No Bailout

by

by hilzoy

From the NYT:

“The Senate on Thursday night abandoned efforts to fashion a government rescue of the American automobile industry, as Senate Republicans refused to support a bill endorsed by the White House and Congressional Democrats.

The failure to reach agreement on Capitol Hill raised a specter of financial collapse for General Motors and Chrysler, which say they may not be able to survive through this month.

After Senate Republicans balked at supporting a $14 billion auto rescue plan approved by the House on Wednesday, negotiators worked late into Thursday evening to broker a deal, but deadlocked over Republican demands for steep cuts in pay and benefits by the United Automobile Workers union in 2009.”

Apparently, the plan they were negotiating already required the car companies to reduce their debt by 2/3 between now and March 31, and to bring their workers’ pay into line with their foreign competitors. (This in addition to what had already been agreed to — major restructuring plans, etc.) The sticking point, apparently, was that Senate Republicans insisted that the workers’ pay reach parity with foreign competitors in 2009, while Democrats, the UAW, and the car companies wanted the process of bringing wages down to be completed by 2011.

So the Senate Republicans were willing to let a million jobs, give or take, go down because they wanted the UAW to make massive wage concessions, over and above those it has already made, within one year as opposed to three years. That shouldn’t be a dealbreaker, except to people who don’t want a deal to start with.

The consequences sound delightful:

“With Congress failing to agree on a bailout for Detroit, the odds that General Motors and Chrysler will be insolvent by year’s end are growing rapidly.

The companies have been warning that they would run out of money for some time, but crushing bills from their suppliers are coming due. It appeared unlikely that they could hold on until President-elect Barack Obama takes office next month, when he and a new Congress might be able to provide a lifeline, as a Congressional rescue this year looked increasingly unlikely. (…)

General Motors and Chrysler, for example, owe their suppliers a total of roughly $10 billion for parts that have been delivered. G.M. has held off paying them for weeks, and Chrysler is paying in small increments. But the cash shortages at G.M. and Chrysler are getting more severe, according to their top executives and other officials. (…)

Many of their suppliers are teetering on the verge of bankruptcy themselves, and do not have the luxury of extending credit much longer. (…)

When suppliers big and small start failing, the flow of parts to every automaker in the country will be disrupted because as suppliers typically sell their products to both American and foreign brands with plants in the United States.”

“There’s no question it will hit Toyota, Honda and Nissan too,” said John Casesa, principal in the auto consulting firm Casesa Shapiro Group.

“Many of the small suppliers will simply liquidate because they don’t have the resources to go reorganize in Chapter 11 bankruptcy,” Mr. Casesa said. “They’ll just go away.”

I support the bailout. I don’t think I would if these were normal times, but they are not. And under the circumstances, this seems to me to be an extraordinarily irresponsible thing to do. The Senate Republicans were not, as far as I can tell, so much as trying to do things responsibly. They did not, for instance, seem to consider extending the kind of financing that would allow GM and Chrysler to go through Chapter 11 bankruptcy rather than liquidation. That financing would have involved loans, not gifts. It would have allowed an orderly reorganization.

But no: after years of being willing to spend money on whatever George W. Bush and their lobbyist friends wanted, after supporting Duke Cunningham’s and Tom DeLay’s buddies in the style to which they had become accustomed, now they decide to prove that they care about fiscal responsibility. In the middle of the worst downturn in half a century. Thanks a million.

Here’s my favorite quote from the whole mess:

“”We simply cannot ask the American taxpayer to subsidize failure,” said Sen. McConnell.”

Whyever not? We pay his salary, don’t we?

201 thoughts on “No Bailout”

  1. Let’s see how the Dow reacts.
    If I remember correctly, back in the fall when the House Republicans were holding up the bank bailout, the Dow took a wicked nosedive and, as much as anything, that seemed to get them to finally act.
    The White House’s silence has been deafening.
    Watching Anderson Cooper’s program last night, some of his financial pundits said Paulson could conceivably use TARP money to come up with the $15 billion the auto bailout had been whittled down to, seemingly a pittance compared to Wall Street’s rescue.
    Through the grapevine, I have heard at work my owner is worrying about getting a big end-of-the-year sum he is owed by General Motors.
    Without it, our dealership — which has already downsized to levels we never thought we would see — would disappear and so would 300-some jobs.
    And that’s just one dealership out of thousands throughout the country.
    Two weeks before Christmas, watching Jimmy Stewart in black-and-white this year in “It’s a Wonderful Life” could be quite eerie.
    Sebastian would disagree, but I predict if GM goes under in the coming few weeks — taking its suppliers and dealerships and God-knows-what-else with it — we will all be in for a merry little Depression.

  2. We pay his salary, don’t we?
    Interesting question. If one considers that the successful Republican is the one who keeps Democrats from accomplishing anything worthwhile (lest Dems get credit and relegate the Medieval party to permanent minority), then McConnell becomes an unqualified success and worth every cent.

  3. Re: No to the auto bailout.
    Has anyone else been disgusted by Senator Shelby?
    Each time he takes the microphone, the Alabama Republican seems more pompous and heartless than the last.
    I wonder if he would be so zealously against an auto bailout if his home state housed plants that made American cars.

  4. From hilzoy’s WSJ link: “Only a handful of Republicans in the Senate had been willing to support the rescue package. Some raised concerns about government intervention in the marketplace. Others demanded the bill be strengthened to exact concessions from the industry.”
    Some raised concerns about government intervention in the marketplace.
    I wonder how the writer kept a straight face typing out that sentence.
    (Editor’s note: I see from the story that the bailout had been pared down to $14 billion. Does that even count as government intervention these days?)

  5. I don’t support this bailout as formed. At least one of the three is going to have to go into some sort of total windup mode. The government can facilitate that transition if we want, but it has to happen. There is no way that all 3 can survive as ongoing entities and frankly even with the bailout I don’t see any of them being profitable in the next 5 years.
    I would much rather support spending the same money on getting the GM workers into a useful manufacturing job and then trying to bridge the other two. (This is assuming that Chrysler is actually pseudo-healthy, which may be a bad assumption).

  6. Sebastian–
    The idea that we can just get GM workers into “useful manufacturing jobs” isn’t as easy as it sounds– because you’re gutting the manufacturing sector when you take out GM and its suppliers.
    Honestly, at this point, I no longer care that they won’t be profitable in 5 years. We’re panicking about the need for economic stimulus, and keeping people in their jobs is probably a cost-effective way of doing that.
    Plus, y’know, blowing this could cost the Democrats the rust belt in 2012/2016.

  7. I know how this will be played by the “liberal” media: “The Dems refused to compromise on a tiny detail and thus destroyed millions of jobs. Is that the bipartisanship that the liberal n|gger promised? Another proof that Demon rats are in the pockets of special interest groups like that sinister UAW.” Remember Rush “This is an Obama recession” Limbaugh?
    And the worst about it: It’s likely going to actually work.
    Btw, did the senate GOPsters actually filibuster it or was there a true “no majority”?

  8. You know, the when the patient is hemorrhaging blood from every major orifice is not the time when you discuss the long term effects of obesity.
    Hartmut, from what I’m reading, it was 7 votes short of a cloture vote. Or in short they had 53 votes. I haven’t seen any statements on who stood where.
    Sebastian, what useful manufacturing jobs? And where in the nation? Where are we going to move them to where these jobs are? And if so, who’s going to fund this massive population shift?

  9. Re: Hatrmut’s statement. WGN in Chicago morning reported that the deal failed “because the UAW would not take pay cuts.” That was the only explanation. Period. End of discussion.
    Pathetic.

  10. Well, on the bright side, the GOP has just volunteered to be the scapegoat for the Greater Depression (I disagree with Hartmut).

  11. “ now they decide to prove that they care about fiscal responsibility screwing unions (and hence workers). In the middle of the worst downturn in half a century.”
    (Not to say that the original claim isn’t quite accurate in itself, but it’s not coincidence that the holdup is over UAW concessions right this minute and not a second later (or 18 months down the road, when hopefully both individual families and the economy as a whole isn’t quite so in need of every penny of wages . . . )

  12. Does anyone know what effect this will have on pension funds? If you kill off an industry this big, it will have to affect institutional holdings, which will then mean reduced pensions not only for retired GM (and possibly \Chrysler and Ford) employees, but also a good number of others.

  13. There is no way that all 3 can survive as ongoing entities and frankly even with the bailout I don’t see any of them being profitable in the next 5 years.
    Maybe we could sort that out next year. After we’ve absorbed the current million plus layoffs.
    I would much rather support spending the same money on getting the GM workers into a useful manufacturing job and then trying to bridge the other two.
    They have useful manufacturing jobs. They make cars.
    Where are you going to find a couple hundred thousand other “useful manufacturing jobs”? Any other part of the manufacturing sector looking for thousands of line workers?
    Is there any other part of the manufacturing sector?
    All of these folks are going to end up retired early, on the dole, or embarking on new careers as baristas and Wal-Mart greeters.
    You know, real value-added jobs, jobs you can send your kids to college on.
    Just want to point out that $14 billion is a bit less than five percent of what we’ve spent on the financial markets so far, and about two percent — two percent — of what we’ve signed up for.
    And that $700 billion in cash is only a drop in the bucket compared to the freaking half of the GDP that have been promised in guarantees.
    There isn’t going to be a GDP that will support the level of promises we’ve made to Wall Street. The banks are going to eat the whole damned economy.
    This ain’t going to go well.
    Thanks –

  15. As to Shelby, Toyota’s ADRs traded on the New York Stock Exchange will be down 10% today. Honda’s,too.
    In normal times, and if we had a bonafide safety net in this country, I would agree with Sebastian that one of the big Three and maybe two should declare bankruptcy.
    These are not normal times. To repeat what others said above, what manufacturing jobs? What retail jobs? Maybe the UAW workers can sell bonds on Wall Street. Ya think? How long does it take to teach a guy to lie and cheat?
    Republican Jim DeMint (we need another election quickly, too many Republicans still savaging the country), who is a laugh a minute, said last week, I think, that there would be (actually he said there already was) riots if the bailout went through.
    Here’s what I hope now that he got his wish.
    I hope there are rioters massing in his little southern hamlet and I hope they have a map to his house. Drag him out of his house, dip him in batter, and, after the vat of hot oil is brought to a rolling boil, fry his morally uptight butt to a golden brown and serve it at the UAW picnic.
    This little vengeance game the American people are purportedly playing with those who still have high-wage jobs with benefits in this country is going to backfire.
    We’re going to start killing each other for the scraps.
    We’re racing each other to the bottom. Republicans know it. That’s why they bought all of those effing guns leading up to the election. They know who they want to kill.
    I’ll see you there.

  16. Is there anywhere on the Senate’s site that shows who voted for this, and who didn’t? The news reports are saying 52 or 53 to like 35. So there must have been a bunch of people abstaining, and I wonder who they are. And who the 6 or so Democrats are who weren’t voting.

  17. Why doesn’t Reid make the GOP do a real old-timey filibuster? I mean, hell, if you’re not going to do anything anyway for the short time left before the new Congress, why not a spectacle?

  18. By the way, my toilet’s leaking.
    I’ll pay Joe the Plumber $6.68 an hour to fix it. I hope that guy and his family starve.
    Then he can kiss my ass.

  19. Why doesn’t Reid make the GOP do a real old-timey filibuster?
    a question for the ages…
    my hunch is that he won’t make them do a real stand-up filibuster because he’s a pathetic schmuck.

  21. Why doesn’t Reid make the GOP do a real old-timey filibuster?
    Because maintaining senatorial courtesy is more important than keeping the economy from plunging into a depression. Plus the GOPers get rather gamey when they’re forced to read from the phone book all night.
    Market opens in 30 minutes…

  22. Has anyone else been disgusted by Senator Shelby?
    My take on Shelby is that he loves his home state so much that he wants the whole country to be just like Alabama.
    There’s a good chance he’ll get his wish.
    if we had a bonafide safety net in this country
    In Michigan you can get up to $362/week for 33 weeks.
    Then you’re done.
    Thanks —

  23. “I support the bailout. I don’t think I would if these were normal times, but they are not.”
    Not to be churlish — because I do appreciate that you recognize the importance of this challenge — but I do want to point out if these were normal times, the automakers would not be asking for money. Did Rick Wagoner look like he wanted to be there? He was in the midst of a perfectly nice little restructuring when the credit freeze drove auto sales off a cliff and dried up his revenue stream and every private lender had a “closed” sign out front. He had plenty of problems to work through, but the things that made this a crisis were not of his doing.
    We need to ask ourselves what we want our country to look like at the end of this crisis. Yes, the bubble has to burst. Housing prices have to come down, consumer debt has to reach sustainable levels, and Wall Street has to quit printing Monopoly money in the form of crazy made-up financial instruments. All of that will be painful. Do we want to come out at the end having lost our domestic auto industry as collateral damage? If we lose the jobs, the wealth, and the technical knowledge, we’re going to be in trouble in more ways than people realize.
    We’ve thrown away much of America’s manufacturing sector — it seemed so dirty and old-school — but the truth is that making real stuff is the only real source of wealth.

  24. “I wonder if he (Shelby) would be so zealously against an auto bailout if his home state housed plants that made American cars.”
    And I wonder if he and his constituents realize that the existence of the UAW is the only thing that pressures Hyundai, et al., into paying them more than Tyson would pay them to slit chicken throats?

  25. Hartmut, while I agree with of much of what you say, do you really feel it was necessary to include the particular racial slur that you did? I understand that you meant it as coming from the mouth of a hypothetical racist, but it’s an ugly word and did not in my opinion strengthen your comment.

  26. Sebastian posted: “I would much rather support spending the same money on getting the GM workers into a useful manufacturing job and then trying to bridge the other two.”
    Along those lines: Our dealer trade guy was downsized in August. (With sales being down, less volume means less trading from one dealer to another for cars; so the Chevy manager got another duty added to his job description.)
    Everyone knew he would not make it as a salesman, but since he’s been here for 15 years, out of a sense of loyalty, the owner gave him a chance. Now — after failed attempts to land a job elsewhere — he is our parts-truck driver, which is one step above a part-time job.
    So “Dan” went from a $60,000 salary, plus bonuses, to a job that won’t come close to paying half that.

  27. More downsizing:
    This time last year, we had a progressive internet department that consisted of four people.
    One by one, they have all bit the dust. No more internet department — managers handle sales lead.
    The manager of the internet department, who has served in numerous capacities over 25 years with the company and was making close to six figures, is now a service writer. I don’t know what happened to the other three workers.

  28. CNBC was interviewing Bob Corker this morning and the senator from Tennessee became incredulous when the interviewer asked if the Republicans were ready to take the blame if the economy collapses.
    Corker put any potential blame for such a calamity on the feet of the UAW.
    Elections matter. If race-baiting didn’t work in Tennessee, I would have been listening to Harold Ford Jr. and not a union-busting Republican.

  30. “That financing would have involved loans, not gifts.”
    Right. Loans that the CEOs admitted they had no plan on how to pay back. The big 3 lose roughly 2k on every car they sell, they have significantly higher labor costs than foreign auto makers, and they are behind the curve on new product lines… I won’t even mention the private jets.
    The Big 3’s problems have nothing to do with the credit crunch. Recent reports have confirmed that bank lending is again robust. The Big 3 can’t get private loans because their products suck, not because money has dried up. Share prices have been on a steady decline for years. See, for example, GM’s stock price over the last five years. http://finance.google.com/finance?q=gm.
    Much has been made about the volt, but don’t forget, it’s not as if other car manufacturers are standing still. they have new product lines that, if history is any guide, will be superior to the big 3’s… then what? more money? we don’t need another AIG.
    As of the time of this comment, market is down about 1.5% and GM is down about 10%. Not horrific. Looks like this one was already baked in the cake.

  31. And I wonder if he and his constituents realize that the existence of the UAW is the only thing that pressures Hyundai, et al., into paying them more than Tyson would pay them to slit chicken throats?
    Good point, whyaskwhy. Here’s my revenge fantasy: instead of John Thullen’s dip ’em and fry ’em scenario, the UAW organizes* the workers in plants in Shelby et al.’s states and along the way, defeats their re-election bids.
    * I know, I know, “right-to-work” states. I live in Louisiana, so I know from “right-to-work”!

  32. in semi-related news, the world’s largest pork ‘processing’ plant, in Bladen County NC, just got itself a union, after a 16 year fight.
    so, even though this is only 4500 people, it’s not all bad news for organized labor today.

  37. I would much rather support spending the same money on getting the GM workers into a useful manufacturing job and then trying to bridge the other two.
    What manufacturing job? Our economy is over 70% services. The only thing we make these days are dollars and we spend the rest of the time selling cheap chinese crap to each other.

  38. whyaskwhy said… Not to be churlish — because I do appreciate that you recognize the importance of this challenge — but I do want to point out if these were normal times, the automakers would not be asking for money.
    I don’t quite agree. I think that GM or Chrysler would have ended up on the skids in due time, even without the monumental financial cluster-f*** we’re facing. And if the economy was normal, either one could have been left to die.
    The problem is that the economy is already staggering. Are we really prepared for the outcome of that many jobless, not to mention the associated unemployment, social services, and federal take-over of the pensions? What will that end up costing the taxpayers?
    As to the GOP, well it’s just another case of not taking responsibility for what they wrought, and padding their friends wallets. They’ve gotten pretty good at screwing up and then blocking fixes. Think Iraq.
    There’s not a peep from the GOP about holding down compensation and dividends for the financial industry. There wasn’t a peep from them when one of their own put a secret hold on the nomination for Inspector General to oversee the bailout. Not until they saw a chance to go after the UAW did they stir. They are worse than useless, they are intentionally damaging to our nation.
    And yes, Reid should grow a pair and force them to filibuster for real. Make them stand their and put their obstructionism on display for all to see.

  39. “Loans that the CEOs admitted they had no plan on how to pay back. The big 3 lose roughly 2k on every car they sell, they have significantly higher labor costs than foreign auto makers, and they are behind the curve on new product lines…”
    Not true, Unfrozen Caveman. Independent Wall Street analysts rated GM’s plan, which included repayment, as credible. Guaranteeed? No, of course not. If the nation’s total car sales stay at 10 million total, more than the automakers are toast. If they recover to 12 million, GM stays afloat and at 14, they’re quite profitable, and that’s a level that most consider likely (the 17 million the industry has been running was a bubble number that won’t come back).
    And no, they do not lose $2K on every car. Historically, they have had higher costs equal to about $2K on each vehicle, which is a good part of the reason they focused on the high profit SUVs and trucks that many Americans — living in a $1.20/gal country — wanted to buy. The larger profit margin covered their higher costs.
    Those higher costs are not permanent. Part of the costs are retiree costs, and those will diminish naturally. The domestics have had a triple whammy: they have had to support a retiree pool with a volume generated from the days when it took 6,000 people to run a plant instead of 2,000, and from the days they had a larger market share, and with a benefit package that made sense in the ’50s and ’60s but doesn’t now. But what were they supposed to do — put them on ice floes? As those retirees die, the new pool will be much smaller and have less generous benefits.
    The 2007 UAW agreement provides for a two-wage system and other givebacks that GM calculated would put them close to labor cost parity with the transplants by 2010. So the labor costs were already on track to close.
    And I’m not even going to get into the financial benefits the Japanese transplants reap by having a home market, which is the 2nd largest auto market in the world, virtually closed to non-Japanese automakers by government regulation, not to mention the national health care.
    Behind the curve on products? In terms of cars, that has been true in the past, but again GM was in the midst of creating the systemic changes that would change that. Their global product development has already created global platforms that will be efficient and high-quality. The first product, out of the European design center, is the 2009 Chevy Malibu, which has the best fuel economy and highest initial quality in the midsize segment. The upcoming small car, the Chevy Cruze, which will be built in Ohio, will be on the next global platform out of the Asia design center and promises to be as good as the Malibu, And North America will design the trucks that will be sold around the world, most of which are already the most fuel-effecient in their class. So going forward, GM has a system — not a single model — in place to solve their car product problems
    And stock price represents one way of valuing a company but is not the final word on a company’s worth. It’s kind of like a good used car — Blue Book may say it’s worth only $5K but if it would cost you $10K to replace it, then that car is worth more to you than $5K. Because the domestic car companies have claimed victory too soon and too often in the past, their stock price is going to follow success, not predict it.
    IF they don’t become collateral damage of this liquidity crisis, there is good reason to to think the car companies will be solid. And certainly good reason, for the sake of the whole economy, to make a bet the size they are asking for.

  40. The one very small bright spot in this disaster- I noticed that Republican “moderates” Collins, Snowe, Specter and Voinovich all voted for cloture. Harry Reid has been letting them get away with posturing as moderates who are open to some progressive measures, but then voting the hard-core Republican line on procedural votes (including cloture). Since most voters don’t understand the procedural votes, and Reid doesn’t “out” them, they get away with this.
    When Obama appointed Rahm Emmanuel, I was very hopeful that this meant that this would no longer be allowed: that “moderate” Republicans who vote against cloture would be outed to their constituents as the senator who made sure that you don’t get health care. This vote makes that seem more plausible.
    On the Democratic side, we lost Baucus (surprise!) but kept Landrieu. This is very helpful- it suggests that the Republicans will not be able to fillibuster health care despite Democrats not getting to 60.

  41. Whyaskwhy, current retiree benefits do seem to be a topic that comes up often. Do you know if the UAW even has the power to renegotiate terms on current retirees, or are those benefits contractually guaranteed and only subject to change in the event of bankruptcy?

  42. The big 3 lose roughly 2k on every car they sell, they have significantly higher labor costs than foreign auto makers, and they are behind the curve on new product lines… I won’t even mention the private jets.
    Could you break this down? It is one thing to say that, at current production levels, GM’s loss divided by vehicles produced is $2000. It is vastly different to say that each additional vehicle they sell adds $2000 to their loss. Which is it?

  43. Sign of the times:
    Republicans scapegoat UAW workers; yes, it’s the working man’s fault.
    Meanwhile, AIG continues to fnck taxpayers.

  44. LFC, I don’t disagree that GM and Chrysler and Ford (despite the semi-rosy glow generated by what is, in the long run, a huge amount of debt) have serious obstacles to overcome regardless of the liquidity crisis. And any one of those obstacles could emerge as killers. Chrysler, in particular, is really in danger. Poor Chrysler. Between Daimler and Cerberus, it’s been like poor Black Beauty moving down the food chain of uncaring owners.
    Your larger point is right — in a healthy economy, losing one of them in a relatively controlled way would be tolerable and maybe even helpful. But to have everything come crashing down at once would be a disaster. The one silver lining to this crisis is that necessary changes will come even faster than they were and that might be ultimately strengthening.

  45. A little perspective.
    The bailout that didn’t pass was for $14b. The second article says $10b will be consumed instantly to pay suppliers. ALL automakers are losing money in the current quarter because no one is buying cars. Therefore, it is clear that the $14b is only enough to keep them alive until a second bailout arrives in January. This is not the bailout – it is the bridge.
    If the union won’t make concessions now to cross the bridge why expect them to make concessions later?

  46. Chrysler, in particular, is really in danger. Poor Chrysler.
    I think Chrysler became a niche car company that depends too much upon fad products like the PT Cruiser. (That’s not a car that will sell well for a decade plus with annual tweaks like the Toyota Camry or Honda Accord.)
    For a limited car company that knows how to get a foothold in its niche, look at Subaru. They tried to break out of small 4WD vehicles and they couldn’t compete against the likes of Toyota, Honda, and Nissan. They fell back to a more limited line that is practical, and they’ve seem to have done pretty well.
    Looking at GM, they seemed to be on the right track with Saturn, but they seemd to have ended up losing their quality when they folded it back into the main company.

  47. “Independent Wall Street analysts rated GM’s plan, which included repayment, as credible.”
    link please. i’d like to see who these analysts are. my guess is these are the same industry hacks that have been appearing on CNBC saying things like “one in 10 jobs in the US will be affected” by a big 3 bankruptcy.
    plus, when the CEOs first appeared before congress, they had no plan whatsoever. that doesn’t exactly instill taxpayer confidence in management.
    “in the midst of creating the systemic changes that would change that.”
    Why on earth weren’t they making these changes sooner? And why should we expect them to follow through. Sure, the purported “car czar” would have the ability, if benchmarks are not met, to withdraw funding and trigger a bankruptcy, but if you think anyone would actually be the guy responsible for a big 3 bankruptcy, I have a CDO to sell you.
    also, as i said above, the other carmakers aren’t standing still. if the past is any (and it probably is), the germans and japanese will innovate more quickly and more cheaply than the us automakers. again, then what? more money? nationalization?
    “Malibu… Cruze”
    So out of 8 brands and scores of product lines, GM has two cars that are ok. can these two cars generate sufficient revenue to pay back a $25B (or more) loan in 5 years?
    “And stock price represents one way of valuing a company but is not the final word on a company’s worth.”
    How about sale price? Cerberus bought Chrysler for a fraction of what daimler paid less than 10 years earlier.

  48. “They have useful manufacturing jobs. They make cars.”
    No. You are completely wrong. You are seduced by the fallacy of ‘something’ coming out at the end of the pipe without bothering to analyze what that something is.
    They make cars that people don’t buy and which then have to be sold at a loss. That in fact is NOT a useful manufacturing job. If the ONLY input were their labor it might be mildly defensible to just let it go. But it isn’t. There is steel that goes into the cars. That steel could be used for bridges and is driving up the price for your transportation projects. There is plastic which could be used for all sorts of things which is driving up the price for everything else you want to do. There is the price of electricity to run the machines that is driving up the price of electricity. There is the pollution that is being made at the plant which is going to have to be dealt with. There are scarce resources all over the economy that are being sucked into the failing car industry instead of being employed somewhere useful. It would quite literally be better for us to pay them their salaries to stay home because at least they wouldn’t be wasting all the other precious resources. And it would be FAR better for us to pay their salaries AND try to find them a useful job.
    I’m not trying to screw over these workers. I want them to work at productive things. I’m not willing to just throw them out of work at GM and let them starve. Pay them. Pay them well. But do not pay them to keep GM alive.

    Along those lines: Our dealer trade guy was downsized in August. (With sales being down, less volume means less trading from one dealer to another for cars; so the Chevy manager got another duty added to his job description.)
    Everyone knew he would not make it as a salesman, but since he’s been here for 15 years, out of a sense of loyalty, the owner gave him a chance. Now — after failed attempts to land a job elsewhere — he is our parts-truck driver, which is one step above a part-time job.

    This is awful for reasons exactly the opposite of what I think you are trying to say. He has been employed in a business which was clearly going under 15-20 years ago. Instead of starting 15-20 years ago in a job that would have been productive for the economy, he has been spending his time with the patient on recurring life support. Instead of gaining skills that would let him work in a productive sector, he has been gaining experience in an unproductive one. And now, when what everyone knew was a failing company for essentially my entire lifetime finally is really going down, he can’t find another job which he could have found 5 or 10 or 15 years ago because he has so much wasted labor investment in this one.
    Think of it like a housing bubble in industry. We all knew this was coming. It has been predicted for decades.
    russel– “All of these folks are going to end up retired early, on the dole, or embarking on new careers as baristas and Wal-Mart greeters.
    You know, real value-added jobs, jobs you can send your kids to college on.”
    All these people are going to end up retired early, on the dole (what do you think it is when we are propping up GM) or whatever anyway. The question is do we lose ADDITIONAL money having them make money-losing cars on the way.
    The Democratic Party bailout solution does nothing to avoid any of that. It doesn’t lead to a healthy GM/Chrysler/Ford car industry in the end. It specifically mandates that we avoid the layoffs that are going to be necessary for the companies to ever be profitable. They make more cars than people want to buy from them. That means they HAVE TO SHRINK. We are going to be paying for these people’s salaries anyway. Why pay for their salaries AND waste resoures on the cars. Just pay for their salaries for 2 years and help them find new jobs. Jobs which are not wasting resources in the economy.
    The Republicans are being idiots for blocking the bailout without doing the right thing, which as hilzoy indicates is “They did not, for instance, seem to consider extending the kind of financing that would allow GM and Chrysler to go through Chapter 11 bankruptcy rather than liquidation. That financing would have involved loans, not gifts. It would have allowed an orderly reorganization.”
    But THAT is the right thing to do. The Democrats should have proposed that and additionally a very generous unemployment benefit and funded job relocation/job search program for those who are laid off so that their unemployment doesn’t cause additional economic problems.
    THIS bailout just extends the car companies failures another year or two (and once we do it I think it is a fantasy that Democrats will let them fail 2 years from now. We are going to hear all the exact same arguments PLUS the stupid sunk cost fallacy of “we already spent 50 billion dollars (don’t think that we are really stopping at 14, that is a fantasy too) so we have to keep throwing money in it”). The bailout is already big at 14 billion enough to pay all the directly impacted workers their entire salary for a year and a half. Do that and wind up GM in a government funded Chapter 11.
    Propping GM up is just supporting the bubble.

  50. “But to have everything come crashing down at once would be a disaster.”
    Argh. We don’t have to do that. Chapter 11 makes an orderly winding down. And IF it is true that they have viable business sections, those will all survive and continue operating after a Chapter 11.
    The only problem with that is that allegedly (it hasn’t been tested because politicians and GM are so against it) the normal Chapter 11 short-term operating loans may not be availabe because of the credit crunch.
    Now THAT is something the government can fix. The government could provide that short term financing to allow things to unwind in an orderly fashion. It would be at least a full order of magnitude cheaper and it would let the good parts of GM survive while the bad parts would fail. We could do that PLUS pay all of the workers who got laid off of the bad parts more than a year’s salary and it would still be cheaper than the bailout.
    The irritating thing to me is that doing the right thing is ALSO cheaper than doing this thing. But because of an emotional “GM must live” response we get to do worse AND pay more.
    The great thing is that for all of the people who are justifying it with “GM has some great things”, the more great things GM actually has, the cheaper Chapter 11 gets–because those great things survive and don’t have to be paid for.

  51. If the union won’t make concessions now to cross the bridge why expect them to make concessions later?
    I don’t see anyone claiming that the union wasn’t willing to make concessions. They were not willing to concede *everything*- but there is a big difference between being willing to concede something, and being willing to concede everything…
    Me, I dont think that the GOP was negotiating in good faith- like the old Department of Homeland Security debate back in ’03, they wanted negotiations to fail bc they think they have a win-win scenario:
    1)everything is Ok, and they tell the taxpayers how they saved money that the Dems wanted to waste propping up failed companies
    2)everything crashes, and they tell the taxpayers that the Dems control Congress and the WH and that the depression is the Dems’ fault.

  52. I notice, Sebastian, that — perhaps being distracted by being busy for blaming btfb’s co-worker for not choosing a better job 20 years ago — you failed to answer repeated questions about just where these hundreds of thousands of manufacturing jobs are into which you want to move people. Can you maybe tackle that for us?

  53. General Motors had offered buyouts to all of its 74,000 U.S. hourly employees. [5] Those workers could have elected to take a lump-sum payment of $45,000 or $62,500, depending on their job description, and retire with full benefits. [6]
    Republican Sen. George V. Voinovich of Ohio, a strong bailout supporter, said the UAW was willing to make the cuts – but not until 2011.
    http://nomedals.blogspot.com
    is were citations are posted

  54. The President just indicated that Treasury may intervene and bailout the big three with a chunk of the $700 billion bank slush fund, so the Senate’s resistance to the bailout may be academic at this point.
    Barney Frank summarized the auto bailout in one word today though: welfare.
    I am against the bailout, I do believe we are subsidizing failure (although like Hilzoy I agree that I own a share of Congress that I wish I could shed as well!). If the government does intervene, I would only want it to do so in a manner that gives these corporations a fighting chance to be competitive, profitable entities in the future, and so far I haven’t seen any proposals to indicate that will happen any time soon.
    So that’s all this money is, then, Welfare that is being passed through decaying, failed enterprises, and eventually making it to American workers’ pockets; why not just cut out the middleman?

  55. Carleton
    You: “They were not willing to concede *everything*- but there is a big difference between being willing to concede something, and being willing to concede everything…”
    The article: “The sticking point, apparently, was that Senate Republicans insisted that the workers’ pay reach parity with foreign competitors in 2009, while Democrats, the UAW, and the car companies wanted the process of bringing wages down to be completed by 2011.”
    All parties seem to agree that parity in wages is necessary for long term viability. Why wait?

  56. Here’s something I’d like to see: a list of all the people who are now saying that auto worker retirees must give back some of the benefits they received over the years, and who also say that we have to honor the golden parachutes of the financial executives, since they are contractually obligated payments, and we can’t just void signed contracts.
    I hope the GOP wasn’t counting on Ohio being a swing state in the future.

  57. But THAT is the right thing to do.
    I’m actually more or less in agreement with you on this. I don’t think the market is there for the auto industry as it currently exists, and to the degree that I’m able to get my feeble mind to follow along in economic matters, it seems like a managed restructuring would be a good idea.
    The industry as a whole would continue on a basis that could sustain itself, the cost and risk would be spread across creditors and investors as well as labor, etc.
    The only thing you’ve said here that I take exception to is “find another manufacturing job for them to work in”. Those jobs are gone, and have been for a while.
    My analysis is the same as fledermaus’. The US economy is based on borrowing money to sell each other crappy stuff that was made somewhere else.
    One of the biggest exports heading to China from west coast ports is scrap cardboard, which they use to box up stuff to send back to us.
    If US auto manufacturing goes away as a source of decent middle class manufacturing jobs, those folks will not be able to find other, similiar jobs to go to. They don’t exist.
    If the union won’t make concessions now to cross the bridge why expect them to make concessions later?
    They’ve made concessions. How many more should they make?
    Thanks –

  58. Republican politicians don’t have any trouble propping up dying industries that give money to them. The timber industry has been dying for years at great expense to the taxpayers. Ditto cattle industry. Ditto sugar.
    The philosophical belief motivating the Republicans in Congress seems to be more hatred of unions or maybe a desire to screw blue states that didn’t fall for Palin’s “common touch” the way the Rovites thought they should.
    Which leads me to wonder: why is it exactly that Republicans hate unions so much? It just seems to be an anathema with them that anyone out here in the real world would be making a comfortanble wage outside the employer class or the advanced degree holder class.
    I remmeber years ago when Ronnie the Actor was acting as President one of his Cabinet officers, someone with a name like Schultz, criticized supply side economics onthe grounds that the impoverishment of the American worker was bad economics and politics in the long run because without disposable income those folks would not be able to do a lot of discretionary spending which means they would not be buying the stuff which the companies owned by rich Republicans were producing.
    And I could see that right here in Tacoma Washington where the Longshoremen and Teamsters, notorious for drugs and a party lifestyle, kept the rest of the businesses in the city humming: new cars, new motor boats, latest in entertainment technology, houses,,,spending money that kept other people employed and kept other businesses going.
    Did they “deserve” their high wages? Pronbbly notin terms of the degree of difficulty but corporate CEO’s don’t deserve theirs and I don’t see any Republicans bitching about it.
    I think that it is a class thing. Republican p[oliticians and many Republican vogters just can’t stand the idea that a person with little education who works mostly at a skill taught on the job can make enough money to own a house on Brown’s Point.

  59. All parties seem to agree that parity in wages is necessary for long term viability. Why wait?
    Why start with the unionized factory workers? Right now, if you do the accounting honestly, UAW workers cost the companies about $55 an hour. Toyota and Honda have labor costs are about $49 an hour. The math says that the unionized workers make about a 10% premium on what the non-unionized workers make.
    Last year, the head of Toyota received about $1 million in total compensation. Rick Wagoner received about $14 million. That’s about a 1300% premium on the competition. Do you really want me to believe that its the factory workers that are causing GM to be on the brink of bankruptcy? That the Republicans are going to the mat over blue collar wages with nary a peep about executive compensation shows where their loyalties lie.

  60. They did not, for instance, seem to consider extending the kind of financing that would allow GM and Chrysler to go through Chapter 11 bankruptcy rather than liquidation.
    First question: Huh? Who or what are the source(s) for your claim that, without the federal bailout, GM and Chrysler will go through a Chap. 7 liquidation rather than a Chap. 11 reorganization (either of which, by the bye, would be worse than the UAW’s constituencies than the Senate Republicans’ proposal)?
    Second question: Will you put your stomach where your mouth is?
    Here’s the bet: If there is no financial deal, and if GM files for a Chapt 7 liquidation, I’ll buy you dinner at a nice restaurant of your choosing in Indianapolis, Indiana, whenever you happen to be in town or the area. Alternatively, if GM files for a Chapt 11 reorganization, you’ll buy me dinner at some nice place of my choosing in Baltimore next time I’m in the area. (Heck, if we’re in Baltimore, maybe CharleyCarp can come too.) Any other result is a push.
    Whaddaya say, Hilzoy?

  61. Here’s another question. Would the US auto industry be viable if its major competitors actually participated in free trade? What if we had national health service, Japan and China dropped tariff barriers, and they stopped intervening in the forex markets to keep their currencies artificially low? How would all of that change the situation.
    The answer to that question is what I think should determine the desireability of a bailout.

  62. Caveman: Why do you find it hard to believe that one in 10 would be affect by a Big Three bankruptcy?
    Also, to the anti-rescue crowd, have you read hilzoy’s links?
    Doing this on memory — since I read them at 3 a.m. when I could not sleep — Ford’s CEO mentioned how his supply chain would dry up instantly if GM went out of business.
    I’ve made this point before, but Sebastian has never addressed it: If our Chevy brand goes, our Hyundai store would not be able to survive on a prominent corner lot without such an anchoring flagship.
    An American carmaker goes under and the effects are felt as far away as Korea. What about the new and monstrous GM dealerships that have just opened in Russia?

  63. Here’s the bet: If there is no financial deal, and if GM files for a Chapt 7 liquidation, I’ll buy you dinner at a nice restaurant of your choosing in Indianapolis, Indiana, whenever you happen to be in town or the area. Alternatively, if GM files for a Chapt 11 reorganization, you’ll buy me dinner at some nice place of my choosing in Baltimore next time I’m in the area. (Heck, if we’re in Baltimore, maybe CharleyCarp can come too.) Any other result is a push.
    The question isn’t whether or not they start in Chapter 11. The question is whether the end result of Chapter 11 is a Chapter 7 filing. I would be shocked if GM goes directly to Chapter 7. I would be surprised if it ever emerges from bankruptcy without a government bailout.

  64. @caveman: Recent reports have confirmed that bank lending is again robust.

    Cite please. There were a lot of “reports” in 2007 confirming the strong fundamentals of the US economy. Also I’d like a testable definition of “robust” if possible, in case I need to chart “robustness” between 2004 and 2008.
    Hey, here’s a thought. TARP was sold as a way to improve lender liquidity, so that lenders wouldn’t drag down the real economy by refusing to lend money to folks like the big three, right?
    We can at least find out whether Hank Paulson agrees with you by watching to see whether he asks for that other $350b. If he passes on the $350b I’ll concede that lending is “robust” again. If he asks for it you either concede that lending is still weak or that TARP was sold using false pretenses. Whaddaya think?

  65. “I notice, Sebastian, that — perhaps being distracted by being busy for blaming btfb’s co-worker for not choosing a better job 20 years ago”
    See the thing is, by framing it like this you miss the point entirely. I’m not blaming his co-worker at all. The incentives set up around him made it very attractive for him personally to stick with that failing job. Be that as it may, if the incentives had been better [we hadn’t been politically propping up the Detroit 3 for 30 years] the incentives would have almost certainly been such that he would have A) been working in a more productive job and B) wouldn’t have spent years gaining non-tranferable job skills in an unproductive one. The story is an excellent illustration of why it is bad to spend 30 years seriously deforming a market like we have in the auto industry. Because in the end, people will make rational choices based on the way we deformed the market, and it will turn out to be an enormous, painful, and unnecessary waste for them.
    “you failed to answer repeated questions about just where these hundreds of thousands of manufacturing jobs are into which you want to move people.”
    They are all over the place in businesses that are making money (which indeed are even still all over the place). And some of them probably won’t be manufacturing jobs. Some of them will be in other areas working for profitable businesses. Some of them will work for Toyota. Some of them will work for Honda. Some of them will work making tools. Some of them will probably end up in almost every area of the economy imagineable.
    The main objection I predict you will make to this don’t make sense in the context of this bailout.
    They won’t make as much money
    answer: they already don’t if we are bailing their companies out, their companies weren’t admitting it. So they are either going to make less money where they are, or they will make that less money somewhere else, or their companies go under. And paying them the difference for 2 or 3 years while they find productive work would be cheaper than the bailout as it is currently stated, much less the real cost of the bailout once we get to Q1 2009 and Q2 2009 and Q3 2009.

  66. //Why start with the unionized factory workers?//
    The point is everyone has to suck it up. Now.
    Keep in mind the context is that the industry (companies and workers) is coming to the rest of us and asking us to suck it up and bail them out. They want us to bail them out now and again in January and in exchange they’ll suck it up in 2011. Nice. And aren’t those republican senators heartless?

  69. Sebastian, please be specific. Hand waving and saying that there are jobs they could move to doesn’t cut it. What are those jobs? Why do you think that Toyota and Honda would be hiring these people, given that you also think that there is overcapacity in the auto industry? Doesn’t the latter contradict the former?

  70. The point is everyone has to suck it up. Now.
    If this is the case, why didn’t the Republicans balk because everyone was making more than their Toyota counterparts? Why did they exclusively target the factory workers?

  72. Ch. 11 with government DIP loans is really the only shot they have at ever returning to profitability. Congress handing them money and mandating that they use it to make their least profitable vehicles at over-capacity is laughable. Give em $14B and they’ll be back in 4 months asking for $30B, and then 4 months after that…
    All without the factory closings, dealership closings, management restructing and layoffs that are sadly needed. Congress is too stupid and capricious to know how to manage the turnaround. Bankruptcy courts on the other hand are specialists at doing this.

  73. “The point is everyone has to suck it up.”
    Does this include the AIG employees who are getting end-of-the-year bonuses after all? What is their hourly wage?

  74. “Why do you think that Toyota and Honda would be hiring these people, given that you also think that there is overcapacity in the auto industry?”
    I don’t think you understand what ‘overcapacity in the auto industry’ means if you think this is an objection.
    It is also the same answer to the “my Honda dealer couldn’t survive if it weren’t next to the Ford dealer”.
    There is significant overcapacity in the auto industry. But it isn’t 100% overcapacity in GM. It is probably more like 50%. So if GM fails, those jobs which are not industry overcapacity will almost certainly go to every single other non-failing auto maker. Or if you go through Chapter 11 like a normal company those people may end up working for whatever company is the successor to GM. That is why the worst case scenarios being drawn by GM are total crap.
    As for the rest, you are engaging in central planning mania of the worst kind. These workers will almost certainly NOT go all to one place. There are tens of thousands of profitable companies right now. There are additional thousands of companies which will be profitable in the next year or two. (None of them are GM or Ford).
    Each one of these can and will hire people. Each hire will tranform these workers from a net drain on the economy that they have been at a loser company like GM into a net gain for the economy by working for and furthering projects which allocate resources more efficiently than GM. Profitable companies have been drained in talent, drained in competition for resources, and now further drained in additional tax money by loser companies like GM who happen to have political power.
    You talk about how horrible it will be for our economy if GM goes under becuase it employs so many people. That is exactly backwards. The horrible thing is that an awful company like GM has been sucking up resources and talented people from good but smaller businesses for decades. You should be sad for every one of the tens of thousands of employees who considered a job at a good business but ended up at GM instead. It is a disaster on the economy that we have propped up the Detroit 3 for so long already.

  75. The question isn’t whether or not they start in Chapter 11. The question is whether the end result of Chapter 11 is a Chapter 7 filing. I would be shocked if GM goes directly to Chapter 7. I would be surprised if it ever emerges from bankruptcy without a government bailout.
    Huh? Parts of GM are highly profitable. (E.g., its Thai operations, GM South America is up 15%, and it has been clear for a while that GM could improve profitability by divesting itself of several of its brands (GM has too many brands).
    We may see a very different company – or may not – but I don’t think even your scenario is plausible for the vast majority of the GM family companies.

  77. wonkie asked… Which leads me to wonder: why is it exactly that Republicans hate unions so much?
    Because their biggest campaign donors pay them to hate unions.
    The GOP stands for power concentrated in the hands of a few. Think union busting. Think about wanting a tax structure that rewards wealth and penalizes work. Think the entire Bush administration. Power is to be concentrated to a few, and only those few that also support the GOP.
    The power of the mob can be used (think Palin’s rabble rousing or the way they’ve used right-wing religious groups) for specific ends, but real power can’t be allowed to actually devolve to the people.
    Come to think of it, the GOP sounds awfully elitist.

  78. See the thing is, by framing it like this you miss the point entirely. I’m not blaming his co-worker at all. The incentives set up around him made it very attractive for him personally to stick with that failing job.
    Is there a reading of the phrase “Instead of starting 15-20 years ago in a job that would have been productive for the economy . . ” which means something other than, “He should have picked a different job 15-20 years ago?”
    “you failed to answer repeated questions about just where these hundreds of thousands of manufacturing jobs are into which you want to move people.”
    They are all over the place in businesses that are making money (which indeed are even still all over the place).
    Surely, then, rather then hemming, hawing and handwaving, you can name, say, five of them?

  79. You talk about how horrible it will be for our economy if GM goes under becuase it employs so many people. That is exactly backwards. The horrible thing is that an awful company like GM has been sucking up resources and talented people from good but smaller businesses for decades.
    if only people could see 15 years into the future so they could know that their industry is going to hit hard times in a decade. then they’d be able to get themselves into a new career before the trouble started!
    for example, i should’ve known that C++ programmers would stop being in high demand sometime in the late 08’s and should’ve learned C# in college. instead, i’ve been out there sucking up resources this whole time. what a dick i must be.

  80. As for the rest, you are engaging in central planning mania of the worst kind. These workers will almost certainly NOT go all to one place. There are tens of thousands of profitable companies right now. There are additional thousands of companies which will be profitable in the next year or two. (None of them are GM or Ford).
    Name them. Again, this is handwaving. Consumer spending dropped 10% year-over-year in November. Where do you think that the new profitable jobs are going to be? Why do you think that any undercapacity resulting from the demise of the Big Three would involve hiring American workers?
    You are missing the point of a lot of the arguments. Your position is true, under normal circumstances. We would be better off letting bankruptcy have its way with GM.
    These aren’t normal circumstances. Letting GM go bust right now would be catastrophic. There is no “somewhere else” for these workers to go find jobs. You are engaging in neo-Hooverism. It’s not the same manifestation of it that finding fiscal discipline right now is, but the effects are the same. Right now, the negative consequences would be enormous.
    Part of the difference between us is that I’m more liberal. Another part is that my training is in finance, and you are arguing economics. Right now, the former is a better paradigm. Economics, as a discipline, is all about equilibria. Everything will find its market clearing price. If there’s slack capacity, something will move in and use it. Under normal conditions, this works.
    Again, though, these aren’t normal conditions. Finance is based on risk, rather than equilibria. Things not only can overshoot what the economists say they should. They will do so, and, as we say, the market can remain irrational longer than you can remain solvent.
    Push GM into bankruptcy, and you cause two different problems that will lead to overshoot. The first is that, as has been pointed out, they are going to take a bunch of suppliers with them. The other car companies also rely on these suppliers. Bankruptcy is going to cause problems for the entire American car industry, not just whatever companies go bankrupt. This is an additional problem with your idea that Toyota and Honda will pick up any resultant slack by hiring here. If their supply chain is disrupted, they will do no such thing.
    The second problem is that we are in a position where there is a positive feedback loop on negative economic developments. If you throw all these people out of work, you are going to kill consumer spending even more than it already has. There’s a multiplier effect, since, as this happens, people start to save more, which means that spending falls even farther. Absent some other company that is going to do a lot of hiring, it’s difficult to escape this effect.
    Now is a bad time for orthodox economic arguments, even ones that I would usually agree with.

  81. Bankruptcy courts on the other hand are specialists at doing this.

    Not to scare the horses or anything, but even a well-managed chapter 11 scenario would be pretty dicey. The point of a chapter 11 is to decide who needs to get screwed in order to preserve the going concern. In this case both the supply and the distribution chains would have to absorb significant disruptions.
    So is there enough slack in the system for GM to survive that? Once the chapter 11 starts most of the supply/distribution chains will grind to a halt and the first thing we’ll see is a lot of smaller liquidations. How many and how bad and how long to stabilize? Its not possible to know. But it wouldn’t be the first time a court approved a chapter 11 plan only to discover that it broke the company’s supply (or distribution) chain in the process.

  82. Huh? Parts of GM are highly profitable. (E.g., its Thai operations, GM South America is up 15%, and it has been clear for a while that GM could improve profitability by divesting itself of several of its brands (GM has too many brands).
    We may see a very different company – or may not – but I don’t think even your scenario is plausible for the vast majority of the GM family companies.
    So what? The individual pieces of GM wouldn’t be going into bankruptcy. The whole company would. That there are individual components that are profitable would not prevent Chapter 7. The question is whether or not assets are greater than liabilities for the whole, or whether or not changes can be made that would result in assets being greater than liabilities.
    In Chapter 7, those individual components would just be sold off to satisfy creditors. They will be owned by someone else. Now, notice that all of the segments you listed are foreign operations. If those segments are bought by someone else, and keep running, it wouldn’t help the American auto industry at all. Their profitability makes no difference to that question.

  83. So, what we’ve got here is —
    1) Republicans killing this because everyone BUT them wanted a wage change over three years, not one. Bluntly, that’s a BS excuse by the GOP. That wouldn’t kill ANY bill, much less one at a time like this. Heck, any competent economist would note that if you’re going to do this three years would be BETTER, since you don’t want to cut so many wages in a recession.
    2) Plenty of people seem to think that there’s hundreds of thousands of “jobs” just sitting there, waiting for those idiots at the Big Three to quit and take them up. I can just imagine all the empty factories, sitting there in Detroit, just waiting to be filled with workers so they can make…something undefined…for people to buy with the money they don’t have.
    3) A surprising number of people apparently really WOULD like to see a Depression in their lifetimes, given their eagerness with which to apply negative economic stimulus in an already faltering economy.

  84. It’s 4k per car. I stand corrected.
    GM profit/loss in 2007: -$38,730,000,000 (-$4,055 per car)
    UC,
    This does not answer my question. To do this sort of calculation and claim that GM loses $4K per car is just silly.

  85. Heck, any competent economist would note that if you’re going to do this three years would be BETTER, since you don’t want to cut so many wages in a recession.
    GOP on Taxes: ANY tax hike during a recession is a disaster because it reduces the amount of money available to be spent and/or invested.
    GOP on Wages: Slash them instantly during a recession, reducing the amount of money available to be spent and/or invested.
    This certainly explains why their fiscal standard-bearers are the likes of Phil Gramm, Donald Luskin, Kevin Hassett, Larry Kudlow, etc. We dodged a huge bullet by electing Obama over McCain. No matter how bad it gets, remember that it could have been worse … MUCH worse.

  86. This does not answer my question. To do this sort of calculation and claim that GM loses $4K per car is just silly.
    What, you expect people to understand the concept of a marginal cost?


  88. It’s 4k per car. I stand corrected.
    GM profit/loss in 2007: -$38,730,000,000 (-$4,055 per car)

    You do realize math can’t be used that way, don’t you?

  89. “if only people could see 15 years into the future so they could know that their industry is going to hit hard times in a decade. then they’d be able to get themselves into a new career before the trouble started!”
    Argh. The trouble was obvious 30 years ago. And 20 years ago. And 10 years ago. And 5 years ago. And last year. And earlier this year.
    I’m not blaming the person. He made perfectly good choices based on the circumstances. My point is that for 30 years we have deformed the whole process surrounding the stupid Detroit car companies so that good choices for individuals end up being atrocious for the economy as a whole.
    “Name them. Again, this is handwaving.”
    Titanium Metals (materials), McDermott International (construction), Metal Management, Tesoro, Terra Industries, General Cable, Hub Group (transportation), Precision Castparts, Frontier Oil, Monsanto, Joy Global, Carpenter Technologies, Scnizter Steel, Terrex, Holly, Cummins, Freeport Copper, Manitowoc, National Oilwell Varco, Flowwever, XTO, Rush Enterprises, Mosaic, Transocean, Nucor, Greif, Harris, Alliance Steel, Paccar, BorgWarner, FMC, Valmont Industries, Gardner Denver, Energizer Holdings, Deere & Co, Burlington Santa Fe, CH Robinson, Toro, Rockwell Automation, Barnes Group, UTI Worldwide.
    All of these are large companies. All of them have profitable business models. Almost all of them have been expanding in the last year and all of them are likely to be doing well 1 year, 2 years and 3 years from now. Most of them make captial goods which means that at least some of the autoworkers skills should be transferable, especially if the government helped with channelling training.
    Some of them have had minor problems in the recent downturn, but they have much brighter futures than even the most healthy of the Detroit 3 as they currently stand.
    And when the Forbes Platinum 400 comes out in two weeks, look at it and pick out the large capital goods companies.
    Successful companies with good jobs exist. Encouraging GM workers to stick it out with GM instead of finding a match in these and hundreds of other good companies is just bad for the economy and ultimately bad for the worker.

  90. The trouble was obvious 30 years ago. … I’m not blaming the person. He made perfectly good choices based on the circumstances.
    those three sentences do not mesh.
    if the problem was obvious 30 years ago, then nobody who’s taken a job with a car maker in the past 30 years could have possibly made a “good choice”, by your argument.
    which American industries are going to go under in the next 15 or 20 years, and which aren’t ?

  91. You talk about how horrible it will be for our economy if GM goes under becuase it employs so many people. That is exactly backwards. The horrible thing is that an awful company like GM has been sucking up resources and talented people from good but smaller businesses for decades.
    Wall Street firms have been “sucking up resources and talented people” for decades, too. It seems The Market is not very good at allocating resources, on the scale of “decades”.
    I don’t give a damn about GM, Ford, or Chrysler as corporations. They got as big as they are because The Market, in its wisdom, made them the winners over outfits like American Motors, Packard, etc. Bigness is goodness, said The Market.
    So vast amounts of capital, both physical and human, got configured by The Market into a system that can produce cars and not much else. Disassembling that structure is just as possible as disassembling a house: lots of lumber and copper and tile there that can be put to other uses. It’s a disruptive thing to do, short term, but maybe the best thing to do in the long run. Left alone, The Market will surely do it right this time, eh?
    –TP

  92. GM profit/loss in 2007: -$38,730,000,000 (-$4,055 per car)

    Ahem:

    For all of 2007, GM lost $38.7 billion, the biggest loss ever for an automaker. The loss, equal to $68.45 a share, is about the same amount as a noncash charge of $38.3 billion that the company took in the third quarter to write down deferred tax assets, meaning that GM almost broke even otherwise after losing $2 billion in 2006. Excluding special items, the company lost $23 million, or 4 cents a share.
    …
    Automotive revenue was $46.7 billion in [Q4 of 2007], up $3 billion from a year ago.

    Also they sold off a bunch of GMAC. I’m no accountant but that sounds to me like an uncooking of a previously cooked balance sheet predicated on an improvement in cash flow. Accountants please comment.
    This isn’t in any way a defense of the GM business model. Just pointing out that Caveman’s “this has nothing to do with the credit crisis” is pretty easy to debunk.

  94. Republicans killing this because everyone BUT them wanted a wage change over three years, not one. Bluntly, that’s a BS excuse by the GOP.

    Of course it’s an excuse. If the UAW had conceded in this particular pension issue, there would’ve been another ‘deal killer’ ready to do. Shelby et. al. didn’t want a deal. They just wanted someone else (the unions) to take the blame for the political failure. Heads I win, tails you lose.

    Successful companies with good jobs exist.

    How many, Sebastian?

  95. von: if (a) there is no bailout, whether from Congress or from the government, and (b) the government does not provide debtor-in-possession financing, or some similar sort of deal (e.g., I’ve read reports that the Obama team is looking at a sort of streamlined Chapter 11; that’s what I mean by ‘similar’ — something designed to aid them into/through Chapter 11), then I predict that (c) they will be in Chapter 7 by — well, I don’t know; what I want to say is ‘reasonably quickly’, but I have no idea what the time scale for these things is. By the end of 2009? At any rate, I’m not looking to bet that they will end up in Chapter 7 before the heat death of the universe, or anything.
    I am not willing to bet that GM does not file for Chapter 11, since, as noted above, they could try that and fail. My bet is: wherever GM starts, it ends in Ch. 7, and reasonably quickly, absent a bailout, prepackaged ch. 11, or government DIP financing. If you take those terms, we’re on.
    Also: my understanding is that GM does not have the power to shut down brands without paying off all those brands’ dealers, because of state franchise laws.

  96. Bernard asks, “It is one thing to say that, at current production levels, GM’s loss divided by vehicles produced is $2000. It is vastly different to say that each additional vehicle they sell adds $2000 to their loss. Which is it?”
    Part of the problem with using this number is that it isn’t a literal number, and I’m not even sure how accurate it still is. But the number –whatever the number is — is a way to keep running track of competitiveness with the transplants, but isn’t applicable to any single model. In other words, the cost for GM to build a new design in a new factory may be the same as Toyota’s except for a labor differential and the legacy costs. The opposite might be true for an old design in an old plant. But by coming up with an average, you can see where you stand overall against the competition and make business plans accordingly. And why you need to sell a Tahoe for $10,000 profit than a Cobalt with $800 profit.
    LFC — My understanding is that the retirees’ benefits are not contractually protected. That’s why their health benefits were able to be reduced in the 2007 agreement.
    J. Michael Neal — Rick Wagoner received $1.8 million last year, not $14.4 million as is usually reported (see p. 31 of the GM Restructuring Plan on its Website at http://media.gm.com/servlet/GatewayServlet?target=http://image.emerald.gm.com/newspublisher/support_file/12-02-2008/38/081202%20Congressional%20Submission%20Final.pdf.
    SEC regulations require the proxy list all possible compensation, which did total $14.4 million but that included unpaid bonuses and under-water stock options. $1.8 million isn’t peanuts, but it’s certainly low compensation by US corporate standards. And keep in mind that Japanese executives receive an enormous amount of services — drivers, memberships, personal expenses — that are not reported as compensation.
    And Sebastian — “They make cars that people don’t buy and which then have to be sold at a loss.” That’s just not true. GM made big money all through the ’90s on those big SUVs that we want to pretend no one ever liked. Well, the truth is, a lot of people really liked them, and the profits from those vehicles paid the legacy costs and funded the modernization of NA operations and the globalization of GM so that today it has the kind of global footprint an automaker needs to be viable. That all cost a lot of money, and they made it themselves with vehicles you may not like but were highly popular with many buyers. They still had problems to confront but they were making progress, even if the stock price didn’t reflect that.
    And along those lines, pray give me examples of how the US has been propping up the US automakers for 30 years? As far as I can see, we left our market wide open to any foreign carmaker while all of their markets were semi-closed. State and local governments across this country gave tax money to foreign carmakers to build new plants at the same time they told the domestics to drop dead when they asked for the same tax breaks to upgrade their existing factories to make them competitive. Congress created the kludged up CAFE laws to “improve fuel economy” without having the nerve to balance both sides of the equation by increasing the price of gas. Consequently, miles driven per capita has risen right along fuel efficiency, as people used the money saved by increased fuel economy to drive more, to live farther from work, to drive to outlet malls instead of local stores, etc.
    I can’t think of a single way the US government has propped up the US auto industry. They have made plenty of mistakes, and they will admit to that, but they have also had a unique challenge in remaking 100-year-old businesses alongside newcomers who had none of the same burdens that came with a history. It’s always easier and cheaper to build a new housing development than to revive an old neighborhood, and it’s the American way to walk away from the old and start fresh. What’s been the cost to our society, though?

  97. The point is everyone has to suck it up. Now.
    Shelby is from AL. Corker, from TN. McConnell, from KY.
    All three of those states consume more federal dollars then they pay in. Alabama is peanut farmers and Hunstville, where the DOD dollars — your tax dollars and mine — flow like wine. And I do mean flow.
    I like peanuts well enough, but I’m not sure AL is pulling its weight.
    Michigan, conversely, pays more than it gets back.
    I really don’t care to hear those guys telling the rest of us what the American taxpayer will and will not tolerate.
    Next time they come around asking for an ag subsidy to help out the beleagured peanut farmer, or cotton farmer, or rice farmer, maybe we should tell them to suck it up. We can buy all of that stuff cheaper overseas.
    Their people can all go find better jobs doing something productive, instead of sucking off of the federal teat.
    It’s a two-way street, dude.
    Thanks –

  98. The article: “The sticking point, apparently, was that Senate Republicans insisted that the workers’ pay reach parity with foreign competitors in 2009, while Democrats, the UAW, and the car companies wanted the process of bringing wages down to be completed by 2011.”
    All parties seem to agree that parity in wages is necessary for long term viability. Why wait?
    That isn’t what you said. You said that the unions weren’t willing to concede on a single point, so there was no reason to think they’d be reasonable further down the road.
    But they are, in fact, making large concessions.
    You want to switch to a new argument about the timeframe stuff- fine, but you may want to say that your original point was wrong.
    As for the new point- the early part of a recession is a bad time to cut wages, both for the workers and for the economy. It’s better for all concerned if we can put that off for a year or two I think. What’s the advantage of rushing these cuts?

  99. Cleek: “those three sentences do not mesh.
    if the problem was obvious 30 years ago, then nobody who’s taken a job with a car maker in the past 30 years could have possibly made a “good choice”, by your argument.”
    No. Depending on how the system is formed, individuals can make good individual decisions that are systemic disasters.
    “which American industries are going to go under in the next 15 or 20 years, and which aren’t ?”
    I didn’t claim to know ALL of the industries that are going to go under. I claimed that it was obvious that there was serious trouble with the Detroit 3 automakers at a huge majority of the years of my entire lifetime. Do you think that the fact that some people were talking about the housing bubble in 2002 means that they, at this very moment, ought to be able to tell you which commodities are going to be in a bubble over the next 30 years or else they are otherwise discredited? Do you deny that the Detroit trouble has been pretty obvious for at least 25 of the last 30 years? The stupid Chrysler bailout was in 1979!
    TonyP:
    “It seems The Market is not very good at allocating resources, on the scale of “decades”.”
    The market would have let at least one and probably 2 of the Detroit 3 die off in the 1977-1981 period. The reason they didn’t is “The Government” and the fact that between the unions on one side and the fat cats on the other, they are politically well connected to whomever is in power at the time.
    “How many, Sebastian?”
    I just gave you 39 and that is frankly the tip of the iceberg. Even in a downturn economy there are lots of profitable businesses. The sad thing from my point of view is that while the Detroit 3 were limping along in the good years, most of those people could have been working in either fantastic or pretty good businesses instead of those monstrosities. But they did because we have silly romantic notions about Henery Ford building the American Dream (which is to say cars) in the the city of Detroit. And the funny thing is, how many car-skeptic liberals buy into the false mythology anyway.

  100. “That’s just not true. GM made big money all through the ’90s on those big SUVs that we want to pretend no one ever liked.”
    “And along those lines, pray give me examples of how the US has been propping up the US automakers for 30 years?”
    You want to deny that the government has been propping up automakers for 30 years but you use an example which disproves your point.
    SUVs were part of the prop up. The were ridiculously exempted from the CAFE standards from 1975-2007.

  101. Titanium Metals (materials): 2500 full time employees; McDermott International (construction): 28,000 employees, many of them outside the US; Metal Management: 1,800 employees; Tesoro: 5,500 employees; Terra Industries: 871 employees; General Cable: 11,800 employees; Hub Group (transportation): 1,100 employees;Precision Castparts: 21,000 employees; Frontier Oil: 800 employees; Monsanto: 21,700 employees; Joy Global: 9,200 employees; Carpenter Technologies: 3,400 employees; Scnizter Steel: 3,600 employees; Terrex: 20,600 employees; Holly: 106 employees; Cummins: 37,000 employees; Freeport Copper: 25,000 employees, mostly outside the US; Manitowoc: 10,600 employees; National Oilwell: 26,000 employees; Flowwever: Can’t find company; XTO: 2,300 employees; Rush Enterprises: 3,000 employees; Mosaic: 7,100 employees; Transocean: 21,000 employees, including UK; Nucor: 18,000 employees; Greif: 10,000 employees, many overseas; Harris: 16,000 employees, many overseas; Alliance Steel: One small steel plant, unless you mean the one that generates most of its business from the Big Three; Paccar: 21,000 employees; BorgWarner: 17,000 jobs that are dependent on the Big three; FMC: 5,000 employees; Valmont Industries: 6,000 employees; Gardner Denver: 6,200 employees; Energizer Holdings: 16,000 employees; Deere & Co: 52,000 employees, many overseas, and dependent upon the construction business; Burlington Santa Fe: 40,000 employees; CH Robinson: 7,300 employees, many overseas; Toro: 5,200 employees; Rockwell Automation: 21,000 employees; Barnes Group: 6,200 employees, many overseas; UTI Worldwide: 21,000 employees, many overseas.
    How much growth are you expecting from these companies, many of which are in industries (steel, shipping, construction) that are cratering?

  102. J. Michael Neal — Rick Wagoner received $1.8 million last year, not $14.4 million as is usually reported (see p. 31 of the GM Restructuring Plan on its Website at http://media.gm.com/servlet/GatewayServlet?target=http://image.emerald.gm.com/newspublisher/support_file/12-02-2008/38/081202%20Congressional%20Submission%20Final.pdf.
    SEC regulations require the proxy list all possible compensation, which did total $14.4 million but that included unpaid bonuses and under-water stock options. $1.8 million isn’t peanuts, but it’s certainly low compensation by US corporate standards. And keep in mind that Japanese executives receive an enormous amount of services — drivers, memberships, personal expenses — that are not reported as compensation.
    Underwater stock options have value. I buy them regularly. Further, employee compensation is measured at the time it is given. Stock options as compensation are measured in value when they are granted. Wagoner also had his pension increased by about $4 million.
    If one wnats to talk about who, exactly, is making a lot more than their Japanese counterparts, the list does not start at the factory.

  103. //”The point is everyone has to suck it up.”
    Does this include the AIG employees who are getting end-of-the-year bonuses after all? What is their hourly wage?//
    I’m sorry. “He got candy so I get some too” doesn’t wash. He shouldn’t have gotten any either. It’s water under the bridge though.

  104. Do you think that the fact that some people were talking about the housing bubble in 2002 means that they, at this very moment, ought to be able to tell you which commodities are going to be in a bubble over the next 30 years or else they are otherwise discredited?
    two different timescales. being able to see something 6 years out is quite different from being able to see something 30 years out.
    and no, i don’t believe anyone 30 years ago saw that the entire US auto industry was in danger of being wiped out. i don’t believe anyone was seeing that 20 years ago. or 10. or five. or one. or even three months ago. because what’s happening right now is much bigger than the car industry alone.
    in other words, hindsight is pretty useless here. everybody says they saw the bubble, after it pops. but they didn’t.
    while the Detroit 3 were limping along in the good years, most of those people could have been working in either fantastic or pretty good businesses instead of those monstrosities
    well, they’re about to fulfill your dreams!
    (don’t tell them that jobs are already drying up)

  105. Total about 500,000. For just 39 companies that I was able to find in about 2 minutes.
    Which is certainly not a comprehensive list of profitable companies that people could go to. I was only asked for 5. So I’m not sure what you want from me.
    And your contention is that the Detroit 3 are composed largely of healthy divisions, so great! There won’t be so many people looking for work, after Chapter 11, because those will still be employing people.
    I don’t understand how supporters think they can have it both ways. If the Detroit 3 are mostly healthy, a government bridge througu Chapter 11 won’t cause that many people to lose their jobs anyway. If the aren’t, the whole thing is a boondoggle.
    Bailouts make sense when the company has a viable near-term future and is experiencing only some sort of temporary problem to be bridged through. That doesn’t describe the Detroit 3 at all.

  106. J. Michael Neal — Rick Wagoner received $1.8 million last year, not $14.4 million as is usually reported
    GM said:
    Salary : 1.5M
    Stock Awards: 2.5M
    Options Awards: 3.7M
    Non-equity Incentive Plan: 1.8M
    Value & NQ Deferred: 4.0M
    Other: .67M
    Total: 14M

  107. Phil
    //Surely, then, rather then hemming, hawing and handwaving, you can name, say, five of them [jobs]?//
    Here is one:
    My brother operates a business in Long Beach that repairs aircraft parts. It is very hard to find skilled machinists. He could hire two.

  108. Btw, for all those who are forming opinions based on the idea that “we don’t make anything” in the US:
    Could you please let me know 2 things, without looking them up? What percentage of world manufacturing output do you think is made in the US? What percentage do you think is made in China?
    Just in general terms.
    Or to be really broad, in your mind right now, without looking it up, which do you think is closest to being true:
    The US creates about 1/3 the manufacturing output of China.
    The US creates about 1/2 the manufacturing output of China.
    The US createsabout 3/4 the manufacturing output of China.
    The US creates about the same manufacturing output of China.
    China creates about 3/4 the manufacturing output of the US.
    China creates about 1/2 the manufacturing output of the US.
    China creates about 1/3 the manufacturing output of the US.

  109. Note that even if companies around the country are willing to hire laid of rust belt automotive workers, said workers are not always able to move. Many of them own their own houses. This is a crummy time for most people to sell their house, but selling a house near a Big-3 factory is going to particularly horrific real soon. That means that an autoworker who wants to move will find it harder to do so. Not impossible, but the psychological effect of that massive price hit on your biggest asset can be very high. Moreover, in any community, there are lots of people who can’t move, starting with retirees that own their own homes. When all the skilled labor skips town, those communities can be crushed as the tax base goes with them.
    I’m not saying that the bailout is a good or bad idea. All I’m saying is that facile claims that jobs exist somewhere in the country seem beside the point. We’re not talking about frictionless economic abstractions here but real human beings who are in many ways chained to their communities. An inability to acknowledge that reality does not speak well for ones analytic ability.

  110. SDB/JMN-
    Why can’t math be used in this way? of course it doesn’t mean that GM LITERALLY lost 4k per car, but it is a proxy for the overall health of the company. Compare to Toyota’s profit in 2007: +$17,146,000,000 (+$1,874 per car).
    As to the thawing of credit markets, just look at the ted spread on bloomberg, which indicates that interbank lending is basically back to normal.
    It’s all moot anyway fellas. FED is gonna bailout the big 3.

  111. //Next time they come around asking for an ag subsidy to help out the beleagured peanut farmer, or cotton farmer, or rice farmer, maybe we should tell them to suck it up. We can buy all of that stuff cheaper overseas.
    Their people can all go find better jobs doing something productive, instead of sucking off of the federal teat.
    It’s a two-way street, dude.//
    I agree.

  112. “He got candy so I get some too” doesn’t wash.
    AIG is paying 168 upper level employees bonuses ranging from $92,500 to $4 million.
    That’s candy.
    Negotiating the period of time over which you will give back wages.
    Not candy.
    It’s a pretty freaking weird calculus to think otherwise.
    Thanks –

  113. turbulence
    //[we’re talking about] real human beings who are in many ways chained to their communities.//
    If that’s the case we should all get behind this effort to free the slaves.

  114. As to the thawing of credit markets, just look at the ted spread on bloomberg, which indicates that interbank lending is basically back to normal.
    No, not really. Banks have little need for interbank lending in a world where the government has made infinite amounts of liquidity available to them. In such a world, why borrow at higher rates from a bank when you can borrow much less from the government? Secondly, the TED spread doesn’t tell you anything about the volume of interbank lending, only the cost. But at low volumes, the costs are basically meaningless. Finally, interbank lending doesn’t really tell you whether normal companies can secure financing easily. Most companies are not banks. They can not make use of interbank lending.
    Using the TED-spread as a proxy for the availability of credit is a bad idea.

  115. The TARP will be accessed for one reason, all the outstanding bets on Credit Default Swaps. Don’t kid yourselves, the TARP was always going to be used if Congress wouldn’t write another check. It’s pay now, or give another in a long succession of checks to AIG later after having unleashed another ‘triggering’ event in the CDS market like the Lehman bankruptcy.
    Better solution is to make all Credit Default Swaps in which the holder does not also own the underlying asset, null and void.

  116. If that’s the case we should all get behind this effort to free the slaves.
    What’s your point Dave? Are you questioning the idea that labor is not perfectly mobile? Are you questioning the notion that the US’ very high rate of homeownership produces correspondingly lower labor mobility? Are you questioning the notion that people who try to sell houses near Big-3 plants after the Big-3 go bankrupt are going to suffer massive massive losses?

  117. “Total about 500,000. For just 39 companies that I was able to find in about 2 minutes.”
    And they’ll be able to increase their labor force by 20 – 40% in the next few years? Despite the fact that some of them are at least partially dependent on the auto industry that you argue must contract? Presumably all these jobs will be created next door to the shuttered auto plants and parts manufacturers.
    Talk about growth companies!

  118. Total about 500,000. For just 39 companies that I was able to find in about 2 minutes.
    Which means they employ roughly what GM does, not including their suppliers. Again, what kind of growth rates are you expecting? Most of these companies are in industries that are, either temporarily or permanently, losing workers. That means that, if the companies you name are going to expand, it means that some other company is going to contract, and there’s no net increase in jobs. Your idea doesn’t work. Not right now.
    And your contention is that the Detroit 3 are composed largely of healthy divisions, so great! There won’t be so many people looking for work, after Chapter 11, because those will still be employing people.
    That this is my contention is your own creation. I’ve said nothing of the kind. My position, and I’ve pretty much stated it explicitly in this thread, is that contracting the Big Three is a good idea , in general, but that doing it right now is a bad idea. You refuse to address the question of timing.
    Btw, for all those who are forming opinions based on the idea that “we don’t make anything” in the US:
    This is another case of putting words into people’s mouths. No one has said anything of the kind. What numbers about production leaves out is how many people are employed in manufacturing. Yes, US manufacturing output has gone up, but employment has gone down. There is a long term problem of how national income is going to be divided up in conditions when high paying manufacturing jobs are disappearing, leaving that growing slice of wealth to be divided among fewer and fewer people.
    This is a complicated question without any easy answers. It is also a question that is easier to deal with when we aren’t also in a giant liquidity trap.

  119. As to the thawing of credit markets, just look at the ted spread on bloomberg, which indicates that interbank lending is basically back to normal.
    Not even close. The TED spread is currently at 1.91. Normal conditions are around 0.5. Prior to the last few months, the record high was a little over 2.0.

  121. But the number –whatever the number is — is a way to keep running track of competitiveness with the transplants,
    Why can’t math be used in this way? of course it doesn’t mean that GM LITERALLY lost 4k per car, but it is a proxy for the overall health of the company. Compare to Toyota’s profit in 2007: +$17,146,000,000 (+$1,874 per car).
    Because it mixes fixed and marginal costs and suggests that GM loses money every time it sells a car. It doesn’t. Much of GM’s costs are fixed – interest charges, retiree benefits, that tax business someone explained, etc. What is important is the gross margin on their cars -revenue minus the actual cost of producing the car, including materials, direct labor, etc. This money then goes to meet the other obligations.
    The fact that GM has very large fixed charges says nothing about its ability to produce and sell cars efficiently. It jsut says that the profits are being eaten up by fixed charges to a degree Toyota’s are not. Part of the solution, assuming that GM makes money on the marginal car, is to reduce fixed charges so the company can be profitable.
    Certainly you can use losses as a proxy for the health of the company, but until you look a little deeper you won’t know if there’s a cure.

  122. I’m sorry. “He got candy so I get some too” doesn’t wash. He shouldn’t have gotten any either. It’s water under the bridge though.
    It’s only “water under the bridge” if there’s no way to take the first guy’s “candy” back.
    Money is different from candy: it doesn’t turn into shit. We can take back money. We know where to find it: serious money exists only as a record somewhere. So let’s not indulge this “water under the bridge” idea too much.
    I will join Dave in opposing “candy” for Detroit if Dave will join me in support of taking back the “candy” from Wall Street.
    Otherwise, candy for everybody!
    –TP

  124. Btw, for all those who are forming opinions based on the idea that “we don’t make anything” in the US:
    This is another case of putting words into people’s mouths. No one has said anything of the kind.

    J. Michael Neal, I find it irritating to be accused of strawmanning when you clearly just aren’t reading the thread
    Fledermaus wrote: “The only thing we make these days are dollars and we spend the rest of the time selling cheap chinese crap to each other.”
    Russel wrote: “My analysis is the same as fledermaus’. The US economy is based on borrowing money to sell each other crappy stuff that was made somewhere else.
    One of the biggest exports heading to China from west coast ports is scrap cardboard, which they use to box up stuff to send back to us.”
    Both are regular and respected commenters here. And others have hinted in the foreign manufacturing direction (including you).
    If manufacturing ‘jobs’ are down while manufacturing output is up, look to the evils of automation.
    In your critique of hiring laid off GM workers you have forgotten two major hiring partners that seem to be very profitable in the United States: Toyota and Honda.
    “and no, i don’t believe anyone 30 years ago saw that the entire US auto industry was in danger of being wiped out.”
    First, the US auto industry is not in danger of being wiped out. An enormous percentage of US-made cars wouldn’t be touched even in the unrealistic “Chapter 7 is the only option available” world. Honda and Toyota are enormous US car makers. They employee US workers to work in US plants and make cars sold to US residents.
    Second, the serious problems in all of the Big 3 have been talked about almost every year since 1977. And they have been visibly limping for at least 25 of those years with only a minor reprieve from SUVs (thanks for the CAFE-exempt business model Congress.)
    I’m pretty sure that even the more liberal, and perhaps even most of the pro-bailout people around here are willing to admit that the Detroit 3 have been visibly in trouble for most of the years in the last few decades. Hilzoy? Anarch? Turbulence?

  126. I’m pretty sure that even the more liberal, and perhaps even most of the pro-bailout people around here are willing to admit that the Detroit 3 have been visibly in trouble for most of the years in the last few decades. Hilzoy? Anarch? Turbulence?
    I’m not sure what you mean. As I understand it, one of the biggest problems with big 3 cars, the quality gap, has improved significantly. I’ve observed that myself. The big 3 have been saddled with retiree obligations and the dealership tangle, but I’ve always figured that some combination of bankruptcy and universal health care would eventually slice those Gordian knots. I’m not sure why my opinion is so special though.

  127. The sticking point, apparently, was that Senate Republicans insisted that the workers’ pay reach parity with foreign competitors in 2009, while Democrats, the UAW, and the car companies wanted the process of bringing wages down to be completed by 2011.
    I’m not sure about that:
    In a statement Thursday night, the union said it was “prepared to agree that any restructuring plan should ensure that the wages and benefits of workers at the domestic automakers should be competitive with those paid by the foreign transplants. But we also recognized that this would take time to work out and implement” using programs like buyouts and early retirement offers to bring in new workers at lower rates.
    The current membership was not willing to make any concessions in 2009 or 2011. They were looking at future workers making less, not themselves.

  128. Btw, for all those who are forming opinions based on the idea that “we don’t make anything” in the US:
    Actually, I would be interested to know the answer to your quiz, and to know where to find that information out.
    I’m not questioning the accuracy of what you’re saying, I’m just trying to correct my own misunderstanding if there is one.
    Thanks –

  129. “Actually, I would be interested to know the answer to your quiz, and to know where to find that information out.”
    Sure. The answer is that China has a little more than half the manufacturing output of the United States.
    The United State, as of the most recent available hard numbers (end of year 2005), was more than 1/5 of the manufacturing output of the entire world.
    You can muck around the Department of Labor website for exact numbers, but their chart is here

  130. In your critique of hiring laid off GM workers you have forgotten two major hiring partners that seem to be very profitable in the United States: Toyota and Honda.
    Is this the same Toyota whose US sales are down 33% and the and the same Honda that has cut its US production by 175,000 units this year? I just want to make sure that we are talking about the same companies that are going to be hiring a lot of new employees.

  131. The current membership was not willing to make any concessions in 2009 or 2011. They were looking at future workers making less, not themselves.
    Um, Steve? If that makes the average UAW worker’s paycheck match the average Toyota/Honda equvilant’s paycheck, what’s your POINT?
    It’s not like the problem is those darn 25 year, senior machinists make too much money. The issue was about average wages, and that those average wages were supposed to go DOWN. Which this does.
    Which is a concession by the union, which would ideally prefer wages go the other direction, since — you know — they seem to feel “getting paid more” is a good thing.
    Is there some sort of substantive difference between buying out the most highly paid employees and paying the new guys less and cutting everyone’s wages? Because — and perhaps my math is wrong here — a 10% cut in the average worker’s pay works out to the same amount of money regardless of how you get there.
    So what am I not seeing here? It appears Congress, the UAW, and the car companies all agreed to drive down the average wage by a certain amount over three years. The GOP threw a hissy and said it had to be one year or nothing, then they walked.
    BTW: If you feel this is some crazy union shenanigans, I’ve got a bridge to sell you — that’s how EVERY company I’ve ever worked for (never as a union employee!) handles payroll. Get rid of the guys with 25 years, who are paid the most and have the most vacation, and replace them with new guys and drop their starting salaries.
    In fact, the only time I’ve ever heard of entire workforces taking a percentage pay cut as a whole rather than buyouts and dropping entry-level wages was union plants, generally because it avoided layoffs.
    In any case, labor costs are diddly squat. The problem is a combination of massive sales drop because of recession, a locked up credit market, and an oil spike that means people are leery about buying the high-profit SUV’s Detroit has specialized in.
    Toyota and Honda would be as screwed as Detroit if their domestic market wasn’t so heavily protected by trade barriers.

  132. what’s your POINT?
    If I was faced with either taking a pay/benefit cut or having my company go out of business, lose my job, and have few prospects for finding a new job – it would be a no brainer. Saying let future workers take the hit is a total freakin’ cop out.
    Is the UAW not willing to make some concessions regarding current members right here and now to save their companies? If they are not – then don’t ask me as a taxpayer for a damned dime.

  133. “Is this the same Toyota whose US sales are down 33% and the and the same Honda that has cut its US production by 175,000 units this year? I just want to make sure that we are talking about the same companies that are going to be hiring a lot of new employees.”
    Oh good heavens. Cherry picking a one month drop isn’t a great argument. GM sales are down 41% in that month, for what it is worth. And you aren’t thinking through the ramifications of what you are saying.
    GM sales are down MORE than Honda or Toyota. If your argument is that the aggregate demand for cars is down, such that even fantastically profitable car companies like Honda and Toyota will only be somewhat profitable and can’t hire, isn’t a bailout of the already failing companies just an enormous waste?
    What precisely are we doing with those cars that they are making if your inferrence is correct?
    How is it not wasteful for them to make those cars? Why are spending money on the steel and oil and plastic to make cars which you don’t think are ever going to sell? We might as well just pay the workers at home and not waste the steel and oil and plastic…

  135. “Toyota and Honda would be as screwed as Detroit if their domestic market wasn’t so heavily protected by trade barriers.”
    No they wouldn’t. They didn’t specialize in gas-guzzling SUVs. Not in Japan and not in the US. And Toyota and Honda are making money on cars in the United States, which suggests that being protected by trade barriers is not the defining difference between them and GM.

  136. If I was faced with either taking a pay/benefit cut or having my company go out of business, lose my job, and have few prospects for finding a new job – it would be a no brainer. Saying let future workers take the hit is a total freakin’ cop out.
    *sigh*. Steve, they took the offer of the pay cut. All that matters is “pay cut” and “time frame”, okay?
    It doesn’t matter if they drop the average pay by cutting 20% off everyone with more than 20 years experience, or 10% off everyone, or some weird sliding scale, or just laying off everyone who makes over a certain amount.
    You do understand that, right? It doesn’t matter HOW you make the average go down, it all amounts to the exact same change in money, right? UAW took the haircut to drive their wages down to what Toyota/Honda pays.
    So the only question was “time frame”. The GOP wanted it done in a year, the UAW, the Big Three, and Congress said 3 years.
    Why is that enough to scuttle the bill over? Let’s not even get into Keynes and the whole “better not to slash wages in a recession” bit — why is THAT ISSUE ALONE so important that you’d scuttle the whole bill?
    Especially if, as the GOP did, you just got your way on efficiency, emissions, and a host of other things?
    It’s not. It’s an excuse. There’s NO FREAKING REASON FOR 40 GOP SENATORS TO KILL THIS STUPID BAILOUT OVER THE DIFFERENCE BETWEEN A 12 MONTH AND A 36 MONTH PHASE IN OF A PAY CUT.
    You seem to think the UAW was refusing a pay cut. They took it. THE ONLY POINT OF DISAGREEMENT WAS THE TIMEFRAME.
    So Steve, explain to me exactly why that timeframe was so critical?
    It’s not like UAW wages were being slashed in half. The average wage was going down a few dollars an hour. We’re talking pocket change even over the extra 24 months.
    That was the bill killer. Not anything the UAW did. The GOP demanded the SAME CUT over 12 months, not over 36. They killed the bill over 24 months. That was their stated rationale, the sticking point.
    How the UAW is at fault here, or how it even makes a substantive difference is beyond me, so PLEASE EXPLAIN HOW THOSE 24 MONTHS ARE SO FREAKING CRITICAL PLEASE.

  137. Why is that enough to scuttle the bill over?

    Integrals. Integrate their pay over the proposed timeframe and see how much money that comes to, and then integrate their pay over their counteroffer, and see what that comes to.
    If it’s the same, proposal and counterproposal are equivalent. If not, not.

  139. Oh good heavens. Cherry picking a one month drop isn’t a great argument. GM sales are down 41% in that month, for what it is worth. And you aren’t thinking through the ramifications of what you are saying.
    No, this isn’t cherry picking. Those are not one month numbers. That’s year-over-year. They aren’t going to be doing any hiring anytime soon.

  140. Integrals. Integrate their pay over the proposed timeframe and see how much money that comes to, and then integrate their pay over their counteroffer, and see what that comes to.
    Peanuts. The actual average pay cut was something like a two or three bucks an hour. The actual in and out cash flow of a major automative company makes even 24 months of that (and that’s assuming that the pay cut isn’t phased in but done all at once at the end) is a rounding error.
    Labor costs are a fairly miniscule part of their cash flow.
    Nor did the representatives of the Big Three — the folks best placed to KNOW — ever make that argument. They were quite happy with doing it over 36 months (who wouldn’t? They got to cut labor costs!). It was the Senate GOP who were upset over that 24 months, and I can’t remember a single fact, figure, or even ARGUMENT to the effect that a compressing the pay cuts would make a substantive difference.
    Once again: In a 15 billion dollar bailout, why exactly is the difference between a 12 and a 36 month phase-in over an agreed to pay cut so significant as to just write off the whole thing?
    It’s not. It’s just a convienent excuse.

  141. If I was faced with either taking a pay/benefit cut or having my company go out of business, lose my job, and have few prospects for finding a new job – it would be a no brainer
    The workers who unionized America were a little more courageous than that. Ask your grandparents about it. Or wait until the anti-union legislation of the last few decades is repealed and watch it happen again.
    …
    Oh good heavens. Cherry picking a one month drop isn’t a great argument.
    What have you been doing in this argument other than cherry picking data? Well, that and miserably failing at making an argument that takes into account the concepts of fixed costs and marginal costs.
    Sure. The answer is that China has a little more than half the manufacturing output of the United States.
    Using 5 year old numbers? Cherry pick data much?

    In research done for the Financial Times, Global Insight now says that the US will retain the position it has held for more than 100 years in 2008, but that the combination of China’s continued growth and the slowing US economy will create a shift in rankings the following year.
    For 2008, Global Insight says the US will produce 16.9% of global value-added factory output, with China at 15%. In 2009, however, China’s global share should rise to 17%, with the US having a 16% share.
    -Supply Chain Digest

    For those who find math to be difficult, 16.9% is not twice 15%.
    Now that the facts have changed, Sebastian, do your arguments stay the same, or do you reach new conclusions to match the changing facts?

  142. And keep in mind that Japanese executives receive an enormous amount of services — drivers, memberships, personal expenses — that are not reported as compensation.
    You know, this requires taking into account the culture where these executives are. If you want to compare Japanese and US auto executives, you might also consider comparisons between Japanese and US autoworkers. I don’t think it will help your case.

  143. Okay, and OCSteve I am not singling you out here, but everybody who says people should be willing to suck it up and take a pay cut are also, I assume, supportive of tax increases to help pay for a good stimulus package that would prevent the whole economy from going in the toilet.

  144. How is it not wasteful for them to make those cars? Why are spending money on the steel and oil and plastic to make cars which you don’t think are ever going to sell? We might as well just pay the workers at home and not waste the steel and oil and plastic…
    Then, let’s pay the workers who used to make “the steel and oil and plastic …” to stay home, too. There’s no point in them consuming electricity and accounting services and iron ore to make parts for cars which are never going to sell.
    “They can make steel and oil and plastic for other uses,” I hear you cry. Sure. Customers are lined up around the block for all that stuff.
    I want to see the day when the US auto market is about 5 million cars a year because cars last longer, we don’t spend half our lives driving, and owning enough vehicles to seat your entire family 6 times over is considered gauche. I want even those cars to be built by about 100,000 people overseeing a vast army of robots. I want, in other words, a lot fewer jobs for humans to be doing. In that idyllic future world, we will still need to provide people with incomes somehow. Paying them to not build cars is a possibility. Not, however, a possibility available to The Market.
    –TP

  145. OCSteve: The bit you’re strenuously objecting to seems to be outside the quote marks. I’m not sure whether it’s summary, paraphrase, misquote or just editorialising.

  146. “For 2008, Global Insight says the US will produce 16.9% of global value-added factory output, with China at 15%. In 2009, however, China’s global share should rise to 17%, with the US having a 16% share.”
    Manufacturing output and ‘value-added factory output’ are not the same thing at all. Learn your stats. When you are talking about manufacturing ‘stuff’ leaving the US you are talking straight up output.

  147. Tony, if you don’t think that the US has a need to use steel and oil and plastics for things other than cars, I ummm don’t know how to argue with you.

  148. “I am not singling you out here, but everybody who says people should be willing to suck it up and take a pay cut are also, I assume, supportive of tax increases to help pay for a good stimulus package that would prevent the whole economy from going in the toilet.”
    I think you are confused. Typically if you want stimulus you don’t also increase taxes. Stimulus want tax cuts and spending in recession and tax increases and less spending in booms. People just hate that second part…

  150. I work in a financial back office, and make, in straight hourly wage, about what the auto workers make. I don’t have a fraction of their benefits, and like almost everyone with a 401k, my retirement has taken a huge hit, I’m 63 years old and have to work at least until 70 and hope the market comes back enough that I can retire then.
    To whoever it was that said workers should just “suck it up and take the two or three dollars an hour pay cut”, if I suck it up and do that I likely lose my house – and no, it wasn’t and isn’t a sub-prime or adjustable mortgage – or have to cut back on my or my wife’s prescription copays or heat the house to 64 degrees – no more – or (HORRORS) give up the high-speed service that allows me to read and post on this site, or…
    The point is, in the real world, in a deep recession, a lot of us really do live that close to the edge. And Sebastian all the rest of you theorists who saw all this happening decades ago need to undnerstand that.

  153. Tony, if you don’t think that the US has a need to use steel and oil and plastics for things other than cars, I ummm don’t know how to argue with you.
    Sebastian, if you don’t grasp the difference that quantity makes, then I ummm don’t wonder that you don’t know how to argue with me.
    –TP

  154. Manufacturing output and ‘value-added factory output’ are not the same thing at all. Learn your stats. When you are talking about manufacturing ‘stuff’ leaving the US you are talking straight up output.
    You absolutely do not know what you are talking about. Seriously.
    Your “manufacturing output” statistics were from a Department of Labor “Office of the Assistant Secretary for Policy” page referencing a UN data set. On this Department of Labor “Office of the Assistant Secretary for Policy” page you can find out what “manufacturing output” means:
    “Manufacturing output is defined as the value added in the manufacturing sector of each country.”
    And you’re going to tell me to, “Learn my stats”. Unbelievable and insulting.
    All you have done so far in this thread is make fallacious arguments or arguments based on flawed premises and then try the 3rd grade insult route when you get caught out.
    I asked you whether you would change your conclusions once the facts had changed. I have my answer.

  155. My goodness, what amazing ignorance.
    Sebastian, bankruptcy involves financing normally referred to as DIP loans. Who is going to make these DIP loans? I ask and ask in various places but not one conservative who claims that regular old bankruptcy will work just fine ever answers that question.
    “If the union won’t make concessions now to cross the bridge why expect them to make concessions later?” Of course the problem is that the unions did make concessions starting in their last contract renewal and continuing into the current negotiations. The Republicans didn’t care. The point was to destroy the UAW and eventually all the unions left in this country. That’s why Corker put forth a proposal that he knew they couldn’t take, which was to reduce every laborer at the Big 3 down to where they make the same as the people in the South who work for foreign auto makers in a part of the country where the cost of living is lower and to do it within a year. That is what Corker proposed and not one Republican really thought that the UAW would take it. The point was that they thought they could spin it where it made the workers look bad. Just like their lies in claiming that UAW members actually make $75 an hour.
    Speaking of that particular big lie, isn’t it really time for someone to challenge the next Republican who makes that claim to back it up with a real check stub?

  156. The point was to destroy the UAW and eventually all the unions left in this country.
    I think that’s the gist of it.
    Quoth Senator Jim DeMint (R-SC):

    What I want to do is make sure we have jobs for these workers and we have first-class American automobile companies — and we’re not going to do it with the barnacles of unionism wrapped around their necks.

    If Jim DeMint wants SC to be a right to work state, where unions are not welcome, fine with me. I don’t live there, I’m not going to live there, and if he doesn’t mind his working class folks having to scramble to get by, it’s none of my business.
    He has, however, no business f’ing with unions in other parts of the country.
    Ditto Shelby, McConnell, and Corker.
    The UAW, as others have noted, have already made concessions. By “already”, I mean before any of the bailout stuff came up. Earlier this year they agreed to a two-tier pay scale, where new hires in certain categories would be paid at a significantly lower rate.
    They’ve done their part.
    Unions exist because, before there were unions in this country, people who worked for a wage were treated like crap. Think Dickens, only not so colorful. It cost a lot of people a lot in blood, sweat, and tears to establish labor unions in this country.
    If guys like DeMint have their way, unions will be crushed out of existence. The result of that will be that people who work for a wage will, once again, be treated like crap.
    The folks who make a decent buck working for Honda and Toyota can thank the UAW for their good fortune, whether they are UAW members or not. Because the threat of unionization is what makes their employers pony up.
    People who work for a wage deserve to be compensated for the value they create. If you disagree, the onus is on you to explain why.
    now_what, thanks for the link.
    Thanks –

  157. Actually Sebastian is right and there is a difference in value-added factory output and total. And the US does about twice as much as China when you count all industry. The reason why it doesn’t seem like that is a lot of our industry is making intermediate or capital goods while China focuses on consumer goods.
    I’d still argue that it is relatively accurate to say that our economy consists of people trading stuff that other people make because a) we consume WAY more than we produce and b) a lot of what we produce gets sold only to make stuff to sell back to us.

  158. Mikkel, I could spend 30 minutes explaining precisely how you are full of sh*t. But my explaining why people are full of sh*t quota is up for the night. You’ve wasted enough of my time.
    Maybe tomorrow!
    Cheers!

  159. “ and we’re not going to do it with the barnacles of unionism wrapped around their necks.”
    Barnacles? Wrapped around their necks? I think someone got their maritime metaphors mixed up. Shouldn’t that at least be the albatross of unionism? Or if we’re going with barnacles, perhaps something about, I dunno, the barnacles of unionism encrusting over the ship of industry. If one must, you know.
    Although granted, not as bad as the time Scalia cited Frost’s Mending Wall in defense of high ‘walls’ between the branches of government . . .

  160. efgoldman: “The point is, in the real world, in a deep recession, a lot of us really do live that close to the edge.”
    Amen.
    The following comment may be more appropriate in an open thread, but since I opened this one with a reference to “It’s a Wonderful Life,” please allow me . . .
    Yesterday, before I was getting ready to leave, my boss called me into his office and started out saying, “You know, we all like you.”
    I nodded soberly, thinking what’s next?
    Then he threw a wad of cash wrapped in a rubber band at me — $200 on the nose.
    He had taken up a collection among some of the managers who I have worked with the past five years and told me, “We know you are having troubles. We want you to get Danny something nice for Christmas.”
    Talk about getting a lump in your throat and not knowing what to saying, haivng always been on the giving end of those type of collections before, just last year arranging the same thing for our longtime cleaning lady here who we all love.
    It’s a wonderful life, indeed.
    (Postscript: I gave the money to one of my managers who was volunteering ideas on his computer and, with me adding some next paycheck, he ordered a Wii on his credit card. Seems like an indulgence, but this is how their gift was intended. The guys keep telling me I will be “the man” on Christmas morning — of course, I’ll be thinking about their kindness the whole time:)

  161. Turb/JMN/BY-
    With regard to the current TED rate as compared to the historical average– yes, it’s high, but it’s lower than it was in the mid-70s and early-80s. And the fact that banks may be able to borrow at a rate cheaper than Libor is actually making my point for me.
    Agreed that TED doesn’t show loan volume, so consider the data in the below chart: http://www.coyoteblog.com/photos/uncategorized/2008/10/22/interbank_4.gif .
    Again, as to thawing of markets see report posted here: http://clusterstock.alleyinsider.com/2008/10/is-the-credit-crunch-a-myth-
    The report’s central conclusion– that there is no credit cruch–
    was contested by other economists who argued that there is a significant difference between the availability of credit for high quality and low quality borrowers. But if banks consider the big 3 low quality borrowers, whose fault is that?
    Finally, I still fail to see a difference between whether GM’s problems stem from fixed or marginal cost. yes, if gm can sell its cars for more than the cost of production, that means they can dig their way out… albeit not fast enough to meet its ongoing debt obligations. either way, gm needs drastic restructuring to compete… layoffs, plant closings, renegotiation of dealer contracts, and a reduction in wages and/or benefits for both labor and management. a quick 25B will just delay the inevitable.
    In short, if the big 3 are finding credit scarce, it is a problem of their own making.

  162. I saw this on “Countdown” last night, and am glad they had it on their webpage to link.
    Outrageous.
    Shelby, Corker and the rest of the Republican blowhards have been exposed for they are — union-busting Reagan-era assholes.

  163. Barnacles? Wrapped around their necks?
    Maybe he meant to say carbuncles. 🙂
    Hey bedtime, thanks for sharing that story. Glad to hear the “we all like you…” wasn’t followed by the all-too-usual “but”. Hope your boy enjoys the Wii!
    Thanks –

  164. “In short, if the big 3 are finding credit scarce, it is a problem of their own making.”
    Caveman: Yesterday, when you talked about lending being “robust” I thought you were talking about available credit to consumers, which is surely tight.
    FWIW, the four cars I have sold this month: an ’02 Honda Accord, an ’03 Pontiac Grand Am, an ’05 Kia Sorrenta and an ’07 Mercury Grand Marquis. What do they all have in common? They all sold between $7,990 and $11,990.
    The point being, that’s what consumers are buying — something they can pay cash for or get a really low payment on.
    And when they want something nicer and newer — and more expensive — the banks are making it really difficult, the same banks that have already spent $335 million of the TARP money, taxpayer money.

  165. bedtime, a great story, and one which brightens days, just like OCSteve’s on the open thread.
    Concerning credit accessibility, there are two levels. One is the degree to which GM has access to credit, which is limited, as is the availability to their suppliers. But also access to credit for those who want to buy the product.
    Very few people can pay cash on the spot for a new vehicle (I don’t care if it is the Big 3’s or Toyota) and that is still limited. One of GM’s problems involves its financing department, which has limited money to lend for new cars and isn’t able to access the main bailout funds. Thus they have difficulty extending credit to those who want to buy cars.
    It becomes a vicious cycle.
    And like the person earlier, at age 62 and with a rapidly dwindling retitrement account, a loss of just $2 per hour would make things pretty hard for me as well.
    And what is frequently forgotten in all this is that, even allowing Sebastian’s argument that there are jobs out there for these people, not all of them could be reintegrated into other manufacturing jobs easily. And most of them would be out of state which would mean major moving costs, plus all the other things mentioned earlier.
    It also not only increases spending costs on unemployment, etc, it also means a major loss of revenue for the federal, state and local governments.

  166. Yes, Russell, I’ve never been fired from a job before. But it’s my understanding they usually try to soften the blow.
    BTW, did you see that “Countdown” link?
    I find it hard to believe the GOP can keep saying they voted on principle when it is clear they are trying to wipe out a longstanding Democratic base.

  167. Bouncing off of J Michael Neal, I started looking up the number of employees laid off or projected to be laid off in time for the Christmas season by the corporations Sebastian listed as a refuge for out-of-work auto workers.
    It became depressing, and I’m in the “lazy” union, so I quit. They are all dynamic companies who may or may not flourish once we make our way through this miss, but they are not going to be hiring any time soon.
    Borg Warner? Surely u jest?
    Phil mentioned something way up thread and was quoted about “hemming, hawing, and hand-waving”.
    I’ve been trying to get a job “hemming”, but I’m overqualified, having a doctorate in “hawing”. The lines in front of the door of the United Hand-Waving Corporation are too depressing to contemplate because of all the perverse incentives of the Internet, which caused a glut in the “hand-waving” profession.
    In other news, Salvation Army donations are down 30% for this time of year, another nail in the coffin of conservative economic theory, which thought maybe charity would make government irrelevant.
    Unfortunately, if you light a match, you’ll find we’re all being buried in the same coffin.
    I heard this news on NPR, who just cut their budget and will lay people off as well.
    But if Borg Warner doesn’t close their hand-waving division, the NPR employees will be O.K.
    The conservatives who run the Rocky Mountain News editorial page are about to become unemployed as well.
    Plus, their “hot air” has been melting the ice caps for years.
    Maybe they can comment at Obsidian Wings. The pay is commensurate with their theories regarding charity.

  168. UC,
    I still fail to see a difference between whether GM’s problems stem from fixed or marginal cost.
    Well, first, whether there’s a difference or not, it’s a good idea to keep the numbers straight.
    Second, once you have the numbers straight you get an idea of what might be done. In the worst case, if the revenue/car is in fact less than the cost then it may be hopeless. The best you can do, probably, is shut down and liquidate. Marginal costs can only be reduced so far. No one’s going to give you steel for free, and the scope for wage reductons is limited. That’s why claims like $73/hr wages and $4000 loss per car are not just wrong but counterproductive. They lead to the wrong conclusion.
    OTOH, if it’s fixed costs then of course the possibility of restructuring needs to be considered. That’s what Chapter 11 is designed to do, of course, but there are solid aguments, I think, why it won’t work very well in this case. All that leads me to think that a bailout is worthwhile. By “bailout” I mean extending government credit to provide a lifeline, super-DIP financing if you will, while the restructuring takes place.
    if the big 3 are finding credit scarce, it is a problem of their own making.
    Not entirely, these days. Not everyone agrees with the points made at your links, and Salmon in particular makes a sensible argument about bank lending.

  170. “That’s why claims like $73/hr wages and $4000 loss per car are not just wrong but counterproductive. They lead to the wrong conclusion.”
    But they help the Southern Senators in GOP land to bust the auto union.

  172. Steve Benen at Washington Monthly is making a pretty good effort of nailing down proof that Senate Republicans are out to destroy the UAW as political payback and to send a message to the nation.
    Funny, if the message was returned to sender by a torch-carrying mob of the unemployed.
    That vat of oil looks better all the time. For Republican politicians and their blue-dog Democratic buddies, not Sebastian.
    Sebastian slowly cooks himself here at Obsidian Wings like a live lobster in a pot of white wine, slowly brought to temperature.
    It feels good as he slowly loses consciousness because of the immersion in the wine, but he’s cooked nonetheless.
    😉 Just kidding.
    This is a great thread.

  174. not Sebastian
    I find myself in disagreement with Sebastian quite often, but I’ve never heard him respond to questions about what laid-off folks are going to do by saying “screw them” or “they can suck it up”.
    Just another in a long line of reasons why he’s got my respect.
    Thanks –

  175. “This a great thread.”
    173 comments and counting . . .
    hilzoy strikes again.
    I couldn’t sleep the other night, nursing a bad cold all week that seems more like the flu, and being wound up after watching the Bears beat the Saints Thursday night. I read somewhere once that if you can’t sleep, go do something instead of tossing and turning. So I turn on the computer and see hilzoy’s post and think to myself, “What is hizoy doing writing lengthy posts at 2 in the morning?”
    Thanks, hilzoy.

  177. And to bust the caveman’s bubble, again.
    The LIBOR is the rate that banks report the rate that they use to lend to other banks for overnight loans.
    The liquidity problem, with banks saving that money, is that although banks are reporting that as the rate, it is the rate they would use, is is not the rate they are using. Part of the liquidity crisis in banks not lending is that they are not lending to each other (because, for some reason, they have all these distressed assets on their books, that they can’t value–or value as all but worthless–and they have some reason that all the other banks with significant level 3 assets are in the same boat, so they don’t want to lend to each other because the other bank may be in at least as bad a shape as they are.)
    In addition, with the massive global government infusions and effectively zero rate treasuries out there, it is far, far cheaper and easier for banks to suck like little piggies at mama sow/cash cow. LIBOR is mainly a fiction, at least until the various central banks turn off the spigots.
    If you want to know what banks are really lending at, check out commercial and junk bond rates. Those are just a tad higher, according to the more trustworthy finance sites out there.
    In the continuum of lies, damned lies, and statistics, LIBOR easily falls into the first.

  178. bedtime,
    good on you.
    My wife and I are so tight right now that my mother, working part time as a waitress to supplement SSN, is willing to lend us money so we can buy presents for our nieces and nephews.
    With all of the statistics and dollar amounts and unverifiable claims that the political class and their backers keep pushing back and forth through the airwaves, none of it can capture the social and emotional pain that being in this situation brings home.
    Suck it up…even chess masters really only plan a few moves ahead, not 30, or 20, or 15.

  179. FG-
    You are 100% right about Libor being a financial fiction. WSJ reported it as such a few months before all hell broke loose. But to the extent that the number is used as a benchmark for hundreds of thousands of CDOs as well as individual mortgages, it is extremely important… for example, many ARMS will reset at Libor + X%.
    Again, the fact that banks can borrow money at essentially no cost from the fed together with significantly improved interbank lending means that credit should be available for high quality borrowers. After all, banks must lend money to make money. there’s a reason banks aren’t lending to the big 3, and it’s not that they have no money.

  181. So banks use LIBOR to set payment rates, because it is supposed to be a neutral expression of value, when in reality it is a number that has no connection to reality, because it is not being used.
    What other financial numbers in the past few years does that remind you of? Free market my ***! Playing against the banks is like playing Texas Hold’em when the other players not only get to see your cards, but also get to keep the pot when they fold.

  183. For all of those that think securing DIP financing Chapter 11 is a practical alternative for GM, I give you the linked blog post. It discusses a Reuters article about how companies are filing for Chapter 11 *before* they’ve drained their cash reserves because, without reliable DIP financing, they need *something* to run ongoing operations while they restructure. GM, of course, doesn’t have substantial cash reserves to financing ongoing operations…

  184. Since Sebastian name-checked me specifically upthread, my basic feelings are that 1) the Big Three, as they currently exist, must be allowed to fail, but 2) they shouldn’t be allowed to do so *now*, while 3) they should be allowed to do so gracefully. I haven’t really decided on what #3 means, btw, and I’m open to suggestion, but that’s the gist of it.
    Oh, and 2′): any Republicans aiming to use the current crisis to screw the UAW, and unionism in general, can suck it.

  185. My bet is: wherever GM starts, it ends in Ch. 7, and reasonably quickly, absent a bailout, prepackaged ch. 11, or government DIP financing. If you take those terms, we’re on.
    I don’t know what you mean by a “prepackaged ch. 11” and I thought that the whole argument behind allowing GM to declare bankruptcy was that it would have access to government-backed DIP financing. (You can’t have DIP financing until br is declared, it would be premature for Senate Republicans to set up some kind of vote on DIP financing for an as-yet nonexistent D.)
    So, no, I won’t take your bet.

  186. “Sebastian, bankruptcy involves financing normally referred to as DIP loans. Who is going to make these DIP loans? I ask and ask in various places but not one conservative who claims that regular old bankruptcy will work just fine ever answers that question.”
    Huh? As I have made repeatedly clear in this thread and at least 3 others, if the worry is that Chapter 7 would be forced on GM because DIP loans would be unavailable (which so far as I can tell is the only strong argument against letting it go into Chapter 11) it would make a lot of sense for the government to provide those loans. It would be fantastically cheaper than the current bailout and would also be the right thing to do. Advantages of this approach:
    Orderly unwinding: none of the sudden seize-up for suppliers and other vendors.
    The good divisions survive: I’m deeply skeptical that there are very many of these, but to the extent they exist they will survive. If it is profitable for GM now, it will survive. This is a good outcome because the good stuff keeps going.
    The marginally bad divisions get bought up: I don’t know how many of these there are, but Honda and Toyota are in a much better position to figure it out than me. If something is unprofitable under GM but likely to be profitable under good management, it will either skate in under the reorganized GM (if a really close call) or will be bought up by competitors who know how to run things better. This is a good outcome because the marginal stuff gets moved to people who know how to do a better job.
    The horrible divisions fail: this is a good outcome because every cent that is going into these divisions is really just throwing money down a pit. I suspect that a large section of GM is in this category.
    Combine this with aid to workers who get laid off from the 2nd and 3rd categories and we have government action which A) lets a bad company fail, B) lets the good parts of it survive, C) lets the marginal parts get purchased by people who know how to use it better than GM, and D) quits wasting money in bad areas while E) not hanging the workers out to dry and F) is amazingly cheaper than the bailout that is being proposed.
    And before you make objections, note how they interact with this:
    Objection 1: GM really has turned around, and just needs to get through the credit crunch.
    Answer: I don’t think most people believe this, but in case anyone does, that is great. Then almost everything will be in the good divisions section and will emerge just fine.
    Objection 2: There won’t be anyone to buy the marginal divisions because the car industry as a whole is going into a long term tank.
    Answer: I doubt cars aren’t going to be purchased in the next year or two. But look what that does to a bailout anyway. If it is true that the car industry is going into the tank as a whole such that even Toyota and Honda won’t be profitable, what good is this bailout going to do for GM which couldn’t even survive now? This objection proves too much. In this case, the offered bailout has no chance of success unless you believe that all of the sudden GM is going to be more efficient than Toyota and put out a much better and cheaper product. That seems like asking for too much.
    Objection 3: Most of GM is in the 3rd category so there will be massive layoffs which will be really expensive.
    Answer: if this is true than the current bailout is completely a waste because there is zero chance that a bailout will ‘save’ GM in that case. If that is the case we are in full damage control for the workers. If that is true we shouldn’t waste one more cent on GM as a company and go straight to the “directly help the workers find jobs at a better company” mode. If this is the case, GM is just a shell and there isn’t anything worth saving anyway.
    Also bankruptcy courts deal with this kind of issue all day every day. Congress doesn’t know squat about how to make sure GM spends bailout money well.
    I don’t see any scenario where a bailout is likely to be more effective than a government financed Chapter 11. And even if we have special help for the hurt workers on the order of 1 or 2 full year’s salary, the bailout isn’t going to be cheaper either.
    So why the heck are we choosing the more expensive, less effective choice? That is what got GM into this mess in the first place!

  187. It would be fantastically cheaper than the current bailout
    What do you count as the cost of “the current bailout” and what would be the cost of DIP financing for Chapter 11?
    When something costs less, somebody gets less money. Who gets less money under Chapter 11 than under “the current bailout”?
    –TP

  189. As I see my checkbook balance shrink and shrink and shrink, I see this and wonder what the hell is going on.
    All of the talk about the Big Three not deserving a bailout — a bridge loan or whatever — has taken the spotlight off where the real crooks are: Wall Street.
    Henry Paulson should either be investigated or fired. Now.

  190. And then there is this.
    Is there any question Wall Street and Paulson has bamboozled Bush, Obama, Congress, the media and American public at large?
    Obama’s choice for Treasuary Secretary ought to get a closer look from his fawning fans and the media, given that Timothy Geitner and the New York Fed is said to have worked closely with Henry Paulson throughout this entire theft of taxpayer funds.

  191. Wall Street could show some heart by helping out with this in some way.
    Very, very sad.
    P.S. I am sure Gary, and others, would join me in asking for a weekly Friday (or Saturday) open thread. Thanks.

  192. bedtime, when I saw the three-page proposed bailout legislation, I immediately wrote to all my Congresspeoople complaining about the blank check, lack of judicial review, and general lack of oversight the bill proposed. After the negotiations were almost concluded, I supported the bailout, trusting that the Democrats in Congress were going to conduct appropriate oversight and that safeguards would be attached. I was wrong, and I’m furious not only at Paulson, but at Congress. I’m a die-hard Democrat, and optimistic Obama defender, and try to remain solidly behind Democrats. But I am angry. They didn’t do their job, and it was obvious from the beginning that Paulson was out to transfer wealth directly from the texpayers to the pockets of his rich friends. I totally agree with you unless someone can convince me otherwise.

  193. “They didn’t do their job, and it was obvious from the beginning that Paulson was out to transfer wealth directly from the texpayers to the pockets of his rich friends.”
    As another die-hard Dem, I agree entirely with you, Sapient, and wonder where all of the outrage is.
    It was borderline criminal behavior that got Wall Street into this mess and it is borderline criminal behavior that has been committed in the name of trying to get it out of this mess when, all the while, instead of playing CYA, Paulson and white-collar folks I will never know were playing Cover Your Losses.
    With our money.
    With our children’s future.
    Frankly, I’m tired of hearing Barack Obama talking about more oversight in the future. Instead of playing footsy with Rick Warren, where is the fucking oversight NOW — where was it in September and October, where was it during the campaign?
    Crooks.
    Fucking crooks — all trying to make us accept their purpose-driven bullshit about what is necessary to make the economy better when they Do Not Have a Fucking Clue.
    Don’t give me a fucking car czar. That’s all class-warfare bullshit designed to take our eye off the ball while Wall Street execs and lesser-ranked employees get their Christmas bonuses, take their junkets, still drink top-shelf liquor, and whatever other top-shelf bullshit they engage in while I have to worry if the industry I work in is going to be thrown a lifeline that is not even a tenth of the money that they’ve fucked the American public into spending.
    Where’s Rick Fucking Warren’s outrage about the rich getting richer and the poor getting poor in this fucking country right herem, where Aunt Alice has to give her damn cat up because she either gets the Friskies or she gets fucked? Where’s the Proposition against that?
    Skip the Inaugural excess altogether, I say, and give all the money to the Humane Society.

  194. All of the talk about the Big Three not deserving a bailout — a bridge loan or whatever — has taken the spotlight off where the real crooks are: Wall Street.
    From the abstract of a Brookings Institute paper published by George Akerlof and Paul Romer, as excerpted by Yves Smith over on naked capitalism:

    Our theoretical analysis shows that an economic underground can come to life if firms have an incentive to go broke for profit at society’s expense (to loot) instead of to go for broke (to gamble on success). Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.

    Kindly read that last sentence over a time or two. Especially the pay themselves more than their firms are worth part.
    That is called looting. Embezzlement, fraud, theft. Looting.
    Yes, they are crooks. The law, unfortunately, has quite often been known to be a whore, as have the lawmakers and the law enforcers, so they are unlikely to go to jail.
    But thieving, lying criminals is what they are.
    From now on, I turn a deaf ear to arguments based on the idea that unregulated capital markets will, somehow, magically, make the right things happen.
    Savings and loans, Long Term Capital, now this. The financial industry is full of guys who will blow the whole game up if they can get a few million, or billion, out of it.
    If we let them keep on doing it, they will keep on doing it.
    I have no idea if Obama will have the stones to make a significant change. I hope so, but I don’t know. It will all depend on whether it fits in his “long game” or not.
    I think the place to apply the heat is Congress.
    Thanks –

  195. “As I see my checkbook balance shrink and shrink and shrink, I see this and wonder what the hell is going on.”
    Also this and the rest of the story: “Goldman Sachs reported Tuesday that it paid $10.93 billion in compensation for the year, which includes salaries and bonuses, payroll taxes and benefits. That is down 46 percent from a year ago. Goldman Sachs received $10 billion from the Treasury.”
    I’d also suggest keeping one’s eye on the ball of who is truly responsible here.

  196. Now that I have calmed down a bit — thank you, Sunday Night Football (very good contest going on between Carolina and the Giants) — it’s worth noting that russell makes a very good point:
    Reid and Pelosi have been embarrassing. Lightweight leadership at its most incompetent.
    From what I’ve seen — take note gay-basing bigot Rick Warren — Barney Frank is the only Dem who has carried himself with any distinction of note.

  197. “Reid and Pelosi have been embarrassing. Lightweight leadership at its most incompetent.”
    I think that’s considerably overstated; on specific issues it’s a fair criticism, and if you mean it that way, fine; but so far as I can see they’ve been pretty effective as a general rule at getting the Democratic caucus to do their bidding, with almost no noise, and no significant revolts whatever. If you think this is common among Democratic Congressional leaders in our lifetimes, I’d suggest you look into the history more closely.
    “From what I’ve seen — take note gay-basing bigot Rick Warren — Barney Frank is the only Dem who has carried himself with any distinction of note.”
    What, on every issue in the past Congress? That’s ridiculous, and please forgive me if I express lack of complete surety that you actually follow closely enough, say, by reading The Hill every day, or otherwise pay real attention, to be qualified to make this claim.
    It’s not as if your average Representative gets much coverage in the national media. You’re really going to tell me that Henry Waxman sucks? That George Miller getting the Fair Minimum Wage Act of 2007 passed was nothing? That passing the ADA (disabilities) expansion act accomplished zilch? The GI Bill of Rights was crap? The bills to expand veteran’s care? The Spent Nuclear Fuel Tracking and Accountability Act? The Freedom of Information Act reform? Mental health care parity? Children’s Health Insurance Program (CHIP)?
    That’s just off the top of my head.

  198. G: I was just talking about this period (last spring until the present), and the issues involved in it, that has made us Bailout Nation.
    I’d like to hear what others here think of Reid’s and Pelosi’s leadership — although I see hilzoy has posted a new economic theme, so this conversation is probably best taken up there.
    Thanks.

  200. And, Gary, it is probably unfair to single out Reid and Pelosi on the bailout thing. I mean, all of them, Dems, Republicans, Independents seem to have been asleep at the wheel every since the Merrill Lynch blow-up.
    They never really gave a coherent explanation to the American public as to what exactly was wrong and why exactly so many billions of dollars were needed to fix things.
    Just as Congress seemed to be transfixed by Greenspan all of those years as if he was some kind of Money Buddha, they reacted in a similar manner to Paulson.
    It’s funny that Congress gave Paulson and Wall Street a blank check but already, watching the Sunday morning news shows and the like — and we’re talking specifically about the GOP here — are already sending signals about how unholy (is that the right word?) that Obama’s stimulus-plan-in-the-making is going to be.
    Unfortunately, the Age of Obama must succeed in the Age of the Double Standard or we are all fncked.

  201. Gary, it is probably unfair to single out Reid and Pelosi on the bailout thing. I mean, all of them — Dems, Republicans, Independents — seem to have been asleep at the wheel ever since the Merrill Lynch blow-up.
    They never really gave a coherent explanation to the American public as to what exactly was wrong and why exactly so many billions of dollars were needed to fix things.
    Just as Congress seemed to be transfixed by Greenspan all of those years as if he was some kind of Money Buddha, they reacted in a similar manner to Paulson.
    It’s funny that Congress gave Paulson and Wall Street a blank check, but already, from watching the Sunday morning news shows and the like — and we’re talking specifically about the GOP here — are already sending signals about how unholy (is that the right word?) that Obama’s stimulus-plan-in-the-making is going to be.
    Unfortunately, the Age of Obama must succeed in the Age of the Double Standard or we are all fncked.
    (I don’t know what’s going on but I’ve been posting with a torrent of typos, which I hate, even though I almost always hit the “Preview” button. The eyes aren’t going, but they definitely are not sharp lately.)

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