Calling a Duck a Duck
In the debate about whether to bail out the Big Three automakers or let them go into Chapter 11 (an issue about which I’m still genuinely on the fence), one of the commonly-repeated talking points I keep hearing from the anti-bailout crowd is that Chapter 11 would allow the automakers to “dispose of legacy costs.” It’s pretty clear what that actually means, however, and why the Chapter 11 proponents don’t want to call it what it is: Screwing the pensioners.
Now some will doubtless object that the federal pension insurance will cover the pensioners, but there are two problems with this. First, this insurance will only pay a fraction of what the pensioners are currently receiving, and secondly, it makes those payments on the taxpayer dime, which means that from that perspective, we’re screwing both the pensioners and the taxpayers.
Now maybe this is unavoidable at this point — maybe the pensioners can’t fully be saved. I don’t know. But when we’re talking about real people, real benefits, and real jobs, we should at least be honest about what it is we’re talking about doing.
November 19th, 2008 at 3:54 pm
What percentage of pay the UAW pension plans pay on average? Federal pension insurance covers up to $45,000 per year per person. The average UAW assembly line worker would have to either have a extremely generous pension plan or have been making an outrageously high salary to hit the cap.
November 19th, 2008 at 3:59 pm
You don’t want to call a duck a duck because then you’re going to have to call what they want to do what it is – theft.
That money comes from MY pocket. What about MY retirement that I can’t save for to pay for this? Oh, I know you’re probably thinking “it’s only $X.XX” which would be fine and dandy if I was taxed in a vacuum, but I’m not. I’m already taxed to pay for roads I use, schools I don’t, for research into the mating habits of boll weevils, for the local sports stadium, for improvements to some waterway I’ll never see, for a bridge over said waterway I’ll never cross, and the list goes on longer than Uncle has storage space for me to type in.
My fucking IRAs and 401k just took a beating and you want me to realize we’re talking about “real people”????? What? I’m imaginary? Who the hell is going to bail ME out when I’m done bailing out others?
If it’s that important to you, I suggest you start putting money aside to pay directly to these real people that you care so much about and stop suggesting others do the same at gun point. I call that theft, no matter how well intentioned the spoils will be divided.
November 19th, 2008 at 4:03 pm
Of coarse it’s screwing the pensioners.
Just like it’s screwing the workers.
Just like the workers and the pensioners are screwing the companies.
November 19th, 2008 at 4:08 pm
Kansas City has two auto assembly plants. Overall in Missouri,there are at least five, maybe seven auto plants. KC has a local conservative radio show in the mornings on KCMO. The topic this morning was the auto bailout.
A Union official called in and claimed that denying a bailout to the auto industry was a capitalist plot to bust the UAW. It was the Bush’s fault. It was the Federal Reserve’s fault. It was Wall Street’s fault. It was everyone’s fault if they would support the continued pay and beneifits of the UAW. It union had no responsibility in the troubles of the auto industry because the Ford CEO, the GM CEO, the Chrysler CEO were all fat-cats and weren’t doing their jobs to save the companies for the unions.
What drivel. The host—very conservative let me rant on and then told the audience, “Well, there’s the root of the problem.”
November 19th, 2008 at 4:11 pm
ParatrooperJJ:
My understanding is that they would get a lot less than that in practice, but I’ll be the first to admit that this understanding could be incorrect. If what you’re saying is true, however, then it just shifts the balance of “who’s getting screwed” more onto the taxpayers, i.e., us.
Robb Allen:
Don’t be so quick to jump to conclusions. I haven’t come out in favor of a bailout. As I say up there in the first sentence, I’m still on the fence. If a bailout can be structured in such a way that the taxpayers get the money back with interest (as was the case with Chrysler in the 80′s), then I could see doing that. But I’d want serious strings attached.
Frankly, I’m not sure that there is a correct course of action here. If the automakers hadn’t been grossly underfunding their pension fund for years (neither our fault nor the fault of the retirees), the current “legacy costs” associated with those pensions wouldn’t be anywhere near as dramatic. But there’s little doubt that no matter what we do, somebody gets screwed — it’s just a matter of who.
Finally, everybody’s “fucking IRAs and 401k” have been taking a beating. If you’re five years or more away from retirement, you’ll be just fine. If you’re closer to retirement than that, then you’re nuts if you have a substantial portion of your portfolio in stocks. I’m a pretty big believer in adhering to what I’ll call the Bogle ratio after age 50: whatever your age in years is, that’s what percentage of your retirement funds should be in low-risk investments like cash, money markets, and bonds/bond funds.
But riddle me this: do you expect it to help your IRAs and 401(k) if the big three go under, and we suffer the sort of widespread job losses that would inevitably result?
November 19th, 2008 at 4:17 pm
I have some retire UAW neighbors. They retired in the late ’90s and are getting 80% their regular pay. A part of that is due to benefits added to their local UAW contract. They’re getting around $60K/yr on their UAW pension plus SS that adds around another $1500/mth.
November 19th, 2008 at 4:19 pm
To quote an Eric Anondson commenting on this at Samizdata, “They are not car companies any longer. They are benefits distributors that happen to also make vehicles on the side.”
November 19th, 2008 at 4:23 pm
tgirsch, you’ve hit right on my point. EVERYONE is taking hits right now. But you cannot favor one group over another.
To answer your riddle, my 401k will do quite well when the business opportunities that spring from the downfall of the big 3. I’ve watched large chain retailers go belly up in my area and multiple smaller businesses pop up to take their place in the market. No matter how big the tree that falls, there’s always plenty of life to take hold in the sunlight.
People seem to be under the mistaken assumption that GM not need make a valuable product in order to take care of their employees and that just throwing cash at them. They’re going under not because I’m not paying enough out of my taxes, but that they don’t make products people want to buy at prices they are willing to buy them at. No amount of money thrown at them is going to fix that problem.
Finally, your advice on how to invest is sound, but I don’t plan on following it. Instead, when I’m 58 and my retirement funds have gone kaput, I’m simply going to demand you pay for my failure to manage my own money. It’s just easier that way.
November 19th, 2008 at 4:26 pm
Re: Guaranteeing the Pensions, see this bit. In short, the pensions plans have been paying premiums to cover this eventuality. We the taxpayers would not bear the entire cost (and if the PBGC is out of money, we have only ourselves to blame for allowing congress to raid the funds like they do Social Security). Also, not everyone receiving UAW retirement benefits is actually at retirement age. Quite a few took early retirement and are more than capable of getting back to work.
Also, a Chapter 11 filing would involve SOME job losses, but not necessarily widespread losses. Some line workers and managers/executives would be looking for jobs, but not all of them. Ideally bankruptcy would allow for renegotiating existing contracts so as to make the companies profitable again.
As for the retirees who are innocent victims, I’m sorry, they are not. They worked at the plants and voted for these unsustainable benefits and they’ve enjoyed them for quite a while, and now, like everyone else in the country right now, they are gonna hurt. I have no sympathy for their shortsightedness and inability to plan ahead.
November 19th, 2008 at 4:33 pm
MRS, maybe they could cash in their 68 vacation days to cover some of their costs, no?
November 19th, 2008 at 4:36 pm
Even when I worked for a State University I did not get 68 days of vacation. So yeah, they could cash that in, two months pay is a nice severance package.
November 19th, 2008 at 4:37 pm
Robb:
What, exactly, did I do to deserve you deciding to be such a dick to me? I mean, seriously, I try to be civil, and I try to keep an open mind, but you’re making it very difficult when you cast aspersions and launch largely unfounded attacks against me. What gives?
In any case, at the end of the day, I’m a pragmatist. So if the medium- to long-term results of not bailing out the big three are worse for the economy as a whole than the results of bailing them out, then I’m in favor of a bailout. And if they’re not, I’m not. It’s really that simple.
Madrocketscientist:
My understanding, which as I said could be flawed, is that the premiums that have been paid to cover this eventuality are far from sufficient to actually cover it. It’s less about raiding the funds and more about making the premiums too small in the first place, as I understand it.
As to whether or not retirees could go back to work, we’re still talking about contractual obligations that were agreed upon. Maybe you don’t have a problem with letting a company out of such obligations so cavalierly, but I do. And you can bet that if the employee tried to duck a contractual obligation, the company would do everything within its legal power to enforce the contract. So I don’t see why it should be a one-way street.
As to the Chapter 11 and job loss question, that is a big question that remains to be answered (as well as whether or not Chapter 11 is actually a realistic option — I’ve seen speculation that any automaker bankruptcy would have to go through Chapter 7 instead).
Finally, it oversimplifies things to say that retirees “voted for … unsustainable benefits.” Labor contract negotiation is a two-way street, so it’s not as if the company had zero role to play here. And, of course, if the automakers had adequately funded the pension plan in the first place, the benefits wouldn’t be so unsustainable. And it seems that every time trouble hits Detroit, it’s always the union that’s making all of the concessions — they give when times get bad, and they don’t get it back when times are better.
November 19th, 2008 at 4:41 pm
Just so we’re clear, that’s 68 days over 4 years. 17 days per year + whatever vacation/sick/personal time they get.
November 19th, 2008 at 4:44 pm
Robb:
That “68 vacation days” is actually four years worth of paid Holidays (which can’t be “cashed in”), about 17 per year. But, when you consider that the “Christmas holiday period” actually includes two weekend days, it’s down to 15 per year. That’s more than the 9 or 10 holidays that most people get per year, but it also includes the aforementioned “Christmas holiday period,” a one-week plant shutdown which anyone familiar with the manufacturing industry knows is used to clean and maintain equipment and retool production lines.
November 19th, 2008 at 4:47 pm
tgrisch:
Don’t get me wrong, I don’t blame the Unions or the workers for this mess alone. Management and the Executives did more than their fair share of damage.
That being said, the damage is done, and everyone had a part in it, big and small, and they are all going to have to suffer for it. Everyone got greedy (workers wanting compensation above and beyond the value they add to the product and a rosy retirement, and executives who believed that the consumer would tolerate the inflated costs indefinitely), and I do not support bailing out those who have more greed than sense (I have no problem with greed, but if it is not tempered with restraint…).
As for breaking contracts, that is exactly what bankruptcy is for (and I’ve not read a single thing that said Chapter 11 was not possible). If I go bankrupt, then I get a court to break all my contracts for me. I had a friend of mine who owed me money go bankrupt and I got a court order preventing me from pursuing him for any further payments, despite the written contract between us (I did get to write off the remaining debt on my taxes). If the little guy can break contracts with bankruptcy, why can’t the big guy do the same?
Also, many of the contracts will not be broken so much as renegotiated. The pensions may still be held by the Big 3, but with reduced terms so it’ll be easier to fund them.
November 19th, 2008 at 4:51 pm
Can I ask a really stupid question? If union labor costs are one of the big reasons for financial issues, why can’t the auto makers just fire the lot of them and offer non-union jobs at market correct wages and benefits?
I know there are probably union contract penalties but it has to be cheaper to pay them out, give the unions the finger and start over with realistic expectations? When they opened a car plant in Cambridge (north of where I grew up in Canada), it was non-union and they had 14,000 people apply for roughly 450 jobs at $17-$19 an hour. Good money for high-school diploma work.
A low figure of $29/hr with a high of $78/hr to turn bolts? Sorry. Not sympathetic. Here’s why: I can do that job. They can’t do mine. That’s a skill disparity and I am compensated accordingly. The fact a bolt turner is making multiple times my decent salary as a skilled professional says volumes for what is wrong with the attitudes of labor unions towards what they think they deserve (or what they can shakedown out of the auto makers).
So tell me why they can’t fire them all and then offer them their jobs back at proper wages with typical benefits that actually would require 8 hours a day of turning bolts?
The time for unions has passed. Necessary to secure workers rights a century ago. Not needed anymore. Legislation has taken care of those issues. Not saying the car makers aren’t guilty of bad decisions too but those costs factor in hugely in deciding where to put their eggs in order to turn a profit.
November 19th, 2008 at 4:52 pm
There are no attacks, tgirsch. You’re reading into things. I’m simply passionate about not being robbed at gunpoint. I have no problem with taxes on items I use, even for bridges I might not cross just like I’m ok paying for a burger without onions even though those onions are included in the price. What the bailout entails is taking MY money, yes personally from the checking account of Robb Allen, to pay for someone else’s mistakes and you’ll have to pardon me as I get a little huffy about the fact I’m fond of keeping what I earn.
I’ve reread my comment over and over and still see no attacks against you. I’m simply illustrating holes in the thought process that tax money can fix this situation. That’s not attacking, that’s just logic. If you’re referring to the last part of “demanding you save me from my bad judgment”, the “you” is generalized, not tgirsch specific. No dickiness intended as you’ve done nothing so far to show you’re not at least willing to discuss stuff.
November 19th, 2008 at 4:53 pm
Oh, and having just experienced a strike (IAM at Boeing) from just outside (I’m engineering), and after listening to my Union get all huffy, I can tell you that Unions do share quite a bit of fault here. They make excessive demands, and then tell the workers to either accept or reject a contract without letting the workers see the actual contract, and the workers do not demand to see the contract.
It’s one of the reasons my Union strikes so rarely, we tend to demand to see the contract so we can decide for ourselves if it is fair. Even still my Union did a pretty impressive PR campaign to try and convince everyone they had the support to strike, even though everyone I spoke with was wondering what in the blazes the Union leaders thought they were doing. I wonder if they’ll still be around after the next leadership vote.
November 19th, 2008 at 4:55 pm
As I said at tgirsch’s site before realizing he posted here:
November 19th, 2008 at 4:56 pm
Matt:
Union busting requires firing everyone and shutting down for one year. It’s what the steel industry did some decades ago.
November 19th, 2008 at 4:58 pm
The pensioners can’t be saved. It is incredible that they were allowed to make unfunded promises so long, but the money is gone and won’t come back. I believe that without a bailout, GM is done in a fairly short time. With a bailout they will last a little longer, but I don’t see a way to keep them going long enough to actually recover.
The sad part was that they were finally working to fix a lot of their problems. If gas had gone up in price slowly enough to adapt, and if the credit crisis had been a few years later I think they could have made it.
November 19th, 2008 at 4:59 pm
MRS, is that year timeline a legal thing? Seems like it’d not take that long to get enough people trained and up to speed. I know when the post office opened up a sorting facility here, 400 jobs were filled in a week and two months later they were online.
November 19th, 2008 at 4:59 pm
I’ll say it, then. “Screw the pensioners.” Under threat of strikes, and backed by union- and strike-friendly federal regulations, the unions asked for and got retirement packages that add significantly to the cost of every new car built by a big 3 domestic manufacturer.
Ace of Spades had a good post about this, but its something I’ve known for a while since I buy used import sedans and put a lot of miles on them. After pensions, health care and make work, the big 3 have up to an extra $1500 _per car_ that import brands and factories in right-to-work states don’t have. When they could build that into the price of an SUV or a luxury or semi-luxury car that worked for them, but there’s no good way to do it in the economy market.
If the big 3 can find a business model that lets them meet those obligations, great. If they have to go under because they can’t meet those obligations, fine. But now they want taxpayer dollars to keep meeting their obligations under an unprofitable business model. Screw them all.
Look, I make enough to pay federal taxes, and I make less than the total compensation package of a union auto employee or pensioner, but they implicitly want to use my tax dollars (or possibly inflationary pressure on the dollar) to subsidize their privately guaranteed benefits. And you demand intellectual honesty? Fine. Give me a stick and an address and I’ll go screw a pensioner personally.
November 19th, 2008 at 5:01 pm
Uncle:
One item we’ve just gone round-robin over here at the Lazy B Airplane Ranch is requiring new employees to be on the company pension instead of just a 401K. Personally, my 401K is doing a lot better than my company pension, and if I could, I’d have the value of my pension dumped into my 401K and take a larger company match for my 401K. Unions resist this idea.
I’m not certain if this issue ever showed up with the Big 3, but it is one way for a company to avoid having to fund a pension. Just roll it over into a 401K and let the employee manage it. But Unions always resist this idea.
Three guesses as to why.
November 19th, 2008 at 5:07 pm
Matt:
I’m pretty sure labor laws prevent the sort of mass firings you advocate for (which are nowhere near as equitable, I think, than you seem to believe). As for your dollar-per-hour figures, they’re not quite a fair comparison. The Canadian figures you cited include just the wage, where the US automaker figures you cite are total compensation, including benefits such as health care (which, in Canada, is government-provided).
Madrocketscientist:
I’m by no means absolving the union of all responsibility here. It just seems to me that when there is pain, it’s always the union and its workers that take a disproportionate amount of the pain. That’s the part that I object to.
And as for breaking contracts under Chapter 11, I’m not saying they can’t, nor am I even sure that they shouldn’t. All I’m saying is that if such contracts are broken, it absolutely does constitute “screwing people,” just as you were screwed by your bankruptcy experience. I’m not saying that the fact that we’re talking about screwing people is enough to justify not doing so; I’m just saying that we should be honest about what we’re talking about doing, rather than sugar-coating it with vague terminology.
(No, I’m not really saying we should actual call it “screwing the retirees,” but we should be forthcoming about the fact that we’re talking about dramatic cuts to pension benefits.)
Robb:
I took from your tone that you assumed the positions you were attacking were ones that I hold, despite me either disavowing them or not commenting on them. I think a re-read still supports that interpretation. Now I’ll admit that I’ve always found the “taxation is robbery at gunpoint” argument to be asinine, but I’ll grant your objection to the potential use of $25 billion of “your” money to support a corporate bailout if you’ll grant my objection to actually using over $1 trillion of “my” money for an unjust war with no end in sight. Selective outrage, and all that.
November 19th, 2008 at 5:09 pm
Robb:
I don’t think the one year is a rule, I think it is just a practical figure. I don’t think you can fire everyone and then hire them right back, I think there is a rule that you can’t hire them back for a certain amount of time, which means you’d need to fire everyone in the Union, and then hire people who are new or who have been gone long enough (thus requiring time to train or retrain).
Otherwise a company could fire everyone, shutdown for a week, then hire them all back without the Union, then hand everyone a hiring bonus to cover the week they were gone.
November 19th, 2008 at 5:19 pm
tgrisch:
I agree that the worker probably feels a disproportionate amount of pain from such things, but once again, it is the workers own fault for that pain. Corporations exist to make money, not to take care of people, and if the past 20 years have taught us anything, it’s that you can not rely on a company to have your back. For too long now everyone has held onto the idea that the good times are here to stay, and that is not now, nor has it ever been, the truth. If the retirees have spent themselves into debt, or have failed to secure alternative savings, they have no one but themselves to blame, and I don’t think the rest of us should prop up their standard of living just because life isn’t fair.
If their pensions get cut, then they need to cut back on their expenses. Maybe that means they can’t live in Boca Raton anymore, or they have to sell the Caddy and get a Corolla, or the grandkids just get $20 for their birthday instead of $100.
Yes it sucks that pensions were not funded, and that people will lose their jobs, and retirees will have to make sacrifices, but that is part of life. The only ones who will really be tragic are those who have failed to plan ahead.
November 19th, 2008 at 5:26 pm
Madrocketscientist:
Just roll it over into a 401K and let the employee manage it. But Unions always resist this idea.
Three guesses as to why.
There’s certainly something to your cynical implication there, but the situation is a lot more complicated than that. In a traditional pension plan, it’s fixed-benefit, and the risk stays with the pension plan (generally jointly owned by the union and the company). With a 401(k), all of the risk is transferred to the employee, and each individual’s eventual benefit is determined by how well (or poorly) s/he manages that risk. Also, traditional pension plans are generally paid for mostly by the employer, whereas 401(k)s are paid for mostly by the employee, so there’s a shift in who’s funding the retirement, as well as the shift in risk.
Now you can make arguments as to what the pros and cons of each method are, but I don’t think you can clearly say that one is inherently morally superior to the other. Which you prefer is going to depend upon how well you expect to manage that risk, and how well you expect others to do so. There are some who have been advocating for some time for more “managed” 401(k) plan choices — e.g., you buy into a professionally managed fund tailored toward your targeted retirement date — for this very reason. Some companies are starting to offer these, but it’s a fine line to walk, because of liability concerns among other things.
Of course, in the aggregate, 401(k) plans turn out to be quite a bit worse than pensions in terms of real benefits provided. Sure, individuals who plan and fund their 401(k) properly can outperform a pension, sometimes substantially, but such individuals are decidedly in the minority. “Personal responsibility” is fine in the abstract, but for better or for worse, Americans as a whole fail that standard miserably — they underfund their plans, and make poor investment choices.
(I highly recommend this Frontline special, by the way, and especially this FAQ.)
November 19th, 2008 at 5:32 pm
but once again, it is the workers own fault for that pain
I guess we’re going to have to agree to disagree on this. If you think that a company’s obligation to its employess ends at providing a weekly paycheck — if you think it’s A-OK that companies get a disproportionate share of the spoils during good times while employees get a disproportionate amount of the pain in bad times — you have a much bleaker view of an ideal economy than I do. It’s probably naive to think so, but companies and their employers should be partners in success, not adversaries.
Yes it sucks that pensions were not funded, and that people will lose their jobs, and retirees will have to make sacrifices, but that is part of life. The only ones who will really be tragic are those who have failed to plan ahead.
I’m sorry, but such a cavalier attitude stuns me. If your mutual fund manager suddenly decided not to pay out your fund, would this be because of your failure to plan ahead? You’d call it fraud and/or theft, and rightly so! Somebody’s pension is just as much their money as your mutual fund is your money, so I fail to see the difference in how we should perceive a failure to pay out promised funds in the two cases.
November 19th, 2008 at 5:34 pm
Maybe so, but at least in my company, I have both, and ideally I’d like the option to have one or the other. There is, however, another benefit to a 401K vs a company pension. Right now, if I left the Lazy B, I’d leave with all of my 401K, but my company would only pay me a pension of $145/mo once I retired. That value will not go up or down, but my 401K will continue to grow.
Company pensions force an employee to choose between finding a better job, or potentially weaken their retirement. Plus the employee bears the added risk of finding himself with an underfunded pension held by a company going down the drain.
My 401K may not perform better, but at least it is mine.
November 19th, 2008 at 5:38 pm
Again, pensions are fixed-benefit, so that’s not surprising (although the $145/month seems remarkably low). It makes me curious, though: does that pension benefit go up based on length of service, or is there a precipitous dropoff for failing to work a full 20/25 years?
To a certain extent, your pension is “yours,” too, it’s just that it’s a fixed amount rather than a variable fund subject to profit and loss.
November 19th, 2008 at 5:41 pm
And regarding a bail out, it’s only a delaying tactic or a bail out for the unions. The big 3 simply cannot continue operations in the long run under their current model.
It also has an obligation to try to remain in business, which would seem to me to be a greater concern. The company’s failure to fund said pensions cannot be undone.
Deciding who gets paid (a task I’ve done many times at various jobs) is never fun.
November 19th, 2008 at 5:47 pm
“I’m pretty sure labor laws prevent the sort of mass firings you advocate”
PATCO.
As for the bailout, look at it this way. Every dollar spent on a bailout is a dollar that can’t be spent expanding or setting up new entitlement programs. So I’m all for every bailout they can come up with.
November 19th, 2008 at 5:57 pm
My company is going down the tubes too, thanks to bad and overpaid management. Where’s my bailout? Things that don’t work have to be allowed to fail. It’s a shame people have to get hurt, but those are the breaks.
We would actually be far better off letting GM fail, and bailing out the pensioners and employees, than to use taxpayer money so GM can waste steel, rubber, and plastic making cars that no one wants to buy. If you want to mix progressive compassion, while minimizing long term damage of the bailout, you’re far better off letting GM fail, and using the tax money to retrain workers, and pay for pensioners, than keeping something that doesn’t work in business.
November 19th, 2008 at 5:57 pm
tgirsch,
I’m pretty sure labor laws prevent the sort of mass firings you advocate for (which are nowhere near as equitable, I think, than you seem to believe). As for your dollar-per-hour figures, they’re not quite a fair comparison. The Canadian figures you cited include just the wage, where the US automaker figures you cite are total compensation, including benefits such as health care (which, in Canada, is government-provided).
I am no way discussing equality. I’m simply raising as rationality. If the market cannot bear the costs of union labor then it has to go and wages need to settle into an area the market can bear. I witness such wage inflation for software people (anyone who could spell HTML on a resume at the time) making well into the six figures. After the dot-com crash, those wages evaporated back to the point a six-figure software development salary really meant talent. Most software people do not make six-figures. Mid-to-high fives. Wages corrected downward.
The market settled the issue nicely. And nowhere did I see a software union demanding programmer protection. I will oppose any attempt to unionize software developers. Free market forces work just fine and I have always worked in “at will” places.
As to my Canadian wage note, fine, correct the wages upwards. Call it $25-$28/hr (the low figure quoted for a union worker) which would still be high but would include health coverage, some extra programs and a 401(k) plan.
But I would point out the health benefits are government-provided but paid for in advance by taxes. Taxes, I would note, are coming out of that $17-$19 per hour. So the actual effective pay per hour is LESS. A total compensation package of $25/hr here with $18/hr of that as gross pay would be a damn good living indeed by Canadian auto worker standards.
It sure as hell isn’t “free”. Trust me on that as someone who was making $21K/yr gross fresh out of college and was paying an effective total tax rate of 54%. In 1994, $35K/yr was solid middle class and not much has changed.
MRS: Is that “no-hire” rule a law or a contractual thing? Reagan fired the air traffic controllers and made them pariahs for life even after they could have gone back to being ATCs.
Wouldn’t it be better for the industry to go into Chapter 11, performing such a union-free restructuring under court control and let some people keep their jobs? I’m sensing a strong whiff of bullshit when it comes to talk of millions of jobless.
If a car marker goes under, someone will come along, scoop up the assets and open the plant to produce some profitable car with redone labor. The opportunities there are just too great. And if not, would it not sput the foreign car makers to increase production and have places offer incentives to build new plants? Over time that would create new networks and industries and cause those affected now to adapt or rollover to.
November 19th, 2008 at 5:59 pm
Whoops, forget to close the italics tags. Sorry about that.
November 19th, 2008 at 6:18 pm
I still do not see why the auto companies should be immune from the market that the rest of us suffer/benefit from. Since when did doing a job become social welfare? I feel bad for those people losing their jobs, but putting food in their mouth is not my reason for working.
November 19th, 2008 at 6:29 pm
As for pensions, don’t worry about them, or the pensioners, either. Haven’t you heard? The incoming administration has plans to confiscate them whether 401k’s or company plans, so as to disburse the funds more “equitably”. At least that’s what they now say.
November 19th, 2008 at 6:50 pm
Uncle:
I know that underfunding the pension can’t be undone. It can, however, be punished, and I feel that it should be. And I mean punish the people responsible, not the nebulous “corporation.” But that’s another discussion.
Matt:
[Fixed your italics tag.]
You’ll forgive me if I don’t share your apparent belief that we should all live to serve the market. The market should be there to serve us, rather than the other way around.
Trust me on that as someone who was making $21K/yr gross fresh out of college and was paying an effective total tax rate of 54%.
I find that very difficult to believe. Take-home pay of $805/month on a gross of $1,750? I know taxes are higher in Canada, but on that count, I’m from Missouri.
November 19th, 2008 at 7:00 pm
Actually, yes, I do believe that a company is not obligated to anything but a weekly paycheck. I do work for them, they pay me. Some of that compensation is a weekly check, some is health benefits, some is put into a pension and a 401K. I also get additional compensations such as educational benefits, stock options, and profit sharing.
However, I’m OK that all of that ends the day I leave the company (except for the pension, which I would prefer to have in a 401K anyway, but I don’t get a choice). I do not continue to add value to a company after I leave, why would I expect them to continue to pay me just because I worked for them? Yes a pension is a savings, but it is not a savings I control.
And therein lies the fundamental problem with a company pension. It is a liability that has no foreseeable end. A company can fund a pension, but the longer people live, and the more employees that move through the company, the larger the liability becomes, and if the company is not making enough money, it gets hard to fund the pension.
Yes management could’ve done a better job, but they didn’t, and now these liabilities are busy bleeding them dry. The managers and executives, who don’t have all their eggs in one basket, will walk away in good shape, but the workers, who have their retirement tied to a failing fund with NO WAY to move the money, are left holding the bag. And that inability to move their money is the fault of a Union who wants to tie workers to a pension, and the company, and the Union.
Sure, my 401K fund manager could refuse to pay me, and I could have him arrested and sue him for damages. Luckily, however, he is not my only source of savings, so if he does lose my money, I’m not left with nothing except a lawsuit.
As for my cavalier attitude, I live by it so that I never allow myself to believe that someone else has my best interests at heart, because ultimately, they don’t.
November 19th, 2008 at 7:02 pm
tgrisch:
I’ve only been there for three years. Technically I’m not vested in my pension until I’m here for 5 years, so if I left today, I’d lose it all.
Except I’d get to keep my 401K, since it was mine from day one.
November 19th, 2008 at 7:09 pm
Madrocketscientist:
Sure, my 401K fund manager could refuse to pay me, and I could have him arrested and sue him for damages.
Too bad the people who get screwed out of their pensions don’t have similar recourse, huh?
I’ve only been there for three years.
Then the $145/month doesn’t seem all that low any more.
Except I’d get to keep my 401K, since it was mine from day one.
The money you put in, yes. If there’s a company match, that portion, maybe not.
Anyway, I’m not saying that people shouldn’t have a Plan B — of course they should. But whether or not they do is irrelevant to whether or not we should (legally, if not practically) expect companies to fulfill their promises.
November 19th, 2008 at 7:12 pm
tgirsch,
When I refer to effective tax rate, it is the amount of money you had left in your wallet that was yours after the government was finished with you. Those taxes came from three basic areas: federal income tax, provincial income tax and sales taxes.
As it worked out, my Federal income tax was around 32% of gross, my provincial income tax was 52% of the owed Federal taxes. Stick on top of that the 15% sales tax rate (7% provincial, 8% federal) and it is very, very easy to see how you’d be paying 54% of your income in taxes.
We used to say in Ontario that you’d be earning money for yourself free and clear by the end of July. And my take home pay after taxes was actually around $520. It is off that the 15% tax on purchases kicked in.
That year I still owed the provincial government $1800 on top of the taxes they had already received. $1800 extra taxes on $21K gross. Yes, sir, it is VERY EASY to believe a tax rate of 54%.
This is ancient history for me now which is why I have no problem publicizing these numbers. Why do you think I don’t complain excessively about my personal tax burden under the IRS and having a shockingly high sales tax of 5-6%? I lived in Texas where the sales tax was 7% and they complained endless about it. I was thrilled beyond belief because they hadn’t seen anything.
I still pay way too much in taxes but my experiences have moved those goal posts compared to a typical American raised only with IRS and state/local tax burdens. If you had to pay the tax burden as a middle-class earner in Canada here, there would be revolution.
And I was a poor middle class person. Those rates rose before they fell. My parents envied me.
So I understand fully the costs of those social programs and who bore the burdens.
By the way, I’m not talking about living to serve the market. We owe the market nothing and vice-versa except what we are willing to bring to it and what we are willing to tolerate. I don’t see that as wrong.
If the Big 3 can no longer sustain their cost models under these economic conditions, why should they be given special dispensation at survival? What on earth makes them any different from anyone else in an industry suffering pressure? Or the next one? Where does it stop? It seems like the government is trying to decide on what type of business is the “just right” size to survive. Too big, they save you. Too small, here’s welfare. “Just right”, too bad.
It’s not like this is a surprise. The warnings have been out there for years. Hell, Alan Mullaly (CEO of Ford) of all people, should know better. He was with Boeing during the 777 development and I have a documentary on that development. He states during one segment that the aircraft builders had to learn a valuable lesson in assuming growth and expansion because on the other side of up was down. They grew too fast and suffered greatly on the downward swing of a known cycle in the aviation industry.
You’d figure he would have taken his own advice and applied that experience to Ford. At a minimum, diversify their revenue stream. Enjoy the profits from the SUVs but don’t become beholden to them. Stick that cash away for the downturn you had to know was coming.
Sorry, rambling here. It just seems big corporations seem to lose sight of planning and long-term trends in the quest to make money.
November 19th, 2008 at 7:17 pm
BTW, regarding compensation.
I’m an engineer with significant specialized knowledge and skills that are very useful to my company. I’m considered a professional. I have a BS and an MS in Aerospace Engineering (I specialize in CFD), and I am getting ready to start my MBA. My complete pay and benefits package works out to an hourly rate of $45/hr and change. A figure that I find quite reasonable given my skills, education, and experience.
Someone please tell me how an assembler with at most a high school education is worth $29/hr?
November 19th, 2008 at 7:24 pm
Matt:
I still find those numbers hard to believe. Were there no personal exemptions or deductions? And even if there weren’t, the current Canadian tax rates are less than half of what you describe: for an income of $21,000, it would be subject to a 15% federal income tax, plus a 6.05% provincial income tax — effectively a little over 21%. Even if you spent every penny that was left on purchases that are subject to both GST and PST (which seems difficult to believe), you’d have an effective tax rate of 36% — well less than the 34% you described.
So unless all the tax rates dropped precipitously after you left Canada, I still find your numbers very difficult to swallow. On the plus side, however, it’s good to know that we Yanks aren’t the only ones who grossly overestimate our tax liabilities.
If the Big 3 can no longer sustain their cost models under these economic conditions, why should they be given special dispensation at survival?
Let me repeat for the record that I’m still on the fence about whether or not to bail out. That said, the decision of whether or not to bail out should be made based on what’s best for the mid- and long-term health of the American economy as a whole. If GM’s failure has ripple effects throughout the economy that are more expensive than a proposed bailout (and if a bailout can, in fact, be expected to prevent or minimize those effects), then it should be supported. I’d love to teach GM’s execs a lesson, but I’m not willing to flush a huge segment of our economy down the toilet to do so. Now if that flushing is inevitable, then that changes the equation considerably.
It just seems big corporations seem to lose sight of planning and long-term trends in the quest to make money.
Agreed, and that’s precisely why I’ll never be an economic libertarian.
November 19th, 2008 at 7:27 pm
20 USD/Hour isn’t bad for a good worker, especially if it involves particularly hard subjects. 30 USD/hour wouldn’t be bad for something specialized, and it’s not far from the typical number from a car manufacturer. But we’re talking 50+ USD/hour for some of these folk, and that’s just friggen ridiculous. There are jobs that don’t require a lot of education that are worth that much or more, but assembly line work almost certainly isn’t one of them.
November 19th, 2008 at 7:29 pm
Nope, it’s all mine. I was fully vested in the 401K the day I started.
And the pension does sound nice, until you realize I lose it if I decide to leave the Lazy B before 5 years are up, and if I leave after 5 years, the monthly payout does not grow anymore. So the price I pay for a fixed monthly amount is that if my company can make the pension fund grow more than is needed (and my company is fully funded), then my company keeps all the profits. And yes, it goes up every year although I think it starts to plateau after a while.
Now if the Big 3 go bankrupt, the existing pensions will be honored by the PBGC at taxpayer expense. Yes it might be less than what is there right now, but it will be a livable amount even if that is all they have, provided they are willing to live somewhere where they aren’t shelling out tons of money just to live.
Again, if you can declare bankruptcy and default on all your debts and promises to pay money, why can’t a company?
November 19th, 2008 at 7:30 pm
Madrocketscientist:
Someone please tell me how an assembler with at most a high school education is worth $29/hr?
To paraphrase Jack Welch, because they can get it.
More seriously, in any capitalist or quasi-capitalist economy, something is only ever “worth” what people are willing to pay for it. Level of education and even relative quality are largely irrelevant. If you’re doing a job nobody else is willing to do (for less money), then it’s genuinely worth what you’re getting paid to do it.
Let me put it to you another way: would you be willing trade your job to go stand on an assembly line doing a boring, repetitive task for 8 hours a day for a total package of $29/hour including benefits? I know sure as hell wouldn’t.
(And, for what it’s worth, it seems to me that either your pay sucks or your benefits suck, or both, based on the figure you’ve quoted and what you do for a living.)
November 19th, 2008 at 7:33 pm
Exactly. We (the taxpayers) can bailout the pensions (although I would make the UAW and the execs all pony up a whole buttload of cash to help out, they all have quite a bit), but the companies should go bankrupt.
November 19th, 2008 at 7:36 pm
I have an educational benefit that is amazing. I won’t pay a red cent toward my MBA, and when I’m done, I’ll get a raise and 100 shares of stock. Also, I’ve only been with the company for two+ years. As I gain experience, I’ll get quite a bit more.
November 19th, 2008 at 7:36 pm
Again, if you can declare bankruptcy and default on all your debts and promises to pay money, why can’t a company?
We seem to be quibbling over semantics here. Whether or not something is legally permissible isn’t terribly relevant to whether or not it’s right. (Or, depending on your perspective, shitty.) Whatever else your perspective may be, I fail to see how anyone can think it’s not shitty to live by a “company reaps rewards when times are good, shits on employees when times are bad” philosophy, which is precisely what we’ve been doing (well beyond the Big 3), and what some here seem to be advocating as the way things ought to be.
And again, that’s our primary disagreement — the disconnect between the way things are and the way things ought to be, and what, if anything, we should do about that disconnect.
November 19th, 2008 at 7:38 pm
Job implies that there’s work to be done. Your own people seem rather convinced that there won’t be any.
November 19th, 2008 at 7:39 pm
Sure they can get it ($29/hr), but it’s artificially set by a Union instead of by the market at large.
The IAM just tried to do that to the Lazy B, and luckily they got smacked down for it and gained nothing significant.
November 19th, 2008 at 7:44 pm
We (the taxpayers) can bailout the pensions (although I would make the UAW and the execs all pony up a whole buttload of cash to help out, they all have quite a bit), but the companies should go bankrupt.
Well, to my mind, that’s dependent upon what option costs us (the taxpayers) less money overall. It may be that what you suggest is the most cost-effective method, in which case I’d be all for it. But if it’s possible, and cheaper in the long-term, to keep the companies afloat, then why not prefer that option? What if, as in the case of Chrysler in the 80′s, a bailout loan really could save the companies, and the loans really would be paid back with interest? If that’s the case, then the net cost to the taxpayer is less than zero — it’s a net benefit to the taxpayers. I can see arguing that you don’t expect the companies to be able to recover (I frankly don’t have enough information to accurately speculate one way or another, and I doubt very many people commenting here do either), but I can’t see arguing, as some seem to, that we shouldn’t save the companies even if they can be saved and if saving them is beneficial based on some pie-in-the-sky laissez-faire principles divorced from reality.
November 19th, 2008 at 7:49 pm
What irks me about the whole thing is these workers agreed (or were forced) into contributing to a pension plan on the promise that they would receive X compensation after Y years of service. So whether by choice or force, they did so and help up their end of the bargain. Even if the bargain was a devil’s errand on the part of the auto maker and the union controlling it.
So is there this pile of pension money that was being managed by the company or is it another IOU ponzi scheme ala Social Security?
I can understand not having a Plan B if you’re engaging in a system that your parents did and others had done successfully with no indication it was a bad system. Pensions, in a way, represent a set of values we should wish for. The notion that the company rewarded your loyal service of a lifetime. There’s something noble and ethical in that.
Those people deserve to receive their pensions or some form of compensation for the promise they kept. If the pension funds were raided or manipulated in accounting games, I’d like to welcome the accountants and corporate officers who abetted such actions to your nearby Federal PMITA prison.
I believe in ethics. I believe in morals. I have a real problem with the notion of a corporation as an entity that is permitted to exist with the absence of either. A corporation isn’t a person; it is a puppet with real people yanking the strings. Those people above the stage should be held responsible for jerks and tugs they make.
But they aren’t. No accountability. “They got theirs and got out. Screw the rest.”. What kind of fucking value system is that? Money’s nice but I’d like to be able to sleep at night.
And a bailout won’t suddenly create halos. As you say, too late argue about what happened. I’m with MRS, bailout the obligations the workers accepted and paid into in good faith (even if outlandish). Or find a compromise. My Dad certainly didn’t get one when they liquidated a pension he had contributed to for 16 years. His age trumped his seniority. Older workers got far more for less input. It went against and still goes against my notion of fairness.
But that’s it. Let Chapter 11 deal with the rest. If they’re too big to fail, then even in bankruptcy, people will still buy their cars. Fear of that not happening is ludicrous. Even if they stopped production tomorrow, there’s still enough parts in the inventories of various suppliers to keep those cars going for 10-20 years. Hell, I was still able to get parts for an 1973 Honda motorcycle 30 years after it was out of production through the dealer as a catalog item.
Otherwise, all we’re doing is stretching the net of funded Communism further down onto the American people where ultimately all of us will be given a stipend by the Government and the whole system grinds to a halt.
November 19th, 2008 at 7:49 pm
but it’s artificially set by a Union instead of by the market at large.
A distinction without a difference, in my estimation. Unless unions somehow get a special exemption and somehow magically “don’t count” as players in the market. Consumers and corporations use pressure to influence markets all the time, and as you yourself point out, sometimes they succeed and sometimes they fail. Why should unions be any different? What part of free market theory says that consumers or workers must not under any circumstances come together to exert pressure for their common interests? I don’t get that.
November 19th, 2008 at 7:53 pm
Exactly. I do think the executives of these companies and the Union bosses should suffer dearly for their incompetence, but I do not think the company has any obligation to do anything except try to remain profitable.
November 19th, 2008 at 7:55 pm
Given that unions have several dozen special powers, have had police officers ignore acts that would have gotten any other player in the market arrested, and otherwise been protected by the government, the only way to consider them as a normal player is to use the TNSTAGI principle.
November 19th, 2008 at 8:02 pm
Matt:
What irks me about the whole thing is these workers agreed (or were forced) into contributing to a pension plan on the promise that they would receive X compensation after Y years of service. So whether by choice or force, they did so and help up their end of the bargain.
Traditional pension plans are not funded by the workers, but by the company. So the company was supposed to contribute into the pension plan, and as Uncle pointed out upthread, they underfunded it (i.e., they contributed, but nowhere near enough to cover the fund’s obligations).
So is there this pile of pension money that was being managed by the company
I don’t know the specifics of the Big 3 pensions, but generally there’s some degree of co-management between the company and the union. But the problem for GM as I understand it is that because the pension fund was underfunded (by GM), they’re contractually obligated to pay out benefits to cover the shortfall. Hence, the “legacy costs” we keep hearing about. Had they properly funded the pension plan on the front end, the fund takes care of its own obligations, and these legacy costs are a non-issue in the larger scheme of things.
I have a real problem with the notion of a corporation as an entity that is permitted to exist with the absence of either. A corporation isn’t a person; it is a puppet with real people yanking the strings.
Opposition to corporate personhood is one place where I can wholeheartedly agree with you. Just understand that this aligns you with liberals a lot more than with conservatives.
And a bailout won’t suddenly create halos.
Which is why any bailout, if it’s to be pursued, has to come with serious strings attached, and serious oversight. I’m not optimistic about that, by the way.
If they’re too big to fail, then even in bankruptcy, people will still buy their cars.
I think you misunderstand what it means to say they’re “too big to fail.”
P.S. If social security is a “Ponzi scheme,” then who’s the guy at the top who’s raking in the money hand over fist, i.e., who’s playing the role of “Ponzi?” And Ponzi schemes are characterized by a promise of paying abnormally high returns on investment, whereas the common complaint made against social security is that it’s a low ROI. But I digress.
November 19th, 2008 at 8:07 pm
Madrocketscientist:
I do not think the company has any obligation to do anything except try to remain profitable.
Let me just make sure I have this perfectly clear: You don’t think a company has any obligation to fulfill its contractual obligations? We shouldn’t be able to hold companies to their promises? If that’s the case, where’s the disincentive for a company to just make all sorts of promises and then reneg on them as soon as profitability takes a hit?
gattsuru:
Given that unions have several dozen special powers, have had police officers ignore acts that would have gotten any other player in the market arrested, and otherwise been protected by the government, the only way to consider them as a normal player is to use the TNSTAGI principle.
I’ll be glad to grant you that. Unfortunately for the point you’re trying to make, every one of those exceptions also applies to corporations, except that it applies to them in even greater measure. So we can get rid of unions the day we can also get rid of corporations, and then we’ll have something more like a True Market™, by your rationale.
November 19th, 2008 at 8:24 pm
Actually, you’re more correct than you think. The workers believe $30 an hour for a job any monkey with a lobotomy could do is proper compensation because they’ve been lead to believe that. Company X pays them that, then has to raise the prices of their product to cover it. People decide that the product isn’t worth the money. Company X can no longer turn enough profit to stay in business. Now, the workers are looking at $0 an hour vs what they thought they were worth when they used the group as leverage (instead of their actual worth as an individual).
How’s that working out for them now?
November 19th, 2008 at 8:25 pm
And you won’t hear a peep of protest out of me if you can figure out a way to ensure that the people pulling the strings of a corporation suffer first. I dislike the idea of a corporation removing the risk and punishment of bad behavior and actions while providing all the reward.
November 19th, 2008 at 8:37 pm
Re: underfunded pensions
Yes the company underfunded the pensions, but do keep in mind that the pension liability is not a fixed value. It’s not like they need to make sure the pension has $10M dollars at all times. That liability grows every year as people live longer and as new employees earn more (and hence get larger pensions), so last year the fund was $10M, this year it is $11.2M, next year it is $12.1M (projected). If the company is suddenly barely making a profit due to excessive costs (including government regs), bad decisions, and market downturns, it gets easy to suddenly find the pension underfunded. Now normally when things get profitable again, the excess profits are used to get the fund back to the black, but the Big 3 haven’t been profitable for a long time.
As for promises, the company is keeping it’s promises. It promised a pension, and in the event that the company can not keep that promise, it bought insurance. The fact that the premiums PBGC charges are insufficient to cover it’s liabilities is not the companies fault.
It’s all well and good to say a company should keep it’s promises, but that only works until the company is out of money to keep those promises with. Ergo, if the company can not remain profitable, it CAN NOT keep it’s promises. However, the company has no will of it’s own, so ultimately it’s promises are kept by the men and woman who work for the company, all up & down the food chain. If they fail to keep those promises, then they all pay the price.
November 19th, 2008 at 8:59 pm
t; You’re starting to catch on in one sense– this proposed bailout is a union bailout, and not a company bailout. The union pushed the auto makers into this position, and you’re asking your neighbors to pay the price. Rather; you’re asking the government to force your neighbors to pay the price.
W. Williams has a good analysis of this practice. “Evil Concealed by Money”;
http://www.gmu.edu/departments/economics/wew/articles/08/EvilConcealedByMoney.htm
You’re continuing claims of being on the fence here are contradicted by your arguments. Is there something about being on the fence that you consider virtuous, that is, when we’re talking about government-sponsored coercion?
November 19th, 2008 at 10:27 pm
Last I checked, rather few people have tried to protect — to take a rather generic example — GM going around and breaking the legs of scabs. Or, to take another example, people can rather easily choose to stop working at a job, but GM is rather significantly more limited when it comes to firing workers. Oh, and if GM gets 51% of a market, it doesn’t automatically win control of all of it in any state, nevermind 28 of them.
November 19th, 2008 at 10:36 pm
tgirsch, The method by which the unions magically “don’t count” in the free market anymore, is they want taxpayers to pay their now very apparently unsustainable salaries and pensions.
I feel unions are fine, and should have no more or less rights than a single worker, to wit-
I say if they can get $29-$75 an hour for their work by combined bargaining, and the company agrees, let ‘em.
I say if they can get endless pension contracts signed by combined bargaining, and the company agrees, let ‘em.
I also say that if the company isn’t allowed to hire non-union laborers because they find the labor or pension costs to be unsustainable in the long term, let ‘em.
I also, also say that if the if the union wants more of MY goddamn tax dollars to bail them out, because they strong-armed a company which had no choice but to use union labor, into bankruptcy with unreasonable pay requirement, then fuck ‘em.
Let the free market, by those definitions, decide both their collective salaries, and their fates, just like it does with me. Someone in a right-to-work state will pick up the slack, and build a car people can afford, and maybe the UAW guys can go get jobs as Union Journeyman Sheetmetal workers – oh wait, no, sorry, that takes an actual skill.
KsR
November 19th, 2008 at 10:47 pm
Unions enjoy considerable protections from bad behavior that corporations are penalized for. When my company had the audacity to post the IAM contract proposal on a company website, the union filed a grievance with the NLRB (and won) that the company was direct dealing with the union members.
November 19th, 2008 at 11:09 pm
Robb Allen:
I don’t know about “Company X,” but GM’s problems go well beyond its labor costs. If you could wave a magic wand and make GM’s costs suddenly lower than Toyota’s, they’d still be in trouble. But somehow, it’s all the union’s fault? Sorry, not buying.
Gatt:
Last I checked, rather few people have tried to protect — to take a rather generic example — GM going around and breaking the legs of scabs.
Hey, I’m all in favor of prosecuting that type of thing to the fullest extent of the law. Of course, that type of practice hasn’t been widespread in what, decades? In any case, those wrongs committed by unions (and I don’t doubt they exist) are utterly small-scale when compared to what corporations routinely get away with.
Lyle:
You’re far from the first person to try to pin all of GM’s woes on the union, but that dog won’t hunt. The union’s not responsible for GM’s terrible business decisions, which are the stuff of legend. And that’s just one example. And, of course, the union has made concession after concession, yet this is still somehow all their fault.
And you can question my sincerity all you want, but I really and truly am on the fence about whether or not to support a bailout. No, I don’t think that’s a virtuous position to be in, it’s just that in this particular case, there doesn’t appear to be any “right” thing to do. It must be nice to be able to see everything in nothing but black and white, but I can’t think that way.
Kingsiderook:
You seem to be of the opinion that the unions are the only ones lobbying for a bailout. If the union is as terrible as you say, then it would seem that Chapter 11 is the perfect way to get rid of them, and the executives would welcome bankruptcy to accomplish that goal. That they aren’t doing so is quite telling.
And let’s also note that what the auto makers are asking for is a pittance as compared to the amount of “your goddamn tax dollars” that are being spent to bail out other sectors of the economy, the demise of which had absolutely nothing to do with the unions.
Look, union bashing may be a fun spectator sport, but I fail to see how it’s likely to be productive in this context.
MadRocketScientist:
Unions enjoy considerable protections from bad behavior that corporations are penalized for.
And vice-versa.
November 19th, 2008 at 11:18 pm
Hey! someone’s working my side of the street!
So yea, I firmly believe that the only valid reason that our government (of, by and for the people) ought to allow these extra-human corporations to exist is that they do such a dandy job at creating wealth, creating jobs, and growing our economy. While I certainly agree with keeping them on a leash, the collar ought not be too tight.
And speaking of too tight, are you liberals ready to admit that the whole SUV/Truck/Crossover craze is a fault of those who tried to legislate innovation by requiring the CAFE standards? Or maybe you have some other reason why the Cadillac Eldorado transmorgified into the Cadillac Escalade?
American car companies tried to innovate using unibodies, chrom-moly steel, turbochargers, transverse mounted engines and front wheel drive,but the easiest way for the auto companies to meet the quotas decreed by a bunch of lawyers inside the beltway is to sell dozens of Ford Festivas for every full-sized V8 Lincoln.
So you have a long commute, idling on the freeway because the NIMBYs and the BANANAs fight every single highway proposal, and you have a choice: Toyota Echo or a Nisson Xterra? What do you chose? (and no, subsiding Amtrak is not one of the choices)
November 19th, 2008 at 11:29 pm
Let’s look back at the big issue here, no matter the fault, GM is in trouble. Now, tgrisch, it seems your real concern is making sure the benefits are protected, particularly the pensions. Fine, let’s be pragmatic.
Best case, we bailout GM, who uses the money and somehow manages to become profitable again (how no one has made clear yet, but let’s say they do). We get the money back, with interest. Yaw we win.
Worst case(s), we bail them out, they continue to ride the fail boat to insolvency, and we lose the bailout money PLUS we are on the hook for the pensions and the rest of it; OR we tell them to file Chapter 11 (hell, if they can’t file Chapter 11 for some reason, modify the rules so they can), all of their conracts get renegotiated (from Union deals to Dealer Contracts) to reduce their debt liability and what is still left in the pension fund gets transferred to the PBGC (I do believe that is what happens when the PBGC takes over a pension, they get whatever is in the fund and the company starts over) thus reducing the hit we the taxpayers take and the Big 3 emerge in a better position to be profitable (and they will hopefully clean house in the meantime).
Either way we get hit with the pensions, but in one case we get a smaller hit. And seeing as how the likelihood of a bailout being a win is pretty small, I’m still rooting for Ch 11.
November 19th, 2008 at 11:32 pm
I thought we settled this, it’s a “Ponzi-like” scheme. And the person at the top is Congress, spending it far faster than they can tax it.
The money collected in SS taxes that exceeds current expenses goes right into the general fund. But wait, it isn’t a freebie by any means. No no, the federal government hands back IOUs to SS. Those IOUs are not backed like “asset-backed securities” , they are backed by the power of congress to borrow and tax in the future.
There is no lock, there is no box, there is no interest returned. FDR set things up that way and it still would be working if everyone still died at 55 and people kept having 3+ kids per couple.
Besides robbing us at gunpoint and funneling all the money into the general fund, they cheat us a second time by constantly cooking the books on the cost of living adjustment. Sure it’s just a bit each time they lowball the adjustment, but it all compounds.
November 19th, 2008 at 11:33 pm
Standard Mischief:
And speaking of too tight, are you liberals ready to admit that the whole SUV/Truck/Crossover craze is a fault of those who tried to legislate innovation by requiring the CAFE standards?
Err, how does that follow? The problem isn’t that we instituted CAFE standards — it’s that we did it and then stopped there. The CAFE standards were enacted during the oil embargo of the 1970′s, and as a result, the average fuel economy of cars sold in America doubled by the early 1980′s. But that caused oil prices (and therefore gas prices) to fall, and suddenly fuel economy became a non-priority for short-sighted American car manufacturers and consumers. Attempts to further improve CAFE standards have been staunchly opposed — generally by Democrats from Michigan, I might add — until very recently, when a very modest increase was finally passed.
The result: despite 20+ years of improving technology, the average fuel economy of cars in America was worse in 2007 than it was in 1985. It seems that if we wait for car manufacturers to make more efficient cars on their own, without a government mandate to do so, we’re going to be waiting an awfully long time. As long as gas is below about $3 a gallon, short-sighted American consumers will gladly fork money over to terrorist-supporting nations by the fistful.
All that said, I fail to see how the Cadillac Escalade is somehow the fault of 1970′s fuel efficiency targets that most manufacturers meet easily, and could substantially exceed almost equally easily.
November 19th, 2008 at 11:36 pm
Clarifying a bit, the real reason car companies started pushing Escalades and the like is because the CAFE standards weren’t stringent enough — they held light trucks and SUVs to a lower standard.
November 20th, 2008 at 1:32 am
I have no doubt that the CEOs mismanagement would be better covered by free money than Chapter 11. That they aren’t screaming to be free of union labor tells me that they *gasp* are working together to keep both unions and management above water by whatever means necessary, especially free bucks, by yelling “We’re too big and important to fuck up and totally fail!”
God forbid that we suggest that the management prefer a bailout to publicly admitting total management failure by following the nature of all businesses that pay people more than is profitable – to go out of business, and be replaced by companies that make a profit.
Second, I didn’t support the bailout of sloppily managed financial institutions either. I don’t think Freddie Mac should have their failure subsidized any more than GM should.
KsR
November 20th, 2008 at 1:40 am
Yes, everyone knows Van Church wasn’t a union member, and that whole thing with Rod Carter and the Teamsters was just a big bunch of balognae.
Of which you’re unwilling to bring up an example, and the last example within the United States I can find with a few quick google searches involved an unsolved crime in the forties.
I’m sorry, but we’re not in Kevin-land, here. We’re in real-world-real world, not some strange DailyKosiverse. Legally and by any reasonable interpretation of the word, assaulting people beats WalMart not sucking the genitals of every worker to enter their stores.
November 20th, 2008 at 8:17 am
Simple. It’s because some consumers seem to want larger cars, however, a SUV does not get averaged in to the car CAFE standards because its a truck. It that a revelation to you? How else do you explain the death of the family station wagon? Station Wagons are cars (BTW, the Subrau Outback is a truck for CAFE standards)
Now for innovation, lets say I wanted to start a car company today. Let’s say I wanted to refurbish/re-manufacture government surplus HUMVEE for farm/contractor/light industry. I couldn’t get my foot in the door unless I can also sell smaller/lighter version to meet the CAFE standard. That means my barrier to entry is that much higher. (I also could not do it because all the surplus HUMVEEs are scrapped. They are not DOT legal and they cannot be titled by a buyer. That’s a condition of the contract that the feds signed with AM General. That’s your and my tax money there getting crushed)
Let the car companies got into chapter 11. Take a good look at the federal regulations that raise a high bar against entry into the industry, and remove them. You’ll see a better sector rise from the ashes.
November 20th, 2008 at 8:34 am
As long as you stereotype every single consumer of the auto/truck industry as being just like yourself, this makes sense. Detroit holds a gun to the drywall contractor’s head and makes him buy that shiny white pick-up truck, otherwise he would be happy with a subcompact.
Wanna know why the Toyota Prius is wildly popular around the sprawling northern Virginia suburbs of DC? More government regulations that let a hybrid driver ride all by themselves in the HOV lanes.
N.U.G.U.N. made some good comments on your other thread about GM trying to hit a moving target with government regs.
November 20th, 2008 at 9:20 am
A business (also called a firm or an enterprise) is a legally recognized organization designed to provide goods and/or services to consumers. A business needs a market. A consumer is an essential part of a business. Businesses are predominant in capitalist economies, most being privately owned and formed to earn profit to increase the wealth of owners. The owners and operators of a business have as one of their main objectives the receipt or generation of a financial return in exchange for work and acceptance of risk.
When unions start interfering with the above definition it is time to reorganize and cut the pork in order to stay in business. A bailout would not fix anything but delay the failure. which will occur.
I thought is was real smart of the big 3 CEO’S to fly to D.C. in private jets to ask for OUR money.
November 20th, 2008 at 12:00 pm
KingsideRook:
they *gasp* are working together to keep both unions and management above water by whatever means necessary, especially free bucks
To be fair, a low-interest loan isn’t exactly “free bucks.” Any such loan could be structured such that it gets top priority for repayment should the companies find themselves in bankruptcy anyway.
gattsuru:
Yes, everyone knows Van Church wasn’t a union member, and that whole thing with Rod Carter and the Teamsters was just a big bunch of balognae.
OK, you’re going to have to clue me in on the Van Church reference, since Google is of no assistance in that matter. As for Rod Carter, an isolated incident that happened 11 years ago (and for which the Teamsters eventually settled) is hardly a compelling counterexample to my assertion that such incidents haven’t been widespread in a very long time. At no point did I say they never happen.
Of which you’re unwilling to bring up an example
How about widespread illegal wiretapping on American citizens? That’s a pretty good recent example. And as far as I can tell, nobody has been prosecuted for the sort of book-cooking and obfuscation that caused the current financial crisis to be so wide and so deep.
SM:
It’s because some consumers seem to want larger cars, however, a SUV does not get averaged in to the car CAFE standards because its a truck.
How does this invalidate my point, exactly, or help yours? That corporations took advantage of a loophole in the regulation and aggressively marketed to maximize their profits from doing so doesn’t mean that the regulation is at fault in the first place. The answer seems simple: increase the standards for trucks and/or modify the “truck” exemption so that pickup trucks and other work trucks are included, but SUVs, wagons, and SAVs are not. Preferably the latter.
That way, your proverbial drywall contractor is unaffected, while the hordes of suburbanites who never haul anything, apart from a few kids, are.
November 20th, 2008 at 1:44 pm
That is a very good point. These guys do get to enjoy the insulation from liability that incorporation provides, while the worker will suffer for their incompetence.
BTW, RE: That $70/hr number
RE: Trouble getting Ch 11
November 20th, 2008 at 2:07 pm
Here is an interesting piece on how some folks seem eager to bail out the big 3 for the good jobs while at the same time are doing their level best to reduce the market share even further.
Link Here
November 20th, 2008 at 3:54 pm
Madrocketscientist:
Interesting reading. I genuinely appreciate you trying to add substance to the conversation. Both of the first two reads were a welcome dose of perspective, and of cutting through spin.
November 20th, 2008 at 5:23 pm
Let me weigh in….
Tgirsch..up thread, you mentioned something to the effect of why should the workers be the ones to suffer and that GM should honor the contracts that it has made. Well, the reality is that if GM isn’t solvent, it can’t honor its contracts including to its employees. And when a company goes under, its employees usually lose their jobs and benefits. Thats pretty standard free market economics..companies rise and fail and when they fail, they usually can’t meet all their obligations whether its to past and current employees, suppliers, lenders, shareholders (GM’s have lost 90% of their value), etc.
The union didn’t force anyone to sign any of the contracts that were signed and its the unions job to look out for their members and get as high a compensation package as possible for its members. As a non-unionized employee (like myself) you may feel that unionized employees are better compensated than they should be..but you can also flip the coin the other way and say how can I be better compensated and perhaps that thought process might include unionizing.
A good deal of the problems with GM has to go to the management..from cars people don’t want to buy to negotiating union contracts. The Japanese automakers don’t seem to have the same problems and seem to be doing fairly well.
On the bailout, thats a tough one. GM going under would hurt a large part of our economy. At the same time, the US auto industry probably needs to downsize considerably..the trends are that fewer and fewer people are buying their cars (both due to a shrinking market for cars and losing market share). I read a suggestion somewhere that instead of bailing out the big 3, we should pay the Japanese automakers to create more factories in the US.
November 21st, 2008 at 8:34 am
In other words, do it again, only harder!
manual trackback: The road to a planned economy is paved with “good” regulations
November 21st, 2008 at 10:48 am
Standard Mischief:
Waaah. The fact of the matter is, the passage of CAFE standards doubled vehicle efficiency in less than ten years, something which simply wouldn’t have happened without the standard. Now you may think that’s a bad thing, but you’d be in the minority on that one.
Today, technologies exist to even further improve fuel economy across the spectrum of offerings, so it’s not like an increase in CAFE standards is dependent upon some magical, not-yet-existent technology.
As I alluded to before, there’s a reason we need stricter CAFE standards: the market has had more than two decades to give us improved fuel economy on its own, and it has utterly failed to do so for anything other than a small niche market. So unless you’re going to argue that we shouldn’t be working to reduce our dependence on foreign oil, and shouldn’t be trying to move toward cleaner energy sources, regulating efficiency is the only answer, because the market has proven itself to be utterly incompetent on that front.
Of course, to the anarchists like you, regulations are never the answer, I know. We shouldn’t have banned PCBs, for example, we should have just closed our eyes, clapped three times, and hoped the Almighty Market would find its own way to get rid of them. Just like The Market Will Provide™, as if by an Invisible Hand™, some magical solution to our energy problems without any prodding for it to do so. Right after Ed McMahon shows up at my front door with a giant cardboard check.