On Wednesday, the nonprofit Center for Automotive Research released a study saying that government aid to G.M. and Chrysler saved more than 1.1 million jobs in 2009 and 314,000 jobs this year — the highest figure yet reported.
Still, McArdle admits that the bailout wasn't the nightmare scenario she and many others envisioned.To start with, GM hasn’t shed all its legacy costs. The pension plan, which is underfunded by $26 billion, was not terminated in the bankruptcy, as such plans often are, with their assets turned over to the government’s pension insurer, and the beneficiaries frequently forced to accept a reduced payout. Instead, GM’s earnings will face a drag from that underfunding for years to come.
More worrying still is the possibility that GM’s labor woes are not over. Though the bankruptcy brought the firm’s hourly-compensation cost down to within spitting distance of what foreign-owned manufacturers pay their U.S. employees, Bob King, the new president of the UAW, already faces intense pressure to roll back some of the concessions.
Dealing with any new wage demands will be particularly sticky because starting in the middle of this decade, the automakers must comply with new CAFE standards, which raise the required fuel efficiency of cars from 27.5 miles per gallon to 39 mpg, with similar increases for trucks. The administration says the new rules will raise the cost of a car by $1,300, but data from the National Research Council suggest that the real cost could be at least twice that. With those higher costs, GM—which still has a major brand handicap—may have trouble making inroads into the small-car market.
These factors will weigh on investors’ minds as they decide what price they are willing to pay for the initial public offering of shares that GM has scheduled for this winter. For the taxpayers to get their money back, the company needs to end up valued at about $70 billion. This is theoretically possible—but doesn’t seem very likely.
The bailout wasn’t a good idea, and it will probably cost billions. But the government wastes billions of dollars every year, because for the United States, $1 billion adds up to the equivalent of less than one venti latte per American. At least in this case, we got something in return: a functional car company, resurrected from the ashes of the old GM’s bloated carcass. Americans probably won’t notice the few extra dollars they spent on the bailout. But they may eventually be glad when another shiny new Buick Enclave rolls off the Lansing assembly line, and into their driveway.Not exactly a ringing endorsement, but it was enough for Mickey Kaus to call her a "cheap date" on newsweek.com because she showed even a small level of enthusiasm for G.M.'s prospects after visiting a plant.
If libertarian Atlantic writer McArdle wants to take a trip to Lansing, Michigan, and suddenly be impressed with GM's industrial vigor, deciding that maybe the bailout wasn't such a bad idea after all--well, OK! I once visited a GM plant as a journalist and was impressed with its vigor, and the innovative new car they were about to manufacture. The name of that car? Pontiac Fiero.That prompted McArdle to clarify that she thought the bailout was still really, really stupid.
But that is not an endorsement of the bailouts, which remain an expensive boondoggle. We could have given every autoworker $100,000, offered retraining and relocation assistance to tens of thousands of employees at their suppliers, and still come out ahead on this deal. Had we done this, we would have helped eliminate some of the overcapacity in the global auto industry, and sent a clear signal to CEOs that they should not emulate Rick Wagoner's pigheaded refusal to prepare for a possible reorganization.The moral of this story? If you say something positive about G.M. or the concept of protecting U.S. jobs — no matter how tepid — you better be prepared to back it up. Or start back tracking.
New models, including redesigned versions of the Buick Lacrosse sedan and , have been brisk, and G.M. is about a month away from introducing the , a plug-in hybrid car that it says represents the company’s future direction. crossover vehicle, have been well-received by critics and consumers, to the point that G.M. has struggled to keep up with demand. Early sales of a critical new small car, the
G.M.’s public stock offering, expected to occur Nov. 18 and be worth at least $10.6 billion, will allow the federal government to begin recouping the bulk of its $49.5 billion investment in the automaker. The government plans to initially sell about a third of its 61 percent stake in G.M., in the hope that it can divest the remaining portion as the shares’ value increase.
No comment yet from Sen. Richard Shelby of Alabama, who opposed helping the Big Three, saying "This is a dead end. It's a road to nowhere and it's a big burden on the American taxpayer."
March was a great month for automakers.
Nick Bunkley of The New York Times reports:
Nearly all automakers reported increases for March, and several analysts projected that total sales for the industry surged about 30 percent from a year ago.
The said its sales rose 40 percent. ’s sales rose 36 percent in the first quarter over all.
said sales of the four brands that it would continue to operate increased 43 percent and that its total sales rose 21 percent. Buick sales jumped 76 percent.
"G.M., Ford and Chrysler have eliminated a total of 120,000 manufacturing jobs in the last three years. And now the cuts are drastically thinning the ranks of white-collar professionals, turning the once-bustling office towers of the companies into half-empty monuments to better days.
"G.M. delivered another blow last week when it said it would reduce its global salaried work force by 14 percent, or 10,000 workers this year. In the Detroit area, that could mean an additional 3,000 workers will be out of a job by May 1. G.M.’s next round of white-collar cuts will not include buyouts. Chrysler has not said whether it plans more cuts.
"The Detroit area housing market, already deeply depressed, has plummeted since the buyouts. In January, the foreclosure rate increased 102 percent from the same month a year earlier in Oakland County, Mich., home to a huge number of G.M. and Chrysler employees.
"The state’s unemployment rate was 10.6 percent in December and continues to climb. Job fairs routinely create mob scenes, drawing thousands of out-of-work employees of the Big Three and their suppliers."
"President Bush on Friday announced $13.4 billion in emergency loans to prevent the collapse of General Motors and Chrysler, and another $4 billion available for the hobbled automakers in February with the entire bailout conditioned on the companies undertaking sweeping reorganization plans to show that they can return to profitability.
"Mr. Bush made his announcement a week after Senate Republicans blocked legislation to aid the automakers that had been negotiated by the White House and Congressional Democrats, and the loan package announced by the president includes roughly the identical requirements in that bill, which had been approved by the House."
"But now as GM and the entire U.S. auto industry teeter on the brink of collapse, Toyota and other Japanese carmakers are hardly rejoicing. They say the bankruptcy of any of Detroit's Big Three would spell serious trouble for them as well.
"Should that happen, 'the damage to our business is certain to be tremendous,' Toyota Motor Corp. spokesman Hideaki Homma told The Associated Press on Monday. 'The conditions for the U.S. auto market are extremely tough right now, and any additional negative is sure to make things worse.'
"One major problem is that Japanese carmakers in the U.S. share many of the same parts suppliers. If a Detroit automaker were to collapse, suppliers would likely follow, setting off a chain reaction that could would wreak havoc for Japanese production in the U.S., a vital market."
Republican Senators from the South, are you listening? Probably not.
Thanks to Jim Holbel for finding this one.
"A new Civil War is breaking out when it comes to automaking in America, and it was evident in the lineup yesterday of senators for and against bailing out Detroit. Japanese, Korean, and German automakers are now building 18 auto assembly plants in the United States, none of which is unionized. Kentucky (home to Senate Republican Leader Mitch McConnell) already has Toyota's biggest auto assembly plant outside Japan. Tennessee (home to Senate Rep. Bob Corker, who came up with the "chapter 11" bailout amendment which was the basis for an attempted compromise yesterday) houses Nissan's North American headquarters. Alabama (Senate Rep. Richard Shelby) hosts a range of foreign automakers.
"There's no reason to suppose the good citizens of Kentucky, Tennessee, or Alabama are particularly excited at the prospect of handing over their taxpayer money to competing firms and their workforces, especially since almost every one of these states already gave foreign firms big tax-payer supported inducements to come and create jobs there."
Either President Bush has suddenly discovered a new-found love of shoprats, or he doesn't want to be remembered as the next Herbert Hoover. After Republicans in the Senate filibustered to stop a vote on a government loan for the Big Three, the White House announced the Wall Street bailout funds could be used to help the auto industry."The reason the tax works is that it encourages us to conserve in every way we possibly can. Nobody likes to pay higher taxes, but if we are serious about reducing emissions, a carbon tax is the most fair and comprehensive way to get the job done."
Here's a letter on the bailout that's causing a stir:
Editor:
As I watch the coverage of the fate of the U.S. auto industry, one alarming and frustrating fact hits me right between the eyes. The fate of our nation's economic survival is in the hands of some congressmen who are completely out of touch and act without knowledge of an industry that affects almost every person in our nation. The same lack of knowledge is shared with many journalists whom are irresponsible when influencing the opinion of millions of viewers.
Sen. Richard Shelby of Alabama has doomed the industry, calling it a dinosaur. No Mr. Shelby, you are the dinosaur, with ideas stuck in the '70s, '80s and '90s. You and the uninformed journalist and senators that hold onto myths that are not relevant in today's world.
When you say that the Big Three build vehicles nobody wants to buy, you must have overlooked that GM outsold Toyota by about 1.2 million vehicles in the U.S. and Ford outsold Honda by 850,000 and Nissan by 1.2 million in the U.S. GM was the world's No. 1 automaker beating Toyota by 3,000 units.
When you claim inferior quality comes from the Big Three, did you realize that Chevy makes the Malibu and Ford makes the Fusion that were both rated over the Camry and Accord by J.D. Power independent survey on initial quality? Did you bother to read the Consumer Report that rated Ford on par with good Japanese automakers.
Did you realize Big Three's gas guzzlers include the 33 mpg Malibu that beats the Accord. And for '09 Ford introduces the Hybrid Fusion whose 39 mpg is the best midsize, beating the Camry Hybrid. Ford's Focus beats the Corolla and Chevy's Cobalt beats the Civic.
When you ask how many times are we going to bail them out you must be referring to 1980. The only Big Three bailout was Chrysler, who paid back $1 billion, plus interest. GM and Ford have never received government aid.
When you criticize the Big Three for building so many pickups, surely you've noticed the attempts Toyota and Nissan have made spending billions to try to get a piece of that pie. Perhaps it bothers you that for 31 straight years Ford's F-Series has been the best selling vehicle. Ford and GM have dominated this market and when you see the new '09 F-150 you'll agree this won't change soon.
Did you realize that both GM and Ford offer more hybrid models than Nissan or Honda. Between 2005 and 2007, Ford alone has invested more than $22 billion in research and development of technologies such as Eco Boost, flex fuel, clean diesel, hybrids, plug in hybrids and hydrogen cars.
It's 2008 and the quality of the vehicles coming out of Detroit are once again the best in the world.
Perhaps Sen. Shelby isn't really that blind. Maybe he realizes the quality shift to American. Maybe it's the fact that his state of Alabama has given so much to land factories from Honda, Hyundai and Mercedes Benz that he is more concerned about their continued growth than he is about the people of our country. Sen. Shelby's disdain for "government subsidies" is very hypocritical. In the early '90s he was the driving force behind a $253 million incentive package to Mercedes. Plus, Alabama agreed to purchase 2,500 vehicles from Mercedes. While the bridge loan the Big Three is requesting will be paid back, Alabama's $180,000-plus per job was pure incentive. Sen. Shelby, not only are you out of touch, you are a self-serving hypocrite, who is prepared to ruin our nation because of lack of knowledge and lack of due diligence in making your opinions and decisions.
After 9/11, the Detroit Three and Harley Davidson gave $40 million-plus emergency vehicles to the recovery efforts. What was given to the 9/11 relief effort by the Asian and European Auto Manufactures? $0 Nada. Zip!
We live in a world of free trade, world economy and we have not been able to produce products as cost efficiently. While the governments of other auto producing nations subsidize their automakers, our government may be ready to force its demise. While our automakers have paid union wages, benefits and legacy debt, our Asian competitors employ cheap labor. We are at an extreme disadvantage in production cost. Although many UAW concessions begin in 2010, many lawmakers think it's not enough.
Some point the blame to corporate management. I would like to speak of Ford Motor Co. The company has streamlined by reducing our workforce by 51,000 since 2005, closing 17 plants and cutting expenses. Product and future product is excellent and the company is focused on one Ford. This is a company poised for success. Ford product quality and corporate management have improved light years since the nightmare of Jacques Nasser. Thank you Alan Mulally and the best auto company management team in the business.
The financial collapse caused by the secondary mortgage fiasco and the greed of Wall Street has led to a $700 billion bailout of the industry that created the problem. AIG spent nearly $1 million on three company excursions to lavish resorts and hunting destinations. Paulson is saying no to $250 billion foreclosure relief and the whole thing is a mess. So when the Big Three ask for 4 percent of that of the $700 billion, $25 billion to save the country's largest industry, there is obviously oppositions. But does it make sense to reward the culprits of the problem with $700 billion unconditionally, and ignore the victims?
As a Ford dealer, I feel our portion of the $25 billion will never be touched and is not necessary. Ford currently has $29 billion of liquidity. However, the effect of a bankruptcy by GM will hurt the suppliers we all do business with. A Chapter 11 bankruptcy by any manufacture would cost retirees their health care and retirements. Chances are GM would recover from Chapter 11 with a better business plan with much less expense. So who foots the bill if GM or all three go Chapter 11? All that extra health care, unemployment, loss of tax base and some forgiven debt goes back to the taxpayer, us. With no chance of repayment, this would be much worse than a loan with the intent of repayment.
So while it is debatable whether a loan or Chapter 11 is better for the Big Three, a $25 billion loan is definitely better for the taxpayers and the economy of our country.
So I'll end where I began on the quality of the products of Detroit. Before you, Mr. or Ms. Journalist continue to misinform the American public and turn them against one of the great industries that helped build this nation, I must ask you one question. Before you, Mr. or Madam Congressman vote to end health care and retirement benefits for 1 million retirees, eliminate 2.5 million of our nation's jobs, lose the technology that will lead us in the future and create an economic disaster including hundreds of billions of tax dollars lost, I ask this question not in the rhetorical sense. I ask it in the sincere, literal way. Can you tell me, have you driven a Ford lately?
G.M.'s gain may be Chief Executive Rick Wagoner's loss."And yet there is nothing inherently unsustainable about employing a high-priced, unionized workforce. The crisis of Detroit's wage bill is entirely relative. Specifically, their labor costs far exceed the low-cost, nonunion American workforce at the U.S.-based, foreign-owned plants of competitors Toyota, Honda, Nissan and Subaru.Thanks to Jim Holbel for passing this along.
"If the UAW really is to blame at all, then, it is because of the union's utter failure to unionize any of the transplants. What has the UAW been doing all these years? Isn't it the responsibility of any good union to protect union employers from competitive labor disadvantages by organizing wall to wall, throughout the industry? How could it have left these transplants unorganized?
"As is now clear, when the UAW exposed the Big Three to insurmountable competitive disadvantages, it cut its own throat."
