Bailout for the auto industry?
I have touched on this subject in an earlier article, but it looks like pressure is mounting to supply bailout money to General Motors, Ford Motor Company, and Chrysler. Just like happened with the original bailout plan by Henry Paulson, we are being told the time to act is now. The Big Three may not even be able to make it through December if help is not supplied. Even as President Bush and some GOP lawmakers resist the plan to give an extra $25 billion to the automobile industry, on top of the $25 billion in emergency loans approve in September, top executives from the Big Three, along with the head of the United Auto Workers union (UAW), were meeting with the Senate Banking Committee in an effort to push the bailout plan forward.
At the risk of playing devils advocate here, let me pose a couple of questions. Just exactly why are the Big Three in trouble? How did they get into the shape they are in? Some of the blame should be on the Big Three themselves, for making some very bad decisions, but I believe the lion’s share of the blame should lie squarely at the feet of the UAW. This union has held the auto industry hostage for years, negotiating contracts that have been the detriment of the companies they work for. They have made demands of the Big Three that they simply can not afford to continue to meet.
Back in the 1980s, the UAW created something called the Jobs Bank. Instead of allowing General Motors to lay off employees when economic conditions warranted, they were sent to the Jobs Bank. This was a place where they could learn new labor skills and be trained in new techniques. The Jobs Bank turned out to be a place to get paid good wages, nearly their entire salary, for doing nothing. Even though this is costing General Motors a lot of money, it isn’t negotiable for the UAW. Even in July 2007, when the UAW was meeting with the auto companies to negotiate new contracts, the Jobs Bank was not on the table. From USA Today:
To many outside the auto industry, getting rid of the so-called jobs bank — a job-security program that continues to pay union workers almost their entire salaries even if there isn’t work for them — seems like a no-brainer.
But as talks on new contracts open between the Detroit automakers and their biggest union, the United Auto Workers, it appears the jobs bank may not be a negotiating issue this time around. The automakers are focused on slashing health care costs, and the union has made it clear that job security is not something it will give up easily.
The health care issue could consume a large chunk of negotiating time and energy, leaving little of either for the also-contentious jobs bank issue.
That brings up another issue that has severly hampered the efforts of the auto companies to stay profitable. What about those healthcare costs? Explain to me again why it is an employer’s responsibilty to pay for an employee’s healthcare. I realize it is a benefit, not a wage or salary, and if a company can afford to pay the cost, then more power to them. However, when a union is willing to negotiate a labor contract that puts the very company they work for at risk, then that’s kind of like cutting off your nose to spite your face. Why they would do that is beyond me, but that is exactly what they have done. Between the Jobs Bank, which they label under job security and the healthcare costs they require the auto companies to pay, even to retirees and their dependents, the UAW has driven the Big Three to the point of bankruptcy.
Another point of contention with any bailout plan for Detroit is the bonuses they are paying to their top executives. From Freep:
As Detroit’s crumbling auto industry asks Congress for a bailout, Chrysler is in the awkward position of paying about $30 million in retention bonuses to keep top executives while the company cuts thousands of jobs.
Chrysler owes the bonuses under its contracts with about 50 executives, based on a retention incentive plan crafted early last year by former German parent DaimlerChrysler, when it was preparing to sell the Chrysler unit.
Nancy Rae, Chrysler executive vice president for human resources and communications, said the move made sense at the time to ensure potential buyers that key Chrysler executives would remain in place after a sale. She acknowledged that the bonuses could be seen as controversial now.
Just another quick question. Why would Chrysler want to keep these top executives in the first place? Haven’t they been part of the problem? This seems to be a going solution in most big companies, especially those who are in trouble. Get rid of a lot of lower jobs, ask for a bailout from the government, and pay your top executives millions of dollars in bonuses. That really makes a lot of sense, now doesn’t it?
In these hard economic times, everyone is having to cut back and my employer is no exception. Instead of laying off employees, he has cut our hours back and spread the pain around. This does three things; it allows us all to have a paycheck, it reduces the cost of doing business while things are slow, and it also allows him to have his full workforce in place and ready to go when the economy turns around and business starts to improve. One thing he isn’t doing is asking for a hand out from the government.
That’s my take!
Larry
The big three auto makers, Ford, Chrysler, and General Motors, are asking congress for a bailout to the tune of $25 billion.
Hey, I’m no genius, but why don’t we take some of the profits of the oil companies and give it to the auto industry?
Certainly the two cannot live without each other, and certainly the oil companies can afford it.
Umm – Chrsitanliberal… that is just wrong.
Larry, I am afraid that, just like with the financial bailouts, more of the oppostition will fade…
Taking money from the oil companies would be some more of the “spread the wealth” theory. That simply would not work and even if it did, it simply isn’t right.
Actually, though, Christianliberal’s idea isn’t a bad one … if we reword it to “Why don’t the oil companies take some of their profits and give them to the auto industry, since they need each other.”
If Exxon wants to bail out Ford, it’s okay with me. I won’t make them, but it could be an interesting idea.
(I’m avoiding getting into regulatory technicalities, here.)
You’re right that the people at the top are the problem. For the record … how many workers at $30,000 do you think you could save if you sacked a few managers making $1M? Hmmmm …
I agree that the oil companies want to help the auto companies, then they should be allowed to do so, but only if it is voluntary.
I just wish these companies would see the damage they are doing when they ignore the workers who make their products, in order to pay these top executives so much money.
problem is, they don’t care. Most of these folks at the top have so much money socked away (off-shore no doubt) that even if the companies go under, they won’t be living on the street or worrying how to put food on their table. They might have to put a couple of yachts in dry dock, but they are unlikely to suffer.
Yes, heaven forbid they have to dry dock a yacht. That might put a crimp in their lifestyle.
But can you really expect them not to have filet mignon every night? Really … have we no compassion on the billionaires facing the peril of becoming mere (dare I say it?) millionaires?
I mean, what kind of life is that?