Friday, December 12, 2008
Detroit to Washington " The Sky is Falling"
As the plight of the Detroit Three & the UAW dominate the news each night, I am amazed at what I see and hear. The Detroit Three's hearings in the Senate and Congress were, with a few exceptions, completely divorced from reality. The politicians aren't making any sense at all, and while you might be able to excuse the pols from Michigan, the rest of them need to get back on their meds! The strange brotherhood act of the CEOs might have some people fooled, but I'm not one of them. The UAW is portrayed as the savior of the middle class. The executives of the Detroit Three are cast as greedy, overpaid jet-setters who have single-handedly caused the ruination of this once proud industry. The media scribbles articles, like the one written by Johnathan Cutler in the LA Times, and presents it a as serious analysis of the auto maker's troubles. His thesis is that the UAW's failure to unionize the transplants are what caused this whole mess . All of this would be very funny if it were a SNL sketch, but it isn't. This is real money, and real peoples livelihoods they are playing with.
Senators and Congressmen spoke of the great benefit the jobs bank was for workers, while scolding the CEOs for arriving at the first hearings in corporate jets. Evidently, only one of these two practices is wasteful. The other is not? They praised the UAW president Ron Getielfinger for the sacrifice he has imposed upon his union members. Does anyone really think that a compensation package rich enough to push your company into bankruptcy is sacrifice? Maxine Waters excoriated the private equity firm Cerebus for not wanting to invest in Chrysler. Earth to Maxine... no one will lend to Chrysler, GM or Ford. Why do you think they are groveling before you? Each politician tried to top the next with their "the sky is falling" and we'll all be unemployed forecast. The last prediction I heard was that 13 million people would lose their jobs if any of the Detroit Three filed Chapter 11.
In it's glory days, the UAW had a veritable army at its command . In the 1970's the UAW had grown to 1,619,000 members, but in the following 20 years their ranks were thinned by almost half. Today the entire UAW membership numbers about 400,000. The guy whose head should be on the chopping block is Ron Geitlefinger, the president of the UAW. Since his election as president of the UAW in 2004, membership has been slashed by more than 1/3. So much for job security. He also seems to be suffering convenient memory syndrome, which allows you to forget key provisions of the contracts you negotiate. Did anyone who watched the hearings really believe that he doesn't know what the jobs bank is? When he reminded me that 40% of his retired UAW workers aren't old enough to qualify for Medicare, I nearly jumped from my seat. Old enough to retire, too young for Medicare. How rich it is that he wants taxpayers to foot the medical bills for his early retiree's medical plans. The idea that he could say this with a straight face shows that he is capable of Oscar-caliber acting! Ron if the union gig doesn't work out, I know a Hollywood agent you can call. Question: which is funnier C-span or SNL ? I think it's a toss up!
Johnathan Cutler, an Associate Professor of Sociology at Wesleyan University, argues in a column in the LA Times that the UAW failure was not due to the union's demands for above-market labor cost and productivity- hampering work rules which helped caused the Detroit three to falter. Rather, he opines that their lack of success in unionizing the transplanted auto companies is the reason the UAW 's membership has declined so dramatically. Nowhere in the article is there any talk of competing with the transplants on pricing style or comfort. This guy really ought to stick to sociology. It's quite obvious that when it comes to economics, he is clueless! What the good professor doesn't understand is that automobiles don't have to be produced in the US at all, and if they don't manufacture automobiles at competitive prices that consumers will buy, there won't be a Detroit Three. It's tough to make the case that all three of them are needed today!
The auto companies that prosper and thrive in the South do so precisely because they are not unionized, and had they been, they would now be suffering the same fate as Detroit. You can't charge more for your product than your competition if you want to stick around. Apparently this is difficult to understand if you are from Michigan, or write for the LA Times.
I hope I'm not the only one who finds it troubling that in a industry as competitive as automobile manufacturing, that the Detroit Three's CEOs have banded together to support each other's need for a bailout. You would think that one of the Big Three going out of business would be cause for celebration by the remaining companies, wouldn't you? Would Google be upset if Yahoo closed shop? Of course not. It means more market share for them.
A dose of reality filled the room when Senator Bob Corker from Tennessee took out his Bowie knife and cut through the crap, exposing why each of them were really there.
It went as follows:
1. Ford doesn't need a bailout, but they would like a low-cost line of credit if they can get it without strings attached .
2. Chrysler needs a new dress so that some other car company will marry her and bailout Cerebus Capital and it's private equity clients.
3. GM has gone off the road and landed in the ditch, sustaining so much damage that it should and would be totaled unless they get a huge cash infusions now.
4. The UAW can't get the billions for it's VEBA unless the taxpayer forks over billions to the Auto makers, they would be the only losers if any of the Detroit Three filed for bankruptcy. The VEBA is classified as an unsecured creditor, affording it the same treatment as the bondholders who might get 30 cents on the dollar.
5. With out a bankruptcy filing, the enormous debt load of the Detroit Three will prohibit them from recovering, no matter how much money they receive.
This whole thing reminded me of a joke I had heard long ago and have revised slightly to fit the times:
Why did Chicken Little cross the road?
To get to the big pile of bailout cash!