Wednesday, November 19, 2008


Whether or not to bail out the Big 3 auto makers has been the raging question of the last few days. And watching the Three Amigos of American business, the CEO's of GM Ford and Chrysler, testify in front of both the Senate banking committee and the House, one is struck by the fact that a real change has taken place. But its hardly a change I can believe in. In fact its change that is hard to believe.

There were the Republicans, staunchly taking a stand against giving tens of billions of tax payer dollars with no strings attached to the grossly irresponsible CEO's of GM, Ford and Chrysler, and there were the Democrats pushing it for it.

If this is the kind of change we can expect from Obama and the Democrats its going to be an interesting four years. There was Dick Shelby, Republican conservative from the South arguing against throwing $27 billion to the Big 3 automakers and there was Chris Dodd, liberal Democrat from the north, making the case for it.

The more you watched the hearings the stranger things became with Bob Corker, the Republican senator from Tennessee standing up for the taxpayer and making the most sense, and Bob Casey, the Democrat from Pennsylvania sounding like a GM apologist and lobbyist and pontificating about this being an important issue and thanking the CEO's for coming. Thanks a lot Bob. The buffet will be served next to the cloakroom.

So the Democrats, with Obama and Pelosi leading the way now want to throw $27 billion at the 3 most irresponsible corporations in America, which everyone knows is only a down payment anyway since they will be back for more and its the Republicans sticking up for the taxpayers.

Since when do Republicans stick up for the taxpayers while the Democrats screw them? Since now, obviously.

Throwing $27 billion at the automakers is nothing more than trickle down economics, the failed Republican economic ideology that has never worked, now being pushed by Democrats hoping that by giving money to the same management teams that screwed up in the first place, it will all trickle down and save jobs and the companies themselves. The Democrats, the party that used to stand for justice now wants to reward the lousy management of the Big 3 for the horrible job they did fighting tooth and nail against fuel efficiency standards while foreign car makers embraced them, and then producing gas guzzling cars which people didn't want when the price of oil skyrocketed.

But the Democrats, who seem to be playing politics with this more than anything else, want to give $27 billion with practically no strings attached even though they know they will be back asking for more. And they are doing it, in Maxine Waters words, by rolling over.

How about insisting that if they give them the bailout money, that current management step down? How about a provision insisting that any executives at the Big 3 making $500,000 a year or more, work for a salary of $1 a year until the money is paid back?

The CEO's of these three companies which lost $70 billion over the last 3 years, make on average $28 million a year. Just to put that in terms people can understand, that is $600,000 a week.

And now they want the taxpayers to hand over $27 billion to help them out of all the bad decisions they've made business wise for years. It's the management of these companies that are responsible for the mess they are in not the economic crisis.. They blame it on the economic crisis but that hasn't caused the stock of Honda, Nissan, Mercedes, Audi, or Toyota to drop 80%. They are in the same economic environment and those companies aren't hurting the way Detroit is.

The reason they are on the verge of bankruptcy is because of the way they have done business for decades.

I write a lot about little things mean a lot and how big pictures can be drawn from small things. Ive seen it with Obama and his nonsensical verbiage designed to fool people who cant think for themselves into thinking that it sounds good when its all nothing but nonsense with nothing behind it.

I made a similar observation of a small thing that told me a lot a long time ago when it came to Detroit and American cars.

I never owned an American car and so I never made this observation until one day, about 20 years ago when I rented a car. I was getting familiar with the dashboard when I noticed something that caught my eye I thought was an astounding and,telling discovery. Very telling in the little things mean a lot category. The odometer on the Ford I was renting had only 5 digits. The odometer on my foreign car had an odometer with 6 digits. That kind of small thing revealed some big thinking. Who was designing and conceiving cars that were built to last ? Who were designing and building cars meant to give people their moneys worth and were meant to stay on the road a long time?

The difference between Detroit's 5 digit odometer and the 6 digit odometer of foreign cars tells you all you need to know about Detroit's management thinking and the mess they are in now and what they thought of their own product..

A commenter here wrote the other day disagreeing with my position,that if the Big 3 failed it would be a major disaster for the country. The Big 3 have already failed. They aren't very big any more. They've been failing for decades and lost $70 billion in the last 3 years while their CEO's were making $28 million a year for all their good work.

There should be no bailout of Detroit.They are using the economic crisis as an excuse. Its not the reason they are in the shape they are in now. If there is no bailout the auto industry will not go under. GM can go into bankruptcy and reorganize and/or there can be a merger with the other two. Detroit will build fewer but better cars. The money the auto makers want ( which would continue to pay those CEO salaries) could be better spent guaranteeing the pensions of every auto worker and doubling the unemployment and severance for those who get laid off and do it for a lot less than $27 billion. These are the people who should get assistance. Not the people who caused the problem,. The other auto makers will pick up the slack in about a year when things start to pick up and hire those workers.

There is no reason not to let GM go into bankruptcy like any other failed corporation. The airlines did it and they've come out of it it smaller but viable. The biggest point the CEO of GM thought he was making against bankruptcy was that a survey showed that 80% of consumers wouldn't consider buying a car from a company in bankruptcy The Democrats on the committee all nodded knowingly proving that crash test dummies come from anywhere and can even rise to the level of CEO and US Senator, ( and even President of the US as the last 8 years and the current President-elect has shown).

There is only one reason people said they wouldn't consider buying and it's because a car is in an investment. People want to know there will be a company standing behind the warranty. And what could be easier to deal with? The government, for a fraction of what the automakers want in bailout money, can guarantee the warranties on all of GM's cars just like the FDIC guarantees bank deposits. That money would only be needed if GM actually went out of business which is not likely.But It would take care of people's fears and it would cost the taxpayers a lot less if GM management couldn't turn it around.

The bailout as it stands now makes no sense but the Democrats seem intent on giving them the money, not on taxpayer terms but on auto makers terms..

Maxine Waters asked the 3 CEO's if they would be willing to set aside $1 billion of the $27 billion to help ailing dealers who were suffering under the credit crunch and laying off workers. Sitting there and watching her take no for an answer as each CEO essentially told her no, and watching her trying to make it sound like a yes was one of the more pathetic moments of the House hearing. None of them agreed to do it with GM saying they needed all the money for operating costs Chrysler another saying they felt they were already doing what she was asking and so didn't need to set aside $1 billion, to which Waters responded
"so is that a yes"?

The Democrats have the votes and so if they want to throw this money at the auto makers with no strings, no management sacrifice, no management change and no guarantee that it will save jobs, they can do it. But the auto makers sound like they are taking everyone for a ride and the Democrats seem to be ready to hop in. Its not what the Democratic Party of 10 years ago would have let happen.

NOTE: The Senate yesterday refused to approve the $27 billion auto bailout with even some skeptical Democrats refusing to go along. Harry Reid amazingly said " we dont believe we need the legislation". Oh no? Then why did you try and pass some? What Reid is now saying is that Bush can allocate the money out of the TARP something Bush has already said he wont do. The Republicans were willing to pass legislation that would allow the auto makers to take $25 billion already passed and allocated to the auto makers to help make more fuel effecient cars and divert that to meet their present emergency money needs but the Democrats said no. No? If this is an emergency then why not? If Obama is insinuating himself into this behind the scenes then its starting to look like trickle down ineptitude is hitting the Democrats.


Anonymous said...

Please tell me how you can get most the facts wrong and still get to the right conclusion?

Yes, the management did a lot of boneheaded decisions, yes, they designed poor cars that were inferior, yes, the upper management pay is obscene.

However, the major problems now facing the Big 3 are mostly union related.

$91 average hourly wage for the Big 3 versus $40 for Toyota, legacy cost of $1500 per car sold. That's a built in disadvantage that they just can't overcome no matter how much taxpayer money is thrown at them.

This bailout is more for the continuation of union contracts than anything else.

THAT's why the Democrats are falling all over themselves to get some money to the Big 3.

I just love when EVERYBODY screams about outsourcing of jobs. And yet, this is what some business have to do in order to stay in business. Otherwise, they would go bankrupt, not bankruptcy protection to re-organize, but actual bankruptcy and liquidation. And whatever jobs that were local ends up being eliminated altogether.

It's always easy to point fingers and complain, however, looking at the whole picture and getting a solution is very hard.

Marc Rubin said...

"...THAT's why the Democrats are falling all over themselves to get some money to the Big 3."

The Democrats also fell all over themselves to get that $700 billion bailout passed in order to restore confidence and stop the bleeding. The markets have fallen more since the bailout than they did before it. There is no guarantee that giving Detroit the money will save jobs. Unless the money contains pre-conditions and one of the pre-conditions is to re-negotiate with the unions. A no strings attached $27 billion bailout is not going to save them.

Anonymous said...

Actually, the only guarantee that will come, from giving the Big 3 some bailout money, is that they will continue to do the same thing time and again, and be back in Congress in not so far in the future looking for more money.

Let them go to Chapter 11, re-organize, trim any and all excess fat, and come out a lean company.

Of course, with the 'Card-Check' Legislation that the Unions want, we'll have a whole slew of companies that will fail within the next few years.

This will be such a profound 'CHANGE'. 'CHANGE' from a prosperous economy to jobless despair. Just what the American Electorate voted for.

Anonymous said...

"The government, for a fraction of what the automakers want in bailout money, can guarantee the warranties on all of GM's cars just like the FDIC guarantees bank deposits."

Exactly Marc. IF (and this is a big if) people really aren't buying Big 3 cars for fear of potential bankruptcy (as oppossed to not buying ANYTHING right now for fear of potential foreclosure of their homes and loss of their jobs) then the feds can guarantee that they will go in AFTER they file, back up the warranties in the unlikely event any go out of business for a fraction of the bailout money being asked for now.
Whether or not the CEOs make less money, more money, the same money, it's not so important to me. These big 3 need to change their business plans, change their product lines, and then ride it out like the rest of the world, and it's going to be one long bumpy ride.

Anonymous said...

Meanwhile, Sen. Menendez, the ONLY NJ pol. that I am proud to say I have always supported, seems to be the only guy on the hill who is shouting out about the credit card crisis that is going to blow very soon. Have you all looked at your interest rates lately? I have no balances on any of my cards, have held them for years, always paid them off and MY interest rates are in some ridiculous stratosphere that only in the twilight zone would NOT be considered usurious.
This is going to be a disaster.

DancingOpossum said...

That "built-in disadvantage" is due to the fact that we don't have universal health care in this country, and the Horrible Evil Unions actually fought for their people to have decent wages and health care. Oh how terrible!! And that is a MAJOR reason the automakers from other countries pay less to have their cars made. Yes, God Forbid we actually pay our workers a living wage, with guaranteed health care and pensions. Much better we should hire illegal immigrants to make everthing, or what the hell, just use slave labor!

Other countries can provide good salaries and pensions to their workers because they're not saddled by outrageous health care costs. That isn't the Amercian automakers' fault and it damn sure isn't the unions' fault. Oh, and yeah: They also don't pay their executives obscene billions of dollars.

What is the automakers' fault: Churning out crappy cars, SUVs, and Hummers in the middle of a recession, fighting fuel efficiency standards to within an inch of their lives, stalling and finally killing any progress on hybrids or other alternative-fuel vehicles, paying their CEOs bazillions of dollars to drive these companies into the ground.

I still think the bailout is needed--but for the workers, not the executives. Thank God for the unions that fought for these workers' rights so that they're operating from a position of strength and might get screwed a little bit less than non-union workers routinely are.

Anonymous said...

I am incensed that there is even a discussion. These corporate fat cats should be excused, losing that much money for their company yet reaping the rewards.
As far as the unions go, I grew up in a union household, without the union, my father, a skilled laborer would not have had health care or a pension
But the unions have gone completely overboard- let's face it- paying assembly line workers 78.00/hr and supplying full benefits, scheduled lunch and coffee breaks, mandatory time and half...

Have you ever tried to get a union worker to do something that was "not in the contract"?

I say no the bail out and the union leaders should be forced to change some of their corrupt policies.

We are living in a corporate serfdom, this is no longer a democracy with free enterprise.

The founding fathers must be spinning.

Anonymous said...

To DancingOpossum,

According to you, all these are rights and entitlements that the government have to provide for you. How sad that you've swallowed the whole Liberal propaganda line, hook, and sinker.

Just look over the sea to Europe. That's what you get for these rights and entitlements.

Stagnation and rationing.

What good is Universal Heath Care when you have to wait forever to get treated? What good is it since there's no incentive to innovate, which leads to no new medicine?

As for the culprit in this mess, just look in the mirror.

What am I talking about? Very simple.

Have you gone shopping and seen a coat priced at $150 and a comparable one at $50? Which one do you buy? The one for $150? I don't think so, especially if they're identical and serve the same purpose.

No matter how you spend your money, YOU make the decision to get the best value for your money. Sometimes it's the price, and sometimes it's a little more expensive but the better product. However, I would gather it's never the most expensive one in the lot.

YOU shop for the cheapest price among different sellers. In fact, we all do.

Just what do you think you're saying by the way you're shopping? YOU're telling the manufacturer that they have to lower their cost in order to stay competitive, or they'll go out of business.

By providing 'living wages', 'health care', and 'pension', it drives the cost of the goods to the point where their product is that much more expensive than others, they'll go bankrupt and even the measly jobs that were necessary to produce them disappear.

It's easy to blame the executives, however, until you're faced with the decisions that they have to make, you don't have a right to blame them for all the ills. So, get off your high horse and face the reality.

Although I agree that their compensation are too high, they're driven by the same principles as everything else.

They want to make as much money as they can as fast as possible.

For instance, just an example. In NFL, running backs make a lot of money. One of the factors is that the average life expectancy of a running back is about 5 years.

If you were the player, would you take a fraction of the salary in order to keep the ticket prices lower? Or that you believe your career will be the exception and last a lot longer? I don't know of any athlete, or anyone else, that thinks that way.

At one point if the our history, Unions were a good thing. It allowed the workers to organize and get a fair treatment from their employers. However, that time has long past away.

Now a days, the union demands are bankrupting the business community with unreasonable demands. And keeping unproductive workers on payroll at all costs.

You have to look at the whole picture and see how EVERYTHING interacts with each other. Just looking in one are and finding fault is not the answer. Anyone can do that.

A child complains to the parents that he doesn't have the new uniform for the school and it's a deficiency. Would you take part of the rent money to get him a new uniform??? If you do, you won't have a place to live anymore. That solution is even worse.

You want companies to provide more and more for their employees. At some point, it becomes unaffordable, no matter how it would be unfair. If the employers has to fire some workers to be able to afford the benefits, will the fired employees believe it was the right thing to do?

When you can formulate a solution that doesn't have adverse unintended consequences, please, speak up. I'm always open to a different point of view. However, when you just look in one area and can't see how your 'solution' will affect the whole picture, and lead to an even worse situation, then, please, do yourself a favor, and keep your opinion to yourself.

All you're doing is confirming to everyone the capacity of your stupidity.

Anonymous said...

Unfortunately unions can go a bit overboard at times. The teachers in my town currently are working without a contract as they cannot agree with the school board on the new one. Currently, salary plus benefits (for which they currently do not pay for at all), comes to, for the average teacher approx. $84,000/year. They have 5$ co-pays for prescriptions and 10$ co-pays for doctor visits (no network they must choose from) and out of pocket cost maximum of $3000/year.
This is a nice town, little to no crime, no metal detectors, etc.

Parents for the most part, pretty affluent but a very large percentage working wall street type jobs.

Some, if not all the sticking points:
In addition to salary increases, they do not want to pay any amount for benefits and do not want an increase in co-pay amounts (who does?)

Our state will be, as will most, enduring some more horrific budget cutbacks, property tax increases, etc. The # of parents being laid off or just waiting for the ax to fall is steadily increasing.

The teachers union won't settle. This is insanity. They are now bargaining from a position where there is no bargaining power. So what will they do? My guess is strike as we don't have the resources to pay them what we pay them now, let alone more.

Anonymous said...

tired of being called a racist...

you say that there is not one particular person/cause to point the blame and I and I think everyone here whole-heartedly agrees- there is not one single cause of why the Big 3 are in the serious financial shape that they are in.
Same goes for the financial institutions- we all realize these are complex issues.
But you tell me how the corporate executives of AIG not once, not twice but 3 times since the bail out have been caught partying it up on "business" and most likely the company's or someone else's dime.
If the executives were somewhat more contrite about this and prepared to take a pay cut- perhaps I would be more sympathetic to their cause.
I am also quite disgusted with the union leaders who are so unwilling to budge and refusing to make any concessions.
But I firmly believe the only way these idiots are going to get it is by a restructure under bankruptcy. I am not a big fan of the way the airline industry is run but if memory serves- they didn't receive any government hand-out, they sucked it up, people lost jobs, pilots to pay cuts- god forbid you try to get a glass of water on the plane w/ all the cranky attendants that are overworked and underpaid. But it sure as hell beats my tax money going into their coffers.
I am by no means an economist- I do nothing more in finance than run my household- clearly others are much more versed at this than I but we all pay taxes and I am a little sick of cuts in health care and education to fork over to the same idiots who have run us into the ground.

Anonymous said...

To sue f,

Are some upper management screwed up? DEFINITIVELY. In fact, most of them are. However, not all of them.

I also agree that government should not use the taxpayers' money to bail out private business, unless it is absolutely necessary.

As for the airline industry, if you look at the overall picture, it was bound to happen.

You have cut-throat business that tried to cut corners just to stay in business. With such high cost with slim margins, any turbulence in business environment will create catastrophe.

However, the consumers were driving the businessmen to this point.

Putting all the blame on them is quite unfair and scapegoating them leads only leads to continuous ignorance of the cause of the problems.

In another words, stop just treating the symptoms, cure the disease and the cause of it.

Anonymous said...

One of the scariest things going on is the majority rule in the Democratic party. We need checks and balances to make our government work right. It was a bad idea when the Republicans had it, and it is equally bad when the Dems have it. It's like a few people running the world with no one bringing in contrary opinions that could shed light on various problems. This group heading Washington, Pelosi, Reid, Obama, really are clue-less and I for one am not happy about Dems getting a majority and not letting Republicans say anything. That is no way to run a country and I can only surmise that our "Founding Fathers" are not happy campers at this point.

1950 Democrat said...

To tide the poor workers over, give them full pay for painting murals and going to school in Japan.