president, who has a staff. If the company consolidates facilities, there will be no need for two presidents and two staffs. Since neither president wants to play musical chairs, they will both point to the bargaining agreement and resist consolidation. As a result, unnecessary facilities are not sold, but kept open, lit and heated, just to preserve a redundant bargaining-unit president and his team.

The UAW also has tremendous influence over the management. The current head of the UAW, Ron Gettlefinger, is respected. His predecessor, Steve Yokich, was downright scary.

As an officer in a UAW organized company, you knew when you were talking to Yokich (who died of a stroke shortly after retiring in 2002) that he would have your job if you made him angry. He ate vice presidents for breakfast, and many promising former executives learned this the hard way. The ability to "get along" with the union is critical to the success of a manufacturing executive. Some of this is showing appropriate respect, but some is simply catering to the union's leaders.

One could see this in the extreme deference paid to Mr. Gettlefinger by the CEOs of the Detroit Three during the congressional hearings, as they heaped praise on all that he and the UAW had done to help. The Detroit CEOs indulge the head of the UAW as they would a boss, because, like a boss, he can make or break their careers.

It is a good thing that Congress and the Bush administration wish to save the domestic auto industry, because without help from Washington the industry isn't capable of saving itself. It isn't capable of dealing with the legal impediments that have grown up around it, like franchise and CAFE laws, and it's not capable of dealing effectively with the UAW.

The Bush administration's bailout listed as "additional targets" that work rules, as well as wages, become competitive with the transplants by Dec. 31, 2009. In reaction, Mr. Gettlefinger said that the UAW has already made "substantial sacrifices" and "will work with the Obama administration and the new Congress to ensure that these unfair conditions are removed." As an elected official, he cannot say otherwise. If he did, his members would quickly find someone more radical to lead them.

As the Obama administration takes the helm, the key political question is whether the Democratic Party, which has so benefited from union support, will have the courage to push the UAW into a more reasonable relationship with the Detroit Three. Namely, a relationship in which employee relations and entitlements approximate those found in the "financially viable" sector of the U.S. automotive industry -- i.e., the foreign transplants. If the Obama administration does not force the UAW to make further concessions, it will not be able to save the Detroit Three, no matter how many green cars they roll off the assembly line.

Mr. Robinson is a professor of law at the University of Detroit Mercy. He is former general counsel of Delphi, ITT Automotive and Metaldyne, and former head international and commercial lawyer for Chrysler.

 

[thunderchild]

I Used to work for Magna international, there a very good reasons that the big 3 are collapsing.
1. Building SUV's when they should have been developing cars.
2. Over producing low demand high priced vehicles.  (just drive up the Allen express way in Toronto and look at the airfield!)
3. Borrowing to cover for their payrolls.
4. Not having access to some country's markets while those countries companies ( subsidised by these countries) ship in cars built overseas, while offering few 2nd tier programs in the west.
5. Difference in wages ($19.00 per hr Canada vs $2.00 per hr China vs 12.50 in  Japan {subsidised}).
6. Changes in Can dollar make doing business here way too expensive  if the Canadian dollar is over Can$.80 . here is an example, a part we used to make for 4 years cost us $1.23 per part, which we sold for $2.00.  When the Canadian dollar was over 1 dollar US what happened was that we were sending the part for $.98 when it was suppose to be $1.23 we lost a ton of money on a program that shipped over 5000 parts per week.  Not only that we had to start paying back the big 3 for doing business with them.  That is normal but with the decrease in sales and increase in the Canadian dollar we had to give back more than our business plan allowed for.  Our cost for raw materials went way up because most parts came from the US like Aluminium.  And that is just to start.