Abe,
Unfortunately your commentary contains some inaccuracies that are quite typical of those who are geographically detached from the automotive industry.
The union workers
do not make $75-$80 and hour, and to continue to believe that myth only perpetuates it. While no fan of the UAW, new hires in assembly (as opposed to skilled trades like electricians) are at $14 an hour. But, make no mistake, the UAW labor is expensive. It is expensive and much of that expense is for the pension and medical costs of its retirees. Medical costs that, if not borne by the auto companies would be a direct hit to Medicare. The 2007 UAW contracts with the Detroit 3 will separate out that part of Detroit's uncompetitive costs to a UAW-managed trust. Without those costs, and with two-tiered wages that were also agreed to, Detroit compensation is pretty much at parity with the foreign transplants like Toyota in Kentucky or Mercedes in Alabama. So consider those transplant wages. The transplants are not shouldering 100+ years of manufacturing history in the US and they further must provide, competitive wages, benefits, and reasonable working conditions to keep the UAW out! You think these companies would otherwise do these things out of the sheer goodness of their hearts and corporate policy. I don't believe it and I don't think anyone else should either. Make no mistake--the State of Alabama paid about $175,000 PER CREATED JOB to get foreign-owned automotive plants located there. Probably because Kentucky had already blown its wad on Toyota's plant. Nothing this big happens without taxpayer-assisted loans, tax abatement, or something similar.
"Letting them go under" via bankruptcy is certainly a possibility, but to share an idea that this somehow eliminates "the taxpayers" from pain is wrong. You have suppliers, banks, stockholders taking a small percentage, if anything, on the dollar. You'll have old plants abandoned, and taken over by municipalities and no further taxes will be paid on them; this is a significant burden on the cities and towns and schools where they are located. A lot of those suppliers are large multinational companies in trouble themselves; asking them to forgive debt or take only a percentage of it doesn't make the burden go away it just shifts it. Some of the suppliers are smaller and they'll simply be put out of business. The 2nd and 3rd tier suppliers will take big hits. Assuming for a moment that the people at these suppliers, and banks, including their stockholders and or bondholders are normal taxpayers, I fail to see how bankruptcy solves anything--just shifts the burden. There's no easy solution with bankruptcy or with a loan.
When one is geographically displaced from the automotive industry, you don't get to see and know what is really going on. Forget what Brock Yates said in 1983; take a look at these facts regarding a Ford F150. This is a good example to use, because even through October of this year, through the summer of $4.00 gasoline, there have been more F150's sold then any other vehicle--car or truck--in the United States in 2008. The F150 also has the greatest American content of any vehicle sold in the US, too. So read this excerpt by someone at the
LA Times trying to understand (not condemn) what is going on:
Ford Motor Co.'s F-150 pickup is the top-selling vehicle in America with more than 436,000 purchased through October. But when people stop buying the F-150 -- and 26% fewer have been sold this year than last -- it's not just Ford and its workers that suffer. Falling sales dry up orders for antifreeze made in Illinois by a division of Honeywell International Inc., computer sensors manufactured by Germany's Robert Bosch Gmbh in South Carolina and a hood latch part made by the 110 or so employees of Amanda Bent Bolt Co. of Logan, Ohio. All told, each truck contains 4,350 parts, made by 270 suppliers in 26 states as well as several foreign countries. Every F-150 that doesn't sell hits literally hundreds of thousands of people who play a role in putting the big machine on the road.
When it comes to the U.S. automakers and their financial troubles, politicians and the public tend to think about the 240,000 jobs that could be lost at the Big Three's assembly lines in Michigan and nearby Rust Belt states. Yet suppliers provide about 70% of the content in most automobiles, from the seats to specialized bolts on the suspension -- everything except the sheet metal and the motor assembly. So when Ford, Chrysler or General Motors Corp. sneeze, 600,000 workers in places as widely scattered as Peachtree City, Ga., and Pittsburg, Kan., are likely to catch cold. As the Alliance of Automobile Manufacturers trade group likes to say, "A lot of U.S. industry goes into every automobile." What Congress decides could have serious effects on not just employees of Ford, GM and Chrysler but also those who work at such companies as Superior Industries International of Van Nuys, which makes the F-150's wheels. Superior will close its Pittsburg aluminum wheel plant next month, laying off about 600 employees, because its shipments in the third quarter dropped to the lowest level in a decade.
In Peachtree City, Panasonic Automotive Systems Co. of America has notified its approximately 500 employees who make car stereos, GPS devices and rear-seat DVD entertainment systems that they'll be out of work by the end of next year. It's a similar story at AK Steel Corp., which relies on the auto market for 30% of its business. The company has temporarily shut down its Mansfield, Ohio, plant because of low demand for the stainless steel it produces for exhaust systems. "This industry has just nose-dived," said Neil DeKoker, chief executive of the trade group Original Equipment Suppliers Assn. He estimates that among the roughly 5,000 U.S. suppliers, more than 100,000 jobs have been shed in the last two years as carmakers order increasingly fewer parts. According to a study by advisory firm BBK, 17% of suppliers were at risk of bankruptcy at the outset of 2008, and the study's author believes that figure has risen significantly this year.
The vast majority of suppliers get 60% or more of their orders from the auto industry, making the companies particularly vulnerable to a downturn in demand for cars. Detroit's routine requests for lower prices on parts only compound the problem, DeKoker said. "This could be the last breath for some of these suppliers. Some are just not going to make it."
The Big Three spend about $300 billion a year on equipment, supplies, tooling and parts ranging from transmissions to shop rags. In the U.S. alone, Ford spends more than $40 billion. GM spends $7 billion a year transporting parts to factories and hauling automobiles to dealers. That makes railroads and trucking firms huge clients of the Big Three. No wonder that with car sales down, Norfolk Southern Corp. reported a 30% decline in rail car business in the third quarter compared with a year earlier. Vehicle and parts manufacturing jobs are concentrated in the Midwest and the South. Collectively, Michigan, Ohio, Indiana, Tennessee and Illinois have more than half the industry's jobs. Other states with sizable numbers include Kentucky, New York, California, Pennsylvania and North Carolina, according to the Bureau of Labor Statistics.
With such a wide base of suppliers, the effects of a big automaker failure could be felt throughout the country. "Suppliers have already been in a recession for several years now," said William Diehl, chief executive of BBK. He pointed out that many of the problems that have afflicted Ford, GM and Chrysler -- high gas prices, frozen credit markets and plummeting consumer confidence -- affect suppliers as well. With up to 50% of suppliers "distressed" because of lack of access to new sources of financing and decreased sales, Diehl predicts a "huge increase in supplier liquidations and bankruptcy filings very soon."
That would create blow-back for automakers. In February, Plastech Engineered Products Inc. filed for bankruptcy protection. The Dearborn, Mich., molded plastic parts maker employed 7,600 people and had plants in eight states. Last year, it sold $1.4 billion worth of engine covers, grill panels, floor consoles and the like to carmakers, including $200 million in parts to Chrysler. When Plastech closed up shop, Chrysler was forced to immediately idle four plants, sending 10,500 employees home until the automaker could find a new supplier. Most large suppliers sell parts to all three American automakers, plus European and Asian companies such as Toyota Motor Corp. that have plants in the U.S. So the failure of certain suppliers could cut off production beyond the Big Three. "There are dozens and dozens of tiny suppliers that, if they fail, could shut down GM, Ford or even Honda," said Craig Fitzgerald of accounting and advisory firm Plante Moran. That possibility was highlighted in a recent report by the Center for Automotive Research, which predicted that the failure of a major carmaker could set off a spiraling chain of failures claiming 2.5 million jobs within a year. Long the silent partners in the automotive world, suppliers are beginning to make noise to draw attention to their financial straits.Most car companies are in some sort of trouble today, it isn't limited to "the big three". Today's paper had the head of Fiat saying, "We can't make it alone". The US car companies spend mostly their own money on research; there's a lot of foreign governments that provide assistance to companies in their domicile. Car companies in socialized Europe don't have these legacy health car costs or pensions to worry about. This kind of intertwined government/private partnership in the rest of the world is not limited to automotive. Does anyone remember the French Caravelle? How about BAC-111 from UK? The companies that made these aircraft failed, a French-British consortium was created specifically to employ people and market against Boeing. So now we have "Airbus"; its legacy being created out of the ashes of failed companies by government intervention. I bet they still get some kind of assistance to keep people working in their factories.
I don't hope to persuade anyone with anything here--goodness knows Detroit, Michigan and a whole lot of people have been trying to persuade government for a long time to no avail. but as my mother always used to say...
"Be careful what you wish for, it might come true..."
Do you think I'm a bit angry? Perhaps. But don't let my anger dissuade you from your opinions. Nationally-known and respected best-selling author and columnist Mitch Albom
http://en.wikipedia.org/wiki/Mitch_Albom was a little bit ticked off this week:
Hey, you senators: Thanks for nothing
A few parting words for the senators who squashed the auto rescue
By MITCH ALBOM • FREE PRESS COLUMNIST • December 13, 2008
Do you want to watch us drown? Is that it? Do want to see the last gurgle of economic air spit from our lips? If so, senators, know this: We’re taking a piece of you with us. America isn’t America without an auto industry. You can argue whether $14 billion would have saved it, but your actions surely could have killed it. We have grease on our hands. You have blood.
Kill the car, kill the country. History will show that when America was on its knees, you lawmakers wanted to cut off its feet. How does this happen in America? Suddenly, the worker is the problem? Suddenly, unless union members, overnight, drastically slash their wages with a hard deadline, you pull the plug on an industry? Suddenly, Detroit is the symbol of economic dysfunction? Are you kidding? Have you looked in the mirror lately, Washington?
In a world where banks hemorrhaged trillions in a high-priced gamble called credit derivative swaps that you failed to regulate, how on earth do we need to be punished? In a bailout era where you shoveled billions, with no demands, to banks and financial firms — who created the problem in the first place — why do we need to be schooled on how to run a business? Who is more dysfunctional in business than you? Who blows more money? Who fashions and molds its work based on favors and pork and traded compromises? At least in the auto industry, if folks don’t like what you make, they don’t have to buy it. In government, even your worst mistakes, we have to live with. And now Detroit should die with this?
In bed with the foreign automakers Kill the car, kill the country. Sen. Richard Shelby, Sen. Bob Corker, your names will not be forgotten. It’s amazing how you pretend to speak for America when you are only watching out for your political party, which would love to cripple unions, and your states, which house foreign auto plants. Corker, you’ve got Nissan there and Volkswagen coming. Shelby, you’ve got Hyundai, Honda, Mercedes-Benz and Toyota. Oh, don’t kid yourself. They didn’t come because you earned their business, a subject on which you enjoy lecturing the Detroit Big Three. No, they came because you threw billions in state tax breaks to lure them. And now — this is rich — you want those foreign companies, which you lured, and which get help from their governments, to dictate to American workers how much they should be paid? Tell you what. You’re so fond of the foreign model, why don’t you do what Japanese ministers do when they screw up the country’s finances? They cut their salaries. Or they resign in shame. When was the last time a U.S. senator resigned over the failure of his policies? Yet you want to fire Rick Wagoner? Who are you people?
More money for the lords of Wall Street There ought to be a law — against the selfishness and hypocrisy our government has demonstrated. The speed with which wheelbarrows of money were dumped at the feet of Wall Street versus the slow noose hung on the auto companies is reprehensible. Some of those same banks we bailed out are now saying they won’t extend credit to auto dealers. Wasn’t that why we gave them the money? To loosen credit? Where’s your tight grip on those funds, senators? Or do you just enjoy having your hands around blue-collared throats?
No matter what the president does, history will not forget this: At our nation’s most uncertain hour, you stood ready to plunge tens of thousands of families into oblivion. Push them onto public payrolls, unemployment, no health insurance. And you were willing to put our nation’s security at risk — by squashing the American manufacturing we most rely on in times of war. And why? So you could stand on some phony principle? Crush a union? Play to your base? How is our nation better off today now that you kept $14 billion in the treasury? Are you going to balance the budget with that?
Don’t make us laugh. Kill the car, kill the country. You tried to slam a stake into the chest of this business, and you don’t even realize how close to the nation’s heart you’re coming. Shame on your pettiness. Shame on your hypocrisy. This is how we behave two weeks before Christmas? Honestly. What has become of this country? 
