"Let Detroit Go Bankrupt" by Mitt Romney

[Siege]

There have been murmurs that the Chinese would like to buy the Big 3. Of course, these guys aren't stupid, and inheriting a load of debt from a worthless company (well, trio of companies) is not good practise. The IP, however, is very nice to have, albeit, not the military stuff GM would produce which won't go anywhere.

Curiously, GM's only profitable section is in China. It's the rest of the company that sucks. If these guys get to Chapter 7, then the Chicoms will pick apart what's left and be off with it. It's no different to what happened to the British auto-industry, and if you think that didn't hurt the economy, think again.

America's auto-industry days are at an end.

Is the US Government going to allow China buying out Detroit? After all, the current administration decided against allowing a Dubai-based company to exploit American ports. Seems to me an attempt by China (or anybody else for that matter) to buy up the Big Three has a fair chance of running into the ever-prevalent national pride disguised as "national security concerns".

[Coyote]

The thing is, the Republicans are looking at "spending too much" (ironic) and have a good reason to not shell out the cash. The Democrats are looking at "millions potentially out of work (and not paying taxes while going on the dole supported by said taxes)", which is also a legitimate concern.

No matter which side wins, there will be consequences that will be costly and create hell for whoever is in the captain's chair when it goes down. Obama supports the bailout because it keeps millions employed... but, employed in fucktastic jobs that are overpaid, overporked, overprivilidged and inefficient.

The Democrats are using the opportunity to remind people that forcing companies to pay for health care put the companies at a disadvantage against nations that use national health coverage, but they're not tooting that horn loud enough (hell, why not, the "other side" already thinks Obama & the Dems are a collection of damn socialists anyway, it's not like it'd matter).

About the only way to deal with this with any finesse at all is to use some of the money from the 700 billion dollar bailout (since it is already "spent") and use it to shore up the companies, but attach major strings to it-- they must improve efficiency, build cars with sticter mileage, etc. Also, boot out the current execs, no golden parachutes, pay freezes, and tell the Unions to deal with it or they'll get "Reagan'd" out onto the street. If the companies and unions won't swallow it, then let' em flounder.

[Kodiak]

There have been murmurs that the Chinese would like to buy the Big 3. Of course, these guys aren't stupid, and inheriting a load of debt from a worthless company (well, trio of companies) is not good practise. The IP, however, is very nice to have, albeit, not the military stuff GM would produce which won't go anywhere.

Curiously, GM's only profitable section is in China. It's the rest of the company that sucks. If these guys get to Chapter 7, then the Chicoms will pick apart what's left and be off with it. It's no different to what happened to the British auto-industry, and if you think that didn't hurt the economy, think again.

America's auto-industry days are at an end.

Is the US Government going to allow China buying out Detroit? After all, the current administration decided against allowing a Dubai-based company to exploit American ports. Seems to me an attempt by China (or anybody else for that matter) to buy up the Big Three has a fair chance of running into the ever-prevalent national pride disguised as "national security concerns".

If China buys Detroit, would we have a privatized cyborg police force to look forward to? Seriously though, I think our paranoid government would never let the Big Three sell overseas.

[Ma Deuce]

Chapter 11 would be best;

Do you understand what chapter 11 is? The tone of your post suggests you are confusing it with Chapter 7, which really is "going out of business" liquidation. Chapter 11 is administered bankruptcy protection, which is what many airlines went through after 9/11.

It also seems you did not read the article carefully. Romney is not suggesting that Detroit should die, but rather that going into Chapter 11 will allow them to extricate themselves from the unfavorable union and supplier contracts they are currently saddled with, eliminating their structural cost disadvantage, allowing them to emerge more competitive than ever before.

The importance of Detroit's structural cost gap CANNOT be overstated, with a cost per vehicle gap of $2,000 or more, that is an insurmountable disadvantage that cannot be overcome with any kind of cost cutting, production efficiency (Detroit's production efficiency is now at or near that of the transplants anyway). Nothing Detroit can possibly do on their own will overcome that albatross. Nothing. So, Romney does have a point: If we simply throw money at Detroit now, they WILL have to be bailed out later no matter what is done in the interim. Of course, even Chapter 11 will still require a bailout, and partial nationalization. the Government will have to GUARANTEE that the automakers will remain in business while in bankruptcy protection if people are to keep buying cars from them (nobody will buy cars from a company whom they don't know will be around to honour their warranty). What also needs to be done is placing restrictions on foreign automakers who operate here, like y'know, other countries do?

Of course, that will never happen: Allowing Detroit to extricate itself from it's union contracts would of course be bad for the UAW (at least the assholes who run it), and since the Democrats are the UAW's bitch, the only two competing ideas on Capitol Hill on what to do about Detroit are either to simply throw money at them, or sit back and do nothing as they die, as the Republicans favour (you don't need to guess which one will actually be carried out). I would also like to note that the foreign assembly plants in the US are mostly in Republican districts anyway, which is no surprise since they deliberately built their plants in isolated bumfuck towns in "right to work" states.

So what I think will happen is Detroit will stay in business, (with the Democrats in control, that is now guaranteed), but they'll forever be sucking on the government teat.

many employees can be scooped up by non-union plants run by Toyota, Nissan, BMW, etc that build better cars and can fill the void left by a collapse of Detroit Dinosaurs.

Trouble is, it never works that way. Once those plants close, most of them will be shuttered for good. IP already covered that.

and perhaps an actual innovative company like Tesla Motors can be allowed access to the plants to start turning out useful cars in bulk.

Don't kid yourself, Tesla will never be more than a niche player, not once much larger automakers (with far bigger production capacity and R&D budgets) start churning out electric cars. Besides, once the foreign automaker cement their grip on the US market, they'll never allow a domestic competitor to rise up ever again. Short of the US government creating a nationalized automaker from the ground up, it will never happen. Once Detroit goes under American carmaking will be gone forever. Theres also one very important kind of employee of Detroit who is not unionized and will not find new work with foreign automakers: Engineers, which are far more valuable than assembly line workers. Made in America means virtually jack and shit if it's designed and engineered in another country by a foreign-owned company.

My impression is the only reason why foreign companies build in the U.S. now is because of tax incentives to remain competitive with Detriot's already-subsidized product, and without Detroit they'd pack up and leave. And of course, there's the whole parts, dealership, and other economy associated with a genuine domestic automaker that would evaporate, and a couple foriegn automaker plants here would do nothing to help.

That's about the size of it. We also can't forget the consequences if Detroit were allowed to collapse right now, on top of the credit crisis.

[Ekiqa]

And if you think the UAW and CAW unions are bad, you should take a look at the Ontario Teacher's union, who's pension fund has net assets worth over $108.5 billion dollars! And yet taxpayers STILL pay money into that pension fund!

To use Darth Wong's analogy, unions have become a massive "brain-bug" in western society. They started off innocently enough, but they've grown, and grown and grown, and are now just a giant mass of diseased tissue making our society that much more difficult to function.

Regarding Teachers': they lost over $12 billion due to the recession, and as such, all new hires will not be getting as good a pension later on. The reason it got so large, is that it was independently controlled, and allowed to invest and grow. The reason taxpayers pay into it, is because tax payers are the "company".

Most people working in non-unionised jobs can be fired for little or no reason. The law requirement is easily dealt with. Unions are still usefull. If left to management, pay raises for all but management would be less than inflation. If pay does not rise at inflation or above, you are effectively cutting the workers pay.


Back to the OP:
Detroit better not get bailed out.

If the big three fail, the 2 million jobless wont stay jobless for long, as Toyota, Honda, Nissan, etc... who are already over here, will have to expand to meet demand, and hire the workers. The big 3 are operating years behind the times, still focused on big trucks and gas guzzlers, with the executives pay being about $30 million.

Plus, they've been given numerous handouts over the years, why should we continue to pay them? Because we've conditioned them to believe they will get it, a la Pavlov? Or is it like the book "If you give a mouse a cookie, he'll ask for a glass of milk"?

[Rogue 9]

As for being anti-union, yes I am. Those unions enrich their own members at the expense of everyone else in the entire industry. There are suppliers whose margins have been shaved to nothing because the automakers squeeze their suppliers in order to pay for their labour obligations while trying to remain competitive.

Fuck the unions. What they do is nothing more than extortion. They were necessary once, long ago. That time has passed; the worker protections they fought for are now written into law, and their protection hinges upon political lobbying, not strikes.

I'll go further. An industry-wide union is nothing more than a horizontal monopoly, as well as a vertical monopoly if the union also represents the employees of the companies' suppliers. The only distinction between a union and a monopoly in common parlance is the commodity being monopolized; in this case labor. Under an equitable enforcement of anti-trust law, the UAW, AFL-CIO, and other major unions would be broken up just like any other monopolistic business, because that's exactly what they are.

[Coyote]

I did mix up Chapter 7 and Chapter 11, I admit-- chapter 11 would be the more likely scenario, since it doesn't shut down the companies. But yeah, Chapter 11 will allow the companies to limp on forever, with government subsidies for health care in perpetua. I wonder if the "unfunded mandates" law can be used to force government to go ahead and pony up for national health care?

And bringing in Tesla management is pretty much just a fantasy of mine... sorry.

[Illuminatus Primus]

There have been murmurs that the Chinese would like to buy the Big 3. Of course, these guys aren't stupid, and inheriting a load of debt from a worthless company (well, trio of companies) is not good practise. The IP, however, is very nice to have, albeit, not the military stuff GM would produce which won't go anywhere.

Curiously, GM's only profitable section is in China. It's the rest of the company that sucks. If these guys get to Chapter 7, then the Chicoms will pick apart what's left and be off with it. It's no different to what happened to the British auto-industry, and if you think that didn't hurt the economy, think again.

America's auto-industry days are at an end.

I am sorry, but the neoliberal fantasy that First World economies will thrive and survive while be forced to compete with robber barony in China is just absurd. Multilateral, global trade negotiations have to stress Chinese labor and evironmental standards, so American industry is not being forced to commit suicide with principles.

[Ma Deuce]

Regarding Teachers': they lost over $12 billion due to the recession, and as such, all new hires will not be getting as good a pension later on. The reason it got so large, is that it was independently controlled, and allowed to invest and grow. The reason taxpayers pay into it, is because tax payers are the "company".

Well good; They already have a far richer pension than they deserve. I'm with Mike on this: Public-sector unions need to be banned outright. Even if private-sector unions continue with heavy restrictions, government employees should not be allowed to unionize at all. The fact that taxpayers are "the company" is the problem: Unlike a private company, the union can foist whatever unreasonable demand they want on the government without fear of putting their employer out of business and themselves out of a job, because no matter what happens the taxpayers will pick up the tab.

Most people working in non-unionised jobs can be fired for little or no reason. The law requirement is easily dealt with.

Not saying it never happens, but you act as if that's some kind of systemic problem. The fact that the vast majority of North America's workforce remains un-unionized today suggests otherwise.

If the big three fail, the 2 million jobless wont stay jobless for long, as Toyota, Honda, Nissan, etc... who are already over here, will have to expand to meet demand, and hire the workers.

Oh, they'll expand alright: In their home countries, or in cheap third-world sweatshops. We've already been over this: The only real reason the foreign automakers built plants here at all is because of Detroit. Once Detroit goes out of business they have no reason to expand or even stay, so the laid-off workers will be either left on welfare or stocking shelves at Walmart.

The big 3 are operating years behind the times, still focused on big trucks and gas guzzlers, with the executives pay being about $30 million.

Then what's all this I hear about closing truck plants and ramping up production of smaller cars (which they are not competitive in due to their structural costs), or putting considerable effort into new vehicles like the Chevrolet Volt? Does the phrase "lead time" mean anything to you? You clearly haven't a clue about the auto industry, or industrial production in general.

[erik_t]

Meanwhile, the Detroit plants will still be there, and perhaps an actual innovative company like Tesla Motors can be allowed access to the plants to start turning out useful cars in bulk. It would require government help to re-tool the factories in some cases (electric drivetrains instead of standard) but I'd feel like there's more of a "plan" that way than the way the companies are doing it now-- "Give us money and we promise to make better cars. We promise. Really, we do"

This cracks me the hell up. You know the Tesla Roadster is a rebadged modified Lotus, and is in fact built by Lotus in a Lotus factory overseas... right?

[Solauren]

I'd like to offer a alternative to banning public sector unions.

Public Sector unions are a joke because they can't force a company out of business. The last OPSEU strike in Ontario was a joke because of this. 10 weeks on strike, thousands in lost wages, for a salary increase that will make back the lost wages in about 10 years.

And the government was unaffected because all the jobs that have to be filled to keep the government running at a minimal acceptable level are classified as essential. Basically, that mean the union can strike all they want, that person's job is still active, and they can't even say boo to them over it. Tax Revenus were still collected, legal papers will still served, and several thousand people had no wage for 10 weeks. Because the union leaders were pissy over what, $0.20 an hour?

Public sector unions shouldn't be allowed to strike. There is no point.


Anyway...

Unions do still have a place in the workforce; as an in-house watch dog to make sure that proceedures, contracts, regulations and laws are followed, and to protect whisltleblowers from employeer backlash. This cuts down on the amount of government effort required to make those enforcements.

Unfortunately, as it's been stated, they've been gradually more and more emboldened over the years. And that is what needs to be stopped.

And I agree, alot of unions are basically monopolys.

[Tribble]

Regarding Teachers': they lost over $12 billion due to the recession, and as such, all new hires will not be getting as good a pension later on. The reason it got so large, is that it was independently controlled, and allowed to invest and grow. The reason taxpayers pay into it, is because tax payers are the "company".

Most people working in non-unionised jobs can be fired for little or no reason. The law requirement is easily dealt with. Unions are still usefull. If left to management, pay raises for all but management would be less than inflation. If pay does not rise at inflation or above, you are effectively cutting the workers pay.

So your suggesting that taxpayers should pay into a pension plan that is independently controlled, and at $108.5 billion dollars, clearly self sustaining? The entire budget for the Ontario Ministry of Education in the 2006-2007 fiscal year was only approximately $12 billion dollars, which includes money being spent financing the teacher's salaries and pensions. That's right: the teachers' pension fund is about 9X the entire operating budget of the Ontario education system. And taxpayers are still paying into it. That's completely ridiculous.

Now I'm not saying all unions are inherently bad, its just that they are clearly out of control in western society. OTPF is one example, the UAW and CAW are others, and there's probably a lot more out there than I can think of off the top of my head.

So yah, if America wants to keep its auto industry alive, its gonna have to start axing the powers of unions, not just management.

[Coyote]

Meanwhile, the Detroit plants will still be there, and perhaps an actual innovative company like Tesla Motors can be allowed access to the plants to start turning out useful cars in bulk. It would require government help to re-tool the factories in some cases (electric drivetrains instead of standard) but I'd feel like there's more of a "plan" that way than the way the companies are doing it now-- "Give us money and we promise to make better cars. We promise. Really, we do"

This cracks me the hell up. You know the Tesla Roadster is a rebadged modified Lotus, and is in fact built by Lotus in a Lotus factory overseas... right?

Actually, I didn't know that. heh.

But in a way, it doesn't matter-- Detroit makes cars that suck and they want to get paid to limp along forever. I don't care if it's Tesla or Nissan let someone with an actual plan take the lead.

[rhoenix]

This cracks me the hell up. You know the Tesla Roadster is a rebadged modified Lotus, and is in fact built by Lotus in a Lotus factory overseas... right?

This I did not know. Do you have a good link that explains this?

[J]

What is the probable future for these companies if they get the money? How long will it keep them afloat?
I've heard people comparing it to giving booze to an alcoholic hoping that that will solve his problems...

GM & Ford are burning through $2-3 billion in cash every month and that figure will only worsen as their sales get flushed. The proposed $25 billion bailout (for each company) would last 6 months to a year, and they'd be right back to where they are now, if not worse. Think of them as zombies, walking decaying dead sucking the life out of everything they touch.

If the big three fail, the 2 million jobless wont stay jobless for long, as Toyota, Honda, Nissan, etc... who are already over here, will have to expand to meet demand, and hire the workers.

It's impossible to sell 20 million cars in the US & Canada every year on a sustainable basis, those jobs are gone, forever. At best only a small fraction of those workers will be rehired since they are just not needed. The US has the capacity to produce around 18 million cars every year, however, going forward they're not going to sell more than 10 million or so until we engage in yet another credit binge, and that's many years away. No matter how you slice it half the factories in the US are finished. End of story. One way or another they will die. Take a look at the dealerships, factories, suppliers, and so forth, half of them will be gone. You can count on it.


As far as I'm concerned there's only one solution, and that is a forced cramdown, carried out right now so the blame can be stuffed on the lame duck government. Everything else will fail, a normal Chapter 11 will drag out for so long that the companies will be terminally weakened and dead by the time everything's sorted out in BK court, and I already went over why a bailout won't work. A cramdown is like Chapter 11 except it happens quickly and brutally, and if the lawyers, unions, and management don't like it they can shove it. The entire company is recapitalized, restructured, and ready to go within a month. Clean slate, new contracts, no debt.

[Tribble]

Not much chance of that happening though

[J]

It'll never happen because it makes sense.

[Illuminatus Primus]

So what is the J economic plan? We should have a "you're in charge of the agenda, tomorrow, with dictatorial powers" thread, and heavily moderate it with only comprehensive and well-fleshed plans posted, and criticism and debate leveled. I think we'd have fewer nitpicky little squabbles if more posters just laid out their whole policy philosophy and it was taken as a whole.

[Coyote]

Start a RAR in OT, then!

[Coyote]

They really don't get it, do they?

Big Three CEOs Flew Private Jets to Plead for Public Funds

Auto Industry Close to Bankruptcy But They Get Pricey Perk

The CEOs of the big three automakers flew to the nation's capital yesterday in private luxurious jets to make their case to Washington that the auto industry is running out of cash and needs $25 billion in taxpayer money to avoid bankruptcy.

...The CEOs of GM, Ford and Chrysler may have told Congress that they will likely go out of business without a bailout yet that has not stopped them from traveling in style, not even First Class is good enough.


All three CEOs - Rick Wagoner of GM, Alan Mulally of Ford, and Robert Nardelli of Chrysler - exercised their perks Tuesday by flying in corporate jets to DC. Wagoner flew in GM's $36 million luxury aircraft to tell members of Congress that the company is burning through cash, asking for $10-12 billion for GM alone.

One guy doesn't live in Detroit, but in Seattle, where the company jet flies him home every weekend.

Must be nice.

Hey, don't forget a $400,00.00 resort spa treatment, like the AIG asscakes did.

[erik_t]

This cracks me the hell up. You know the Tesla Roadster is a rebadged modified Lotus, and is in fact built by Lotus in a Lotus factory overseas... right?

This I did not know. Do you have a good link that explains this?

The easiest way to find out more is wikipedia. None of these are uncontroversial statements. Tesla says them, just very, very quietly.

[Tribble]

Maybe the government should accept the inevitable and try to ease the American economy into a service industry instead?

[Bounty]

Meanwhile, the Detroit plants will still be there, and perhaps an actual innovative company like Tesla Motors can be allowed access to the plants to start turning out useful cars in bulk. It would require government help to re-tool the factories in some cases (electric drivetrains instead of standard) but I'd feel like there's more of a "plan" that way than the way the companies are doing it now-- "Give us money and we promise to make better cars. We promise. Really, we do"

This cracks me the hell up. You know the Tesla Roadster is a rebadged modified Lotus, and is in fact built by Lotus in a Lotus factory overseas... right?

It's not a "rebadged Lotus" if it's a heavily modified Lotus chassis with 90% custom parts, now is it? Yes, these things are glued together in a Lotus plant, but the components are built worldwide, and some of them already come from the US. Right now it's an extremely low-volume operation with -as far as I know- little to no dedicated infrastructure supporting, so I don't see why it's such a ridiculous idea to start large-scale (or just scale; it is, after all, a niche roadster) production in the US.

[erik_t]

Why's it a ridiculous idea? I dunno, because the company is teetering on insolvency and they've yet to demonstrate that they can deliver on their promises? I mean, never mind that they're acting more like a think tank / PR department than an actual automobile manufacturer?

I'd rather dig up Preston Tucker and give him the money. At least he successfully built some damned cars in his own damned factory.

[Bounty]

Why's it a ridiculous idea? I dunno, because the company is teetering on insolvency and they've yet to demonstrate that they can deliver on their promises?

Which has what to do with where the car is built?

And I'm willing to cut Tesla Motors some slack - some - because they've actually managed to get a working road-legal electric car on the road, which is more than most companies can say. At this stage I don't expect much from them beyond one or two low-volume designs and a lot of concepts; they're an upstart, not an established auto maker.