Dec 12 2008
The Auto Bailout fails, for all the wrong reasons
There was every legitimate reason to hope that the massive bailout would fail to make it through congress.
At the very least, the US automakers seized on the governments culture of generosity, and made no attempt to fix their own problems.
They should face the reality of the situation, which is that they are non competitive in a very competitive industry. There is nothing wrong with the market, their foreign adversaries are doing quite well. They need to address some of the reason why.
First, they need to make the products that sell, and lower production on ones that don’t. While you may think this is a the biggest moment of “DUH” in the free market discussion, it honestly is not.
Another major area they need to evaluate is that of processes and methods to ensure they are as efficient and cost effective as they can be.
And speaking of cost, they need to examine the cost of labor too, which unfortunately means taking on the very lucrative and powerful UAW who have a stranglehold on the AU auto giants with the constant threat of strikes.
In fact one of the sticking points with the bailout was a proposal that they cut their wages to a comparable level as their foreign competitors. Naturally the Union bailed, and the deal failed.
Now, let me say I think the Government’s attempt to control the wages in a free market private sector business is wrong. Yes, I understand why it was proposed and in part, I think the rising union controlled labor costs are partially to blame, but that is not a matter for the government to tamper with.
Here is how I see it: If their wages are too high for the market to afford, then they need to as a matter of survival cut them. The Union should look at the fact that if the companies fold, they will lose everything. There can be no wage when there is no industry to pay it.
If the Unions were at all intellectually honest, they would also point out to their members that while no longer making 30-40 dollars an hour sucks, making $12.50 on unemployment or making $8 flipping burgers sucks even worse.
So both the automakers and the unions need to take a strong drink from the fountain of reality and do what is necessary to save the industry.
Einstein’s famous quote is more relevant now than ever:
Insanity: doing the same thing over and over again and expecting different results.
So if the bailout failing because the Union would not agree to pay cuts is the wrong reason to fail, what is the right reason?
Simply, the US Government has no business trying to bailout and effectively nationalize, a private sector industry.
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5 Responses to “The Auto Bailout fails, for all the wrong reasons”
“If the Unions were at all intellectually honest, they would also point out to their members that while no longer making 30-40 dollars an hour sucks, making $12.50 on unemployment or making $8 flipping burgers sucks even worse.”
The problem is that the $30-40/hour is in the range the foreign auto makers building cars in the US have as their labor costs. The Big Three are at about twice that. Add to that the pool of surplus workers getting paid to do crossword puzzles, bloated retirements, etc., and it’s easy to see where labor is a big, BIG part of the problem. Chapter eleven, followed by repudiation of the labor contracts, followed by a rationalization of labor costs is much better than taking MY money to bail out companies whose own poor business practices have brought them to this pass.
I’ve heard all too many pundits on the radio claiming that the auto companies’ problems are due to Congressional regulation and dictates on what type of standards the companies have to meet. While this is in part true since many of the things they have to do make the cars outrageously expensive, it’s not the reason the companies are struggling. After all, even their foreign competition has to meet the same standards to sell their cars here.
Exactly. If the laws were so unfair, the others would fall prey to the same problems. So it still seems to be two major differences: unions and processes. Time to look at both.
lsu
The numbers for the wages are all over the map, depending on who you ask and what they are using: Wages, or total compensation. One Union weanie actually claims Toyota pays more than GM.
If that were true, then there is no way Toyota could be do so much better.
And even if it was true, then it contiues to beg the question: What are they doing differently to make it so muchbetter?
lsu
It strikes me that the thing that Toyota does differently than GM (that might account for their success vs. GM’s failure) comes down to a couple things-
1. Toyota doesn’t have a top-heavy management system filled with salaried people whose entire function is to pass documents between levels of managers. There’s something like ten layers of management at Toyota between line worker and CEO. GM runs about forty. When you look at what’s wrong with American Corporations, and you look at what’s wrong with the Government, it’s usually the same goddamn things.
2. Thick, complicated contracts are usually the result of managers who can’t negotiate and/or who have a history of negotiating in bad faith. Notably, the speed and efficiency of your labour contracting tends to reflect your ability to negotiate OTHER things-like, for instance, supply line issues, dealership profit margin, finances… a company with two pounds or more of work-rules probably has management that can’t negotiate a favourable price from a supplier, either. Mediocrity in one tends to reflect mediocrity in the other.