How The Ford-UAW Agreement Erodes The Union's Basic Functions

Wednesday's Wall Street Journal contained an informative article concerning the UAW's tentative agreement with Ford. It explains,

"Meanwhile, a new buyout program will allow the Dearborn, Mich., auto maker to shed its most expensive workers and add more lower-cost workers to its U.S. assembly lines.

All of the new hires are expected to earn little more than half the roughly $28 an hour wage that veteran auto workers  make. The wage shift is paving the way for the hiring of up to 12,000 U.S. workers through 2015, including 7,000 previously announced jobs."

Signing bonuses and up-front one-time inflation adjustments replace COLAs in the agreement.

When I read those two paragraphs, I was reminded of this post from June of this year which I wrote on my companion political blog discussing a Journal editorial from this summer. In the editorial, a labor lawyer writes about how cheap labor in Southern US states will ruin American productivity and its economy. Thus, he excoriates Boeing for its building a plant in South Carolina, where wages are much less than in its Seattle plants. The author, Thomas Geoghegan, equates labor costs with quality and skill.

How, then are we to interpret the tentative new Ford-UAW agreement?

The agreement forces the union to basically toss its older, allegedly 'skilled' workers to the wolves, in favor of hiring younger, less-skilled, and cheaper, replacements.

Isn't this sort of competition to work for lower wages precisely what Walter Reuther & Co. established their unions to prevent? Now Bob King is turning 80 years of union policy on its head.

Moreover, the fact that the UAW head would accept that paying younger workers half as much as older, to-be-released so-called highly skilled workers is an admission that labor skill, seniority and expense are completely unrelated. Otherwise, the union would insist that Ford would be building lesser-quality cars with its new, younger, cheaper labor force.

And what if you were an older, allegedly-skilled worker who didn't want to lose your job? Could you offer to work for the new, lower-by-half wage? What would that say about the value of your so-called skill? Call it what you will, Bob King's proposed UAW contract with Ford is an admission of downward pressure on the value of auto assembly work and the jobs that come with it..

Curious, isn't it? When global competitive forces and trade finally push US labor unions to the wall, they violate their own stated goals of protecting all of their members, and abandon the older, higher-paid workers, whose jobs would be eliminated, in favor of younger, cheaper workers, in order to keep some jobs onshore.

So much for the myth that wage rates signify quality or skill.

Either in Detroit, or Charleston.

Will The UAW Never Learn?

Yesterday's Wall Street Journal carried this headline for its Marketplace section's lead article,

For UAW, Jobs Trump Pay

Will this union never learn?

The article begins with comments from a Flat Rock, Michigan Ford employee who asserts,

"We know that we need more product in the contract because that will mean more jobs and job protection for the rest of us."

Job protection. What a quaint notion, eh? Especially in a company in a sector, which had to be rescued by the federal government, so badly was it mismanaged due to management's ineptitude in dealing with the UAW's egregious demands.

The article goes on to list some comparative hourly wage rates:

$58 for Ford
$58 for GM
$49 for Chrysler
$27 @ Volkswagen in Chattanooga, TN & Hyundai in Montgomery, AL

Those Ford and GM numbers equate to a rough gross annual cash compensation of $111,360. Chrysler is paying about $94K/year. Obviously, the right-to-work Tennessee and Alabama compensations are about half that, or just under $52K.

Meanwhile, the UAW is pushing hard, with German labor officials, to unionize Volkswagen's Tennessee operation. Interviews reported in the Journal with employees at the plant aren't particularly enthused and, at best, are open to hearing why they should join the UAW.

Not so promising for the union guys, is it?

Let's consider what's really going on here. Foreign auto makers locate their plants in Southern, right-to-work US states so they can be competitive with cars and trucks which they hope to sell to Americans.

Unfortunately for GM, Ford and Chrysler, their legacy plants leave them stuck in closed shop states in which they are forced to pay about twice as much per employee. Those cars and trucks, too, are destined for US consumers. With Boeing's recent attempt to open a second Dreamliner assembly plant in South Carolina under union attack, the Big 3 can't ever hope to simply move production south of the Mason-Dixon Line.

I'm guessing Ford, GM and Chrysler build as few vehicles as possible in Michigan and other northern plants. In an ideal world, they'd shut them and locate near their competitors' plants in the South. But that's obviously impossible.

From that perspective, what could the UAW possibly offer to get any of those assemblers to commit to more jobs, in a contract, at those sky-high wage rates? No wonder Ford, GM and Chrysler all want to move to more profit-sharing for union workers, and, I'm sure, in time, health care premiums more in line with their white-collar workers.

Is it really possible that rank and file UAW workers at Ford, GM or Chrysler, having witnessed the carnage in their sector in the past three years, really believe any of those managements can offer 'more jobs,' let alone 'job protection?' Hell, they're lucky that the Democratic administration repaid the UAW's election efforts by stiffing legitimate bondholders, short-circuiting a conventional Chapter 11 bankruptcy for GM and Chrysler, and handing over significant chunks of the companies to the UAW.

If a reorganization had put the profitable parts of those two companies up for bid, it's not even clear any of the buyers would have retained the Michigan plants. They may have just bought machinery, licenses to IP and various trademarks and patents, and re-opened production somewhere in the South.

It's truly comical that UAW members think that, global trade and competition notwithstanding, they should earn north of $100K/year for fastening subassemblies together for commodity cars and trucks selling in a hotly-competitive US market.

When will they learn?

A Reader's Rebuttal To Ingrassia & Me

I wrote this post last night and set it to publish automatically at about 5AM this morning. At 5:23AM, I received this email from a reader:

I think that you must think that the auto workers don't deserve the retirement that they are entitled to. How about the veterans of the armed services that get a pension after 20 years? How about the municipal workers that get a pension after 30 years?

You must not have a clue of what it is to work in an auto factory for 30 years. After standing on the factory floor during that amount of time your ankles, knees and hip joints are about ready to give out. I know a lot of hard working people who've had knee replacement surgery because of that. Carpal tunnel is another major problem. You've probably never woke up in the middle of the night with your hands aching.

All you "experts" have no idea about the people who worked in the plants. Paul Ingrassia is another "expert" that doesn't have a clue. I wake up every day with the same sore back, ankles, knees and hips.

Maybe you should rethink what you write. There are a lot of people out there that believe anything that they read.

Sincerely
A Veteran of the U.S. Armed Services and also a Retired Auto Worker

Let me address this post to the reader who sent me this email.

First, as a US armed forces veteran, you have my respect and gratitude.

But that has nothing to do with your choice of employment thereafter. It's obvious even you don't consider your employment history sufficiently convincing to discuss it on its own merits, because you had to drag patriotism into the discussion. Do you know what Samuel Johnson had to say about that?

"Patriotism is the last refuge of a scoundrel."

So, as a favor to you, I'm going to ignore your inappropriate marrying of being a veteran with being a UAW member and retired auto worker.

Did someone put a gun to your head and force you onto an auto assembly line for 30 years? I didn't think so. You probably chose it for the cushy union benefits and wages. Well, welcome to the real world. You make your choice, and you live with the consequences.

I am supposing you are one of those people who equates "hard working" with a lack of education and the requirement that one works in manual labor.

In fact, as a UAW member, I believe that you probably only had to show up for work, sober and not under the influence of drugs, to keep a lifelong job. If your job got cut, you were paid from the infamous "job bank." Your employer could cut your wages only with extreme difficulty, and the risk of a long strike by your union.

I, on the other hand, and many millions like me, chose to purchase more education and work in less physically-taxing careers. We never have unions. We have to manage our own careers, and live with the constant risk of unemployment on the whim of a manager or the result of a bad year in our sector.

It's a tradeoff. We all make them. Nobody is a saint for choosing one path over another. In your case, you decided to spend your physical health in exchange for what you felt was a sweet economic deal.

As for municipal workers, I don't think they deserve 30-and-out, either. Their time will come, and soon, for renegotiation. We cannot, as citizens, afford the lush promises made to these unions by many municipal and state office-holders of both parties.

Veterans of the armed forces are a completely different story. Nothing, in my view, equates with those who have voluntarily chosen the risk of combat as a career.

Finally, I know Paul Ingrassia personally. He has considerably more than a clue.

To be frank, I don't know of many intelligent, highly-motivated people who didn't choose to become better-educated and leave plant floors for more fulfilling work, even if it meant incurring student loan obligations to do so. My brother did that, as did my father. Both have had professional careers of considerable creativity, but both worked in harsh conditions as blue-collar laborers earlier in their lives.

I think that you have an attitude of entitlement that is without merit. You chose a path, made a bargain, and now believe that everyone should feel sorry for your outcome.

I don't. I doubt Ingrassia does, either. Nor most readers of this blog.

You don't have to be vey intelligent to see the folly in a society which allows people to "retire" and earn more in that retirement than they did during their working years. It's simply an unsustainable model. It can't work for long, in very many parts of society, at the same time.

How on earth does anyone really believe that the value created by an employee of any sort, over just 30 years, will pay for both his/her compensation for that 30 years, and then their retirement pay and benefits for up to another 40 years?

It's crazy!

You sound like a whiner with the attitude of a victim, because you are now unhappy with the career choices you made earlier in life.

Quit whining and take responsibility for the choices you have made in life.

Paul Ingrassia On UAW 30-and-Out Retirement

Paul Ingrassia, once of the Wall Street Journal, wrote a very impressive and insightful editorial yesterday entitled "GM's Plan: Subsidize Our 48-Year-Old Retirees."

As usual, with his comprehensive grasp of the American auto industry, Paul debunks the myth that only the UAW is responsible for the mess in which GM, Chrysler and Ford currently find themselves.

There is one line, however, early in his piece, that really says it all,

"That was a couple of years before Detroit agreed to let auto workers retire with full pensions and benefits after 30 years on the job, regardless of their age. In practice, that meant a worker could start at age 18, retire at 48, and spend more years collecting a pension and free health care than he or she actually spent working. It wasn't long before even union officials realized they had created a monster."

Paul blames both auto company executives and UAW chiefs for failing to address and fix this crippling feature of Big 3 employment.

No matter what else you read or hear about the need for a US auto maker bailout, or how badly their filing Chapter 11 bankruptcy might affect the US economy, reread that second sentence.

We are all now paying for a bunch of workers from the auto industry who managed to earn more in retirement than they actually did working.

There are many interesting and important details in Paul's editorial that explain how bad a deal we are all getting for taxpayer funding of GM and Chrysler. GM is waving a $100B price tag around as the cost of Chapter 11, but it's a phony number, because it represents pension guarantees and other obligations that would be trimmed in such a court-supervised reorganization.

Chrysler, as Paul points out, wants continued government funding, in lieu of money that Fiat and Cerebrus won't contribute. How's that for being left holding a very expensive bag?

In his final analysis, Paul concludes that all stakeholders, especially bondholders and the UAW, are unlikely to get serious about facing reality outside of Chapter 11.

For me, however, the most striking element of this whole sorry mess is to be reminded of the sacred, unique "30 and out" deal so many UAW workers managed to connive out of Detroit in the fat years.

Every time I think about that, I find myself not caring at all what larger economic damage could come of forcing GM and Chrysler to file Chapter 11.

Aftermath Of The Senate's Defeat of Auto Maker Bailout Bill

On Friday of last week, with the news of the Senate's defeat of the Detroit auto maker bailout bill, a curious thing occurred.

GM prepared to file a Chapter 11 bankruptcy, as CEO Rick Wagoner declared that the company has insufficient cash with which to operate until a more assured rescue comes, after January 20.

Now, according to Forbes, Wagoner was paid $4.82MM in 2006.

Yet, for an assumedly similar amount this year and last, what did shareholders get?

A CEO so inept that he failed to file for bankruptcy, to reorganize GM, last year. So incompetent that he forced the firm to run through nearly all its cash before seeking court protection to reorganize and renegotiate any and all contracts- union, dealership, suppliers, etc.

Instead of behaving like a real CEO, and having his staff observe, then plan for contingencies stemming from the 2007 credit market troubles, Wagoner dithered on as usual.

Having now run GM almost entirely out of liquid assets, he baldly blames Republican Senators and the President for his firm's bankruptcy.

This is rich, indeed.

A better-run firm would have headed into the safe harbor of Chapter 11 last year, when the gathering clouds of financial crisis and debt market unraveling gave warning of trouble ahead.

No, not GM. Not Wagoner.

In their playbook, all troubles which GM has recently faced are due to Washington, or the credit markets, but none of their own making.

Not even from their sins of omission- failure to notice a crisis looming, and failure to seek Chapter 11 court protection, in which to sort out their mess.

10 Lies About Bailing Out GM, Ford, Chrsyler & the UAW

As I have heard and read, like you, countless articles and hours of Congressional testimony and news program interviews pursuant to the question of the American taxpayer bailing out GM, Ford and Chrysler, a list of lies told by Rick Wagoner, Alan Mulally, Bob Nardelli and Ron Gettelfinger has occurred to me.


I can't link each lie with one person, in every case. But this is a list of claims made by one or more of the four which are simply untrue.



1. Bankruptcy is not an option.

Of course it is! This is something basically uttered by all four of these guys.

Ask yourself why they bothered to go to Washington first, rather than Chapter 11? Because, in Chapter 11, an apolitical bankruptcy receiver would restructure the whole mess with abandon, to truly be capable of survival. It won't be pretty, and it will make the efforts of at least Wagoner and Gettelfinger look silly and half-assed by comparison.

2. Filing bankruptcy will bring down hundreds of suppliers and cripple the US economy in the midst of a recession.

No, it won't. This is a bald-faced scare tactic. GM, for example, only has something like a 25% market share. Chrysler is even smaller. The few cars that actually turn a profit could be bundled into one unit and either spun back out or sold to another car maker. The suppliers for these cars will still have demand.

For any share lost by GM, Ford and Chrysler, other US-based, foreign-owned brands will pick up the share, and, with it, demand that feeds back to the suppliers.

This argument is just baseless on the face of it. No matter how many times CNBC auto-blowhard Phil LeBeau contends this to be true, it simply is not.

3. Nobody will buy a car from a car maker in bankruptcy.

This hasn't been demonstrated, by research, to be true in the proper context. Plus, it's never clear that the question is asked with a proviso that a third-party warranty would be provided. If anything, many buyers, assuming they even want some of the junk peddled by GM, Ford and Chrysler, merely would expect to pay lower prices.

4. This is a loan, not a bailout.

Lie. If this were merely a loan that was truly expected to be repaid, the capital markets would be handling the transaction. It's precisely because nobody expects this money to ever come back that only the taxpayer, via Congress, would provide it.

5. Without GM, Ford and Chrysler, the US will lose an important manufacturing base and be hostage to other world powers, plus become less capable of self-defense.

Nice try, but, this, too, is a lie.

First, we have a dozen or so foreign-owned auto plants in the southern US which, together, manufacture- actually, more correctly, assemble- fully as many cars as GM currently manages to sell. Losing GM doesn't lose this capability, but, merely the worst-performing, least-efficient amount of capacity.

Second, car making is more about assembly nowadays, less about manufacture. So this argument is wrong and specious on this point, alone.

Third, real defense-related production comes from companies like Boeing, General Dynamics, Lockheed and other similar contractors. Not to mention their suppliers.

Last time I checked, Wagoner, Gettelfinger, the governor of Michigan, et.al., were not Nobel-winning economists capable of credibly assuring US taxpayers that the precise capacity and capabilities of car assembly represented by Detroit-based auto assemblers is vital and necessary to a vital US economy in the future.

We've been moving to a service-based economy for over a decade. The real high-end, value-added manufacturing base is more efficient, requires fewer workers per dollar of value-added, and resides in other sectors than auto production.

6. There's light at the end of the tunnel for GM, Ford, Chrysler and the UAW with this 'loan.'

No, there isn't. Look closely at the CEO's promised dates of return to profitability. The earliest, I believe, is Ford, in 2009. Wagoner keeps babbling about 2010 and his cherished 'Volt' electric car. But his own EVP, Bob Lutz, let slip recently that green cars won't actually make money if priced so that consumers can afford them. Ooops!

Chrysler is a recurring disaster, profitable only during peak years of US economic cycles.

Republican Senator Tom Corker, among others, was correct when he noted, on CNBC, earlier this week, that none of these three companies have a plan to become truly viable and profitable in a reasonable timeframe.

No sane investor or lender would accept, today, from an existing large US industrial concern, a business plan which does not promise a profit for the next two years. It's just insane.

7. The current dire situation of GM, Ford, Chrysler and their common, primary union, the UAW, was caused by the US financial market crisis which began earlier this year.

One of the bigger lies propagated by everyone pushing for this bailout.

These three auto makers, and their greedy union, have mismanaged their situation for well over a decade. True, their situation worsened since September, when credit tightened/vanished. But that's part of running a large corporation- planning for many scenarios.

GM, in particular, has been headed for bankruptcy for nearly the entire term of Wagoner's ineffectual reign. The recent financial crisis merely offered an opportune occasion for these parties to raid the Federal Treasury and taxpayers' pockets.

8. Rick Wagoner is the best person to 'lead' GM.

Another big lie. Wagoner has misled GM for eight years. He's a major part of the problem, not any part of a solution, such as it may be.

A bankruptcy receiver would be far better and more objective for doing what needs to be done at GM to survive.

9. Bankruptcy of GM, Ford or Chrysler will be a disaster for the US economy because these companies will "go down."

Another lie, similar to lie #2.

Bankruptcy is not liquidation.

Putting GM into receivership, via Chapter 11 bankruptcy, does not mean it ceases operations. It means a trustee is in charge of reorganizing the firm to survive in the future.

Liquidation occurs when the operations, under bankruptcy, prove to be unable to be sustained, even with reorganization.

For example, the retailer Dave & Barry's went bankrupt this past summer. But it was not in liquidation until a few months later. Prior to that, the chain still operated, albeit under court protection.

See the difference?

That's why all this handwringing about GM filing Chapter 11 is a hoax. They won't stop production lines the day after the filing.

10. The UAW and the Detroit auto makers have already made a lot of concessions and done a lot of restructuring, so they deserve this Federal help.

Nice try, but the market doesn't reward efforts, only results.

Veteran auto-sector reporter and writer Paul Ingrassia, late of the Wall Street Journal, has written for months that the Detroit Three have been slow and ineffective in coming to grips with their troubles, and realistically fixing them. Bloated costs, too many brands, and too little effort spent attacking Congress' CAFE regulations have left them incapable of surviving in their current shape.

The UAW, for its part, points to concessions, but Gettelfinger badly needs to avoid his union's employers filing bankruptcy. If they do, he and his union are history.

Not because anyone is out to 'break' them. Rather, their own greed and shortsightedness has resulted in them crippling their employer.

In truth, a great deal of GM's, Ford's and Chrysler's troubles are co-owned by prior UAW rank file and leadership. Including Gettelfinger.

He, too, must go. Most likely with the decline into near-obscurity of his once-influential union.

More On Detroit's Bailout

Paul Ingrassia, former Detroit bureau chief of the Wall Street Journal, and Pulitzer Prize-winning author, wrote another excellent editorial in Thursday's edition of the paper, entitled "The Latest Song of Detroit."

The core of Ingrassia's piece are these passages,

"Consider GM, which appears to be in the most immediate danger, and sits "at the epicenter of the auto industry's crisis," in the words of respected Deutsche Bank analyst Rod Lache. General Motors seeks a total of up to $18 billion (including the $4 billion mentioned above), which is a hefty $6 billion more than it had requested just weeks ago.

The company proposes in its "Restructuring Plan for Long-Term Viability" to reduce its distribution network from some 6,500 dealers today to 4,700 in 2012. It also pledges to put its Saab and Saturn brands through a "strategic review," which means a potential sale, in addition to Hummer, which already is under review. Ailing Pontiac would become a niche brand, leaving GM mainly with Chevrolet, Cadillac, GMC and Buick. Additional efficiencies could come through amending contracts with the United Auto Workers union. GM suggests a federal "Oversight Board" to monitor its progress in meeting its "restructuring benchmarks."

But here's the problem: GM, by its own admission, is out of time. The benchmarks, while moving in the right direction, remain too low and too slow. Making Pontiac a niche brand isn't new; that plan has existed for years. Putting the other ailing brands "under review" will mean little unless GM actually can discontinue the brands (and thus end the cost burden they create) if the company is unable to sell them. Negotiating contract changes with the UAW will be a protracted process, and negotiating with dealers to reduce their numbers will be slower still. Even if the company does get down to 4,700 dealers by 2012, it will still have an excess of at least 2,500 dealers -- as compared to the average annual sales volume of Toyota dealers.

That's why an "Oversight Board" isn't enough. What's needed, under the aegis of the board, is a federal restructuring trustee who can lead car companies through a bankruptcy-type process if they opt for federal loans -- which Ford, alone among the Detroit Three, says it might not have to do. A restructuring trustee would have the power to set appropriate compensation for terminated dealer-franchise contracts, which would be invalidated with no value if an auto maker files for Chapter 11 bankruptcy. And the trustee should help find a foreign buyer for Chrysler, which is that company's best hope now.

The trustee also would have the power to impose a new labor contract on the UAW. An excellent model for such a contract already exists at the GM-Toyota joint venture plant in Fremont, Calif. The UAW represents that plant too, but the contract there is shorter, simpler and more flexible in every respect than the union's master contract with the Detroit Three."

He pulls no punches. A Chapter 11 filing, or an equivalent status, must be required for GM in order to receive any more Federal help.

As I discussed this ongoing drama with my business partner yesterday, he noted the front page of a newspaper, probably the NY Times, listing five options for Detroit's auto makers. Bankruptcy wasn't even among the top three, and anything requiring outsider-led reorganization was down the list and assessed as being opposed by the UAW and company managements.

It's taken this to make the strangest bedfellows, UAW chief Gettelfinger and CEOs Wagoner, Mulally and Nardelli. And, this morning, GM executive Bob Lutz, who has worked for all three auto makers, at one time or another.

Lutz and Gettelfinger were each interviewed on CNBC this morning. It was pretty disgusting.

Lutz sang the praises of Wagoner, but, when asked how much the UAW had to give to make things work, he punted. Then he continued by claiming that firing Wagoner was like 'firing the mayor of a town just hit by an earthquake.' According to Lutz, i.e., the company line on this fiasco, all of Detroit's problems have been external. They didn't mismanage themselves, ever.

Nope. The financial crisis and current recession are entirely to blame.

Then Lutz corrected the interviewer, saying something like,

'I don't know why people call this a 'bailout.' It's not a bailout. It's an emergency loan that will be paid back.'

Yeah. Right. A company that can't forecast being profitable under the best case for two more years will pay back an $18B loan on time.

If this were such an attractive financing opportunity, GM would be going to the capital markets, not Congress.

A little later, Ron Gettelfinger, head of the UAW, was interviewed. What's surprising is that Gettelfinger is so craven and desperate that he's singing the same song. When asked about firing Wagoner, Gettelfinger virtually repeated Lutz' argument- that all the trouble GM is in is outside of its control.

When pressed for what the UAW would give to make a reorganization work, Gettelfinger, too, punted, saying everything was on the table, but nothing was sure until he 'saw what everyone else was giving, too.'

When corporate management and their union suddenly begin singing from the same hymnal they are holding together, you should worry.

And put your hand on your wallet. And hope your Congress has its hand on your Federal wallet, too.

It seems that these clowns really believe nobody has noticed how the managements of GM, Ford and Chrysler, together with the greedy UAW 'management' and its workers, have run this sector's US-based companies into the ground. Now, they want $34B of our money to 'tide them over,' as if we'll ever get it back.

Paul Ingrassia, who has followed this industry for decades, making his mark by studying it closely, is right on target. The only way these three companies should receive any more Federal help is in Chapter 11. Period.

The Detroit Pigs Return To The Washington Trough

On Thursday, I wrote this post on my companion political blog discussing those aspects of the current drama being played out on Capitol Hill involving the US-based auto makers.

After I wrote that post, there was still plenty of drama occurring, both in the Congressional hearing room, and outside, as all parties rushed to appear before cameras on CNBC and Fox to attempt to add weight and urgency to their positions.

In this post, I want to address the economic aspects of what was said, and not said, yesterday in testimony and various post-hearing interviews.

Perhaps the most outrageously insidious and disingenuous 'witness' at the hearing was the UAW chief, Ron Gettelfinger.

This union chief stopped at nothing to save his hide, and, parenthetically, his union, too. To hear Ron's view of the world, filing Chapter 11 is unacceptable, because it would cause GM to cease to function.

Of course, that's a lie. But what else can Gettelfinger say? The truth is too awful for him and his union members.

Gettelfinger kept banging away on the theme that millions would become unemployed, national production capacity would be lost, and cars would be unbuilt if GM, Ford and Chrysler file for bankruptcy. And that no consumers would buy a car from a producer in Chapter 11.

Trouble is, Gettelfinger's source on that last contention was hopelessly biased and suspect.

But, listening to the UAW chief, you'd think that filing Chapter 11 was somehow less efficient than having a giant pow-wow, before a filing, in which everyone magically sits down and negotiates in good faith, once you and I have agreed, through Congress, to write checks totally some $30B to the three failed auto makers.

The truth, of course, is that Chapter 11 is crucial to force such negotiations. Gettelfinger is scrambling to hold out for pre-bankruptcy negotiations, because, in bankruptcy, his union will have its benefits and wages slashed unilaterally.

In fact, one Democratic Senator explicitly accused, but not by name, some Republicans and pundits for using Detroit's problems to break the UAW. But the UAW is doing that all on its own. It doesn't need help.

Perhaps the most sickening aspect of the presentations by Wagoner, Mulally, Nardelli and Gettelfinger were their simultaneous claims of two mutually exclusive positions:

-If GM, Ford and Chrysler are not rescued, their failure will mean untold damage to the US economy, so dire is their current predicament. And this predicament, by the way, is only the result of the recent financial crisis, not the woeful mismanagement of the three firms and the UAW for decades.

-If GM, Ford and Chrysler are bailed out, they will magically become the best-managed, most eco-friendly, well-run, successful American companies you ever saw.

Actually, both positions are probably lies.

First, Chapter 11 filings by all three firms would allow them to operate under a Federal bankruptcy referee, who would assist in the pruning of loss-making operations, reorganization of the three firms into fewer, stronger firm(s), and/or sale of attractive operations to other car makers.

Further, shuttering Ford, GM and Chrysler, as we know them now, does not preclude Federal assistance to formerly-employed UAW workers, as citizens, though, not UAW members. Shareholders and creditors may suffer, as they should, but employees need not be totally cast adrift.
Too, if GM, for example, is truly within a month of failure, then it's way too late to claim that a few billion in cash will magically solve all its ills.

Also, the three CEOs attempted to con the Senators at the hearing into believing that it is natural and acceptable to forecast 18-30 month timeframes until which these firms will show a profit again.

No private investor would stand for this. No bank would lend on these terms. But the CEOs could offer no case for rescue, in this situation, other than trying to cause a fear of massive unemployment and national economic ruin, should they fail.

Simply put, the CEOs, and Gettelfinger, all of whom are culpable in having brought the firms, and the US-based auto making sector to this point, attempted to evade responsibility for ruining the three firms, but threaten to make the nation's taxpayers pay a high price for the mistakes of these four leaders, and their predecessors.

The second contention of the four leaders, that, if bailed out, they will magically become better-managed companies, is silly on the face of it.

Without significant change in management, union contracts, and various other vendor arrangements, these companies will never survive to repay the 'loans' they claim to want.

You have to ask yourself, how will GM, Ford and Chrysler, which mismanaged themselves to this point, magically change just by the infusion of tens of billions of dollars of taxpayer money?

They won't.

Finally, there is a lot of emphasis on various surveys purporting to claim that, if in bankruptcy, these firms will lose customers, because, 'nobody will buy a car from a company in bankruptcy proceedings.'

These surveys are, when you carefully evaluate them, specious. Gettelfinger and Wagoner never actually cite the details of the 'survey' on which they rely.

Today, on CNBC, economic misfit Steve Liesman cited the network's own poll as showing that 52% of those questioned would buy a car under those circumstances.

Then the economic idiot claimed he had reversed his own numbers, and the correct value was a lower number. 37%, I believe, with the balance, some 11%, were undecided.

The flaw, of course, in Liesman's figures, is that one would need to carefully consider the sample makeup. To me, the most reasonable universe for these surveys would be current buyers of each company's cars. With such a small market share now, GM is really only worried about current customers, since most car buyers wouldn't take a GM product if you gave it to them.

Thus, it's probably a good idea to totally discount these 'surveys' purporting to show that the firms can't....just can't...be in bankruptcy, or they will sell no cars.

Finally, the CEOs, and supporters, including the Governor of Michigan, would have us believe that, without GM, Ford and Chrysler, valuable non-carbon-based car technology will lapse, and we'll be at the mercy of foreign producers of alternative-fuel vehicles.

Again, this is a red herring, and nothing could be further from the truth. If these technologies are so promising, why would not either other car makers with plants in the US, or simply other companies, buy these patents, technologies, or operations, in order to continue perfecting them?

It's not the assembly of something like GM's oft-heralded, but far-off Volt, that is crucial. It's likely the battery and drive train technology. Parts that a supplier could easily buy and finish developing.

In general, any parts of these companies that are valuable will be preserved and transferred, in Chapter 11, to a better, stronger parent. So will employees needed for ongoing car operations.

In summary, the cases made by Wagoner, Mulally, Nardelli, Gettelfinger, et.al., are deeply flawed, specious, and devoid of merit.

We should all hope that Congress only extends a debtor-in-possession loan to any of the three US auto makers which choose to enter Chapter 11, and then offers focused assistance packages to displaced employees.

To do more would be folly and insanity. Throwing our good taxpayer money after bad, lost shareholder and creditor money.

Earth To Ron Gettelfinger: Wake Up!

I just saw/heard UAW chief Ron Gettelfinger give a completely surreal press conference.

It's difficult to catalogue every single one of his mischaracterizations, lies and errors of reasoning. Among them, however, were these:

-Contending that if the US auto makers file for bankruptcy, then any market share losses will be made up exclusively from off-shore, foreign auto producers.

-The beating that equity prices of GM and Ford have taken is merely a 'distraction,' and doesn't reflect some of the better products which at least the former has developed.

-The auto industry is vital to the US economy, and its failure, by virtue of Chapter 11 filings by GM, Ford and/or Chrysler, would plunge us into a severe recession.

-There must be immediate Federal rescue of the auto makers by the Bush administration.

-The UAW is awaiting January 20, 2009, when Gettelfinger indicated that he and his union feel 'real' help will unquestionably arrive in the form of a Democratic President and Congress.

This is pretty scary stuff. As counterpoints, here is what I believe to be more realistic:

-Market share losses of GM, Ford and Chrysler will most probably continue to be filled in by US-based producers owned by foreign car companies. Thus, more US-based jobs and capital investment will follow, though perhaps not on a 1-for-1, dollar-for-dollar basis, as these predominantly southern-based, non-union plants are more efficient than those of Detroit-based auto makers. Gettelfinger completely misrepresented reality, and, in effect, lied, on this point.

-To most Americans, and especially to Americans as investors, the beating that the equity prices of GM and Ford have taken is precisely the point. Not a distraction, but an important, crucial signal in the lack of confidence by investors that these companies, and Chrysler, will ever be able to provide sufficient value to their customers, in sufficient volumes, to merit higher equity valuations.

-The UAW and its major employers, GM, Ford, Chrysler, and their suppliers, hardly represent the larger share of US GDP that they once did, say, as recently as even 20 years ago. It's not a growth industry, and any employee choosing to work for one of these three auto makers, or their suppliers, made a conscious choice to bet their livelihood on no-growth, or shrinking companies with a track record of losing market share and money.

It's simply not true that, as in the 1950s, the US economy is supremely, or even largely, dependent upon the Detroit-based auto makers.

For example, according to this news piece,

"United Auto Workers union membership has fallen below 500,000 for the first time since World War II, reflecting the massive restructuring undertaken by Detroit's automakers.

The union reported Friday in a filing with the Labor Department that it had 464,910 members by the end of 2007, compared with 538,448 at the end of 2006. UAW membership peaked in 1979 at 1.5 million but has been dropping ever since."

That sure doesn't sound like an economy-wrecking number of laborers, if furloughed, does it? It's about four months of recent unemployment, on current trends. And in a Chapter 11 filing, these wouldn't all be laid off.

So, once again, Gettelfinger is lying about the importance of his union, and its major employers, to the US economy.

Where do we draw the line between natural, healthy Schumpeterian dynamics, a/k/a 'creative destruction,' and a 'too big to fail' case requiring the US Treasury and taxpayers to save an entire industrial sector which has, through its own management, failed?

-Gettelfinger is wrong to lay the entire mess of his employers and his own union's exorbitant benefit and wage demands in the lap of the outgoing Bush administration. If this were so urgent, why did the four pigs wait until the last sixy or so days of the current, conservative, Republican administration to beseech Congress for help? To wait so long, present so thin and unconvincing a case, and then blame President Bush for any subsequent damage from a refusal to rescue a group of failing companies, is completely unrealistic and immoral.

-This, sadly, is a fact. It's clear that Gettelfinger's UAW is salivating at the prospect of raiding the Federal Treasury, courtesy of the Illinois rookie, Frisco Nan and Harry Reid, without taking any wage or benefit cuts whatsoever. So desperate are they that Gettelfinger is trying to mau-mau President Bush to cough up the funding in advance. The greed and lack of a sense of reality on the part of the UAW's senior officials is just mind boggling.

Four Pigs At The Trough: Auto CEOs & UAW Chief Beg For Government Rescue

Today, as I worked on various posts and equity/options management activities, I listened and watched the morning's entertainment. By that I mean the appearance of the Four Pigs from Detroit- CEOs Wagoner of GM, Mulally of Ford, Nardelli of Chrysler/Cerebrus, and Gettelfinger of the UAW.

Yes, even UAW chief Ron Gettelfinger has cheerfully pitched in. In a moment of pure deceit, Gettelfinger alleged that, failing a massive, immediate cash infusion by the government into GM, Ford and Chrysler, at least GM would be forced to file a Chapter 7 bankruptcy.


Gettelfinger's wrong. I checked online, and chapter 7 means, in effect, immediate liquidation. Nobody is suggesting that for GM.


Instead, a Chapter 11 reorganization is the logical alternative. Of course, in this scenario, Gettelfinger knows he's going to have to force his UAW members to swallow massive benefit cuts. And Gettelfinger's days as a powerful union boss will be shortened, as perhaps the largest remaining, old-line unionized sector in America takes a giant step closer to oblivion.

Among the more hilarious moments I saw before dashing off to a business meeting were these:

-Rick Wagoner fumbling for about five minutes, with no clear 'elevator pitch' reply to the question,

'Just how much money do you need? When are you going to run out of money now?'

Wagoner failed miserably to provide a clear, concise grasp of his own company's financial situation. If he were applying for a management job at the company he misleads, and provided such a response in a job interview, I'm sure he'd be rejected forthwith.

-A Democratic Congresswoman noting, while unable to pronounce the name of Cerebrus, and being obviously totally unaware of what it is or that it owns Chrysler, that by bailing the auto company out, Congress was essentially providing public financing to a private equity firm partially-owned by two vociferously free-markt Republican former-office holders; John Snow and Dan Quayle.

When Nardelli generously offered that Cerebrus would surrender 'all upside potential' in Chrysler, in exchange for this public bailout, he was tacitly admitting, as my partner agreed, that Cerebrus sees no hope whatsoever for any profit from its Chrysler deal. Thus, it is willing to surrender 100% of nothing, to get a percentage of the requested $25B 'loan.' A loan which only Wagoner, Mulally and Nardelli may actually believe will ever be repaid.

-Various Democratic Congress members reading from obviously-scripted statements provided to them by auto maker staffs, declaring that all sorts of catastrophe will befall the US if these three companies' awful management teams and too-richly-priced union workers are not given money immediately.

-A very articulate Republican Congressman from North Carolina asking why the three ailing, failing auto makers should be given aid, when, as he noted, picture by picture, so many of their cars are made in Canada, Mexico, and Germany. He then noted that the newly-elected President promised to deny tax credits to US companies which export jobs to other countries. How, then, he asked, could the US Congress, at the same time, give $25B to GM, Ford and Chrysler.

-A Congressman asking which, if any, of the testifying CEOs (and, one presumes, Gettelfinger) flew to Washington on commercial flights, would return on commercial flights, and would sell the company fleet of private jets. None volunteered in the affirmative.