A Note on the Big Three Bailout from a Michigan Senator

Got this email today from Senator Carl Levin, the second worst senator in the Senate after our other senator (is it any wonder my state is in such a mess with the people we keep electing?) Anyway, here's what Levin has to say about the big three bailout. Thought you all might like to see it since we discussed the topic yesterday.

Immediate support is needed to shore up our automotive manufacturing sector and to preserve the more than 2.5 million jobs directly and indirectly linked to the U.S. auto industry. This morning, I testified in front of the House Financial Services Committee to emphasize the need for Congress to take swift action on behalf of our nation’s automakers. Standing idly by as the financial crisis decimates our domestic manufacturing capabilities and pulls our fragile economy further into recession is unacceptable.

Throughout the world, the dire financial crisis continues to spur governments to provide assistance to their manufacturing industries, which are not able to obtain the credit they so vitally need to continue operations. Both Germany and the European Union are studying the possibility of providing support for their automotive industries. Australia has provided more than $4 billion in funding for its vehicle manufacturers. Automotive manufacturers in China are already voicing their expectation of financial assistance from their government as well. “The Chinese government will undoubtedly support us,” says She Cairong, general manager of JAC Motors, a Chinese automobile manufacturer. This quote appeared in a New York Times article this morning, highlighting China’s consideration of a plan to provide assistance to its domestic automobile companies.

The spotlight is now focused on Congress, which is considering the possibility of rescuing the industry from an economic downturn not of its own making. President-elect Obama has called the U.S. auto industry “the backbone of American manufacturing” and said that the failure of our domestic automakers would be “a disaster” for our economy. President Bush, Speaker Pelosi, and both the Majority and Minority Leaders of the Senate agree that bridge loans for our domestic automakers are necessary at this time. I will continue to work with my colleagues in the Senate and the Congressional Leadership to come up with a plan that would provide auto manufacturers with the bridge loans they need to weather this financial storm.

You can read the transcript of my testimony before the House Financial Services Committee. During these difficult times, I am doing everything within my power to convince the Congress to provide the bridge loans for the domestic auto industry that the President, the President-elect and the leaders from both houses of Congress support.

Comments

[The Money Hawk]

Ridiculous. This bailout nonsense is horrible and I've been against it since the first one. The bailout of the big three auto is even worse than the bank bailout because the big three auto put themselves in this situation two ways:

1. Unionization.
2. Lack of innovation.

At least the government had a hand in screwing over the banking industry. This auto bailout is a joke.

[Just Jim.]

Why bail out the auto industry when we could use the money to buy free drinks for the homeless?

[Jim]

It seems that any post about the US automakers might as well have a "bash unions here" sign pointing to the comments.

Jim

[BV]

The best line in that whole thing:
"The spotlight is now focused on Congress, which is considering the possibility of rescuing the industry from an economic downturn not of its own making."

Who is he referring to? Is it Congress or the auto industry that are not at fault for the economic downturn? I find both laughable since Congress has been at the root of our economic problems by first ignoring the warning signs for years and now blindly throwing trillions of dollars at the problem. The auto industry has made its own bed with outrageous union conditions, building cars that no one wants, and basically just running their business poorly. While the auto industry may not be at the root of the global economic downturn, they certainly haven't had a very sustainable business model either.

[Seth]

FMF,

Just curious - do you have that much influence with the blog that your Senator has emailed you his thoughts on the bailout or on you on his mailing list.

Also, we consumers can force change - we can refuse to buy these cars. Then, regardless of bailouts the Big 3 will have to change to survive.

[tom]

@BV

I am not for the bailout.

That said, the only problem the auto industry has made is giving in to outrageous union conditions. They built cars EVERYONE wanted, until gas prices drastically rose. No one was chastising them when gas was low and everyone had an SUV in their driveway. They actually do have a good business model. They're plants are extremely efficient, not as much as Toyota, but they are close. The quality of their cars is on par with foreign automakers also. Say what you want about fuel efficiency and lack of hybrid research, but it's all perception. GM has more hybrid models than Toyota. Ford is the number 2 seller of hybrids in the country. GM is leading in the plug-in hybrid race (let's if they finish). Chrysler has 3 plug-in models in the works. All are coming out with many more hybrid models. GM has 3 hybrid SUV and trucks, try squeezing a family of 5 into a Prius.

They've been doing all they can to survive with such absurd labor agreements. The Union needs to be front and center with those executives when asking for a bailout.

[Eric]

In 2005 the Big 3 auto companies employed 12,000 workers who were paid to do NOTHING under the UAW negotiated "jobs bank."

That's right, if your job was replaced by automation you showed up to work and read a magazine all day.

Here's the link:
http://www.detnews.com/2005/autosinsider/0510/17/A01-351179.htm

Is it any wonder that the average per hour labor cost for an American car is more than $70 while only about $40 for a Honda?

Let them fail. They've earned it.

[kitty]

Jim, they are part of the problem. I am sure you also agree that the whole "job bank" idea is ridiculous.

I am still on the fence about the whole thing. I've been for the first one because of the risk of what would happen without it. With this one I am still trying to make up my mind.

On the one hand, I don't want my tax dollars to pay for benefits that most of us do not have - how many of us have pensions or guaranteed health care in retirement? My company froze the pensions for those eligible (including me) at the end of last year; it canceled health care after retirement 10 years ago. It made exception for those who were 50 years of age at the time or had 25 years with the company (i.e. within 5 years of company's minimum retirement age), but not the rest of us. Yes it was bad, yes we were upset. But our company is doing fine now. It's bad to lose benefits, but losing a job is a whole lot worse.

On the other hand, I am scared to think what would happen if they aren't bailed out. We'll get more unemployment, there'll be a ripple effect on their suppliers. The unemployed people don't pay taxes and they don't buy much, so there'll be loss in tax revenue and effect on other businesses. I am not sure how viable a solution bankruptcy is and if it'll work. I do know that market was dropping like crazy for the past two days adding to 100K+ in losses I've already had. It may be cheaper to bail them out.

The only problem is: how do we know that they will not come 3 months from now asking for more?

[kitty]

Found this interesting article - a comparison between the current situation with the Big Three and the situation with IBM in 1993 and what would've happened if it got "bailed out" then: http://gauravsabnis.blogspot.com/2008/11/detroit-romney-and-ibm.html

There are some differences, of course like no unions in IBM, but it is still an interesting article. Maybe Gerstner can come out of retirement and become GM CEO?

[FMF]

Seth --

No, I somehow got on an email list they have -- that's all.

[Greg]

Bob Sutton has a well thought out (and articulate) post on the bailout.

"The Auto Industry Bailout: Thoughts About Why GM Executives Are Clueless And Their Destructive 'No We Can’t' Mindset"

http://bobsutton.typepad.com/my_weblog/2008/11/the-auto-industry-bailout-thoughts-about-why-gm-executives-are-clueless-and-their-no-we-cant-mindset.html

[Kevin M]

Giving them more money now will be like giving a gambler $1,000 and pushing him through the doors of Caesar's Palace. Nothing will change and in a few hours, or days all the money will be gone.

I think any credibility the Big 3 had left went out the door yesterday when they showed up to Congress in their 3 private jets. Way to cut costs there, fellas!

[Greg]

Kevin M,

Tom Peters wrote:

"Gestures do count. Lee Iacocca worked for a-dollar-a-year when the government gave Chrysler a life-saving loan. Wouldn't it have been great if Ford CEO Alan Mulally had driven a 2008 Ford Escape Hybrid the 520 miles from Detroit to D.C.? Hokey as hell—but he just might have gone home with a several-billion-dollar check in his pocket."

http://www.tompeters.com/entries.php?rss=1&note=http://www.tompeters.com/blogs/main/010736.php

[Scott]

1: The US car companies must build a better product and maybe there will be demand, and thus jobs. Accept that no one wants to buy a bad product.
2: Use the money to retrain the UAW people to do something new - like construction. Do you know how many bridges and roadways will need to be refurbished or replaced in the next 20 years?
3: Personal decision to grow: If you are an auto worker, recognize that you may not have a job (and don't wait for anyone to help you). So acquire a new skill that the market needs.

[tom]

@Kevin M,

Really?! That's ridiculous. These guys, literally, have to be anywhere in the world at a moments notice. You expect them to fly coach or first class on public carriers? Because those carries have such an excellent record of being on-time. It's so absurd that people are chastising them for flying on a private jet the company owns. They went from meetings in Detroit, to meetings in DC, to meetings in Detroit. They don't have the luxury of flying public carriers. And if they did, people and reporters would recognize them and be mobbing them at the airports, so it's also a safety risk.

[Greg]

Tom,

I met Phil Ghram, as a sitting US Senator, on a coach flight from Dullas to DFW. He manged to deal with mobs and reporters.

How about if the three CEOs at least shared one private jet?

[Kevin M]

tom - you're ridiculous - are you kidding me? They're asking for our money and still flying on needless private jets? At the very least for this one trip they should have gone coach or even driven. I'm sorry, but they are not the President of the US that needs that much security and convenience. Anywhere in the world you say? Ever heard of LiveMeeting or teleconferencing? It's clear they are not ready to change their culture.

[tom]

Kevin,

You missed my point entirely. The jets are needed in order for the CEOs to do their jobs. Also, virtual meetings are not as effective or efficient as face-to-face meetings, nothing to do with culture change.