Wednesday, November 19, 2008

A Dire Situation

In an op-ed column in Wednesday's New York Times, former Massachusetts governor Mitt Romney joined the Republican chorus calling for the heads of the Big Three automakers. Romney starts out by assuring readers "I love cars, American cars. I was born in Detroit, the son of an auto chief executive," which calls to mind the slant taken by many white people a few decades ago (when bigotry was more acceptable) who would say "some of my best friends are colored but...." You can imagine what came later.

Romney argues

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

This echoes comments of other Repub heavyweights. Senator Jim DeMint of South Carolina contends "Some auto manufacturers are struggling because of a bad business structure with high unionized labor costs and burdensome federal regulations. Taxpayers did not create these problems and they should not be forced to pay for them." Arizona Senator Jon Kyl claimed on Fox News Sunday "This didn't happen to the auto companies overnight. For years they've been sick. They have a bad business model. They have contracts negotiated with the United Auto Workers that impose huge costs. The average hourly cost per worker in this country is about $28.48. For these auto makers, it's $73. And for the Japanese auto companies working here in the United States, it's $48. So you've got huge costs there." The senior Republican on the Senate Banking Committee, Richard Shelby, today exclaimed "I don't think they have immediate plans to change their model, which is a model of failure." Shelby had previously referred to GM, Ford, and Chryser as "a dinosaur" which "don't innovate." (Not coincidentally, Shelby's home state of Alabama has Honda, Toyota, and Mercedes-Benz plants.)

Kyl's emphasis on wages and benefits of American auto employees suggests what these GOP senators mean by "management model." However, in February, CNN.com reported

The Center for Automotive Research estimates that by 2011 GM's hourly workforce will be only 8% smaller than current levels - but more than four out 10 of those workers will be new hires being paid a lower wage rate.

The current veteran UAW member at GM today has an average base wage of $28.12 an hour, but the cost of benefits, including pension and future retiree health care costs, nearly triples the cost to GM to $78.21, according to the Center for Automotive Research....Ford and Chrysler also have the provision in their new contracts to pay new hires less in salary and benefits.


And USA Today on Monday noted additional, recent cuts made by the biggest of the Three:

-Reduced office supplies. GM used to stock for every possible stationery need. No longer. "The office supply cabinets have only the bare minimum now — inexpensive pads, a few roller-ball pens and wooden pencils," spokesman Tom Wilkinson says.

-No raises. White-collar workers won't get bonuses, raises or 401(k) retirement savings matches.

-Pricier company cars. As of last summer, executives had to pay $100 more a month to use a company car and can't rotate to new ones as often.


The case for a bailout/rescue plan was not enhanced, obviously, by the revelation on Wednesday that each of the three Chief Executive Officers flew to the congressional hearing in a corporate jet. ABC News found that General Motors alone maintains a fleet of seven such aircraft and that CEO Rick Wagoner's trip to Washington cost the automaker $20,000. Nor is it a hopeful sign that "GM and Ford say that it is a corporate decision to have their CEOs fly on private jets and that is non-negotiable," according to the ABC report. The personal profligacy of upper management, which does not appear to be the portion of the "business model" which so concerns Republican lawmakers (AIG still operates a fleet of corporate jets despite being bailed out), is intolerable.

The Bush administration, ever bored with alternative energy, wants the $25 billion in government-backed loans requested by the automakers to come from the $25 billion loan program created by Congress in September to help the companies develop more fuel-efficient vehicles. However, those more serious about both relying on foreign sources for oil and sharply rising unemployment in the United States recognize

The stakes are high. The Detroit automakers employ nearly a quarter-million workers, and more than 730,000 other workers produce materials and parts that go into cars. About 1 million on top of that work in dealerships nationwide. If just one of the automakers declared bankruptcy, some estimates put U.S. job losses next year as high as 2.5 million.

Long-term, there is another serious danger in not granting relief- with numerous and significant conditions- to the automakers as part of the $700 bailout of the less- labor intensive financial services industry. Freep.com reports that on Wednesday House Banking Committee Chairman Barney Frank (D.-Massachusetts, noted

the pay of workers below the executive rank at financial firms was never an issue during the debate of the $700-billion financial industry bailout. He said bankruptcy was being brandished mostly as a weapon against union contracts.

"There is apparently a cultural condition that's more ready to accept aid to a white-collar industry than the blue-collar industry, and that has to be confronted," Frank said.


Or, more bluntly, as one CEO of a Washington consulting firm wrote

the possibility of a meaningful future for American manufacturing would fade. And manufacturing jobs would cease to offer a passport to the middle class.

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