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Saturday, November 15, 2008

Save Our Jobs, But Don't Ask Us to Help!

You gotta love unions. The UAW has said that while they want a goverment bailout of the auto industry, Congress and the car makers shouldn't look to them for any more concessions.

Ron Gettelfinger, head of the UAW claims that "labor costs now make up 8 percent to 10 percent of the cost of a vehicle". That might be true, if all you look at is direct labor costs such as wages. However, when you look at the included health care costs of current and retired workers, pension costs, etc, the US auto industry still spends more money on workers; active and retired; than it does on steel.

Congress of course is in a tizzy over the bailout. They of course want to help their union buddies with money from the financial bailout. But the Treasury won't do it, claiming the money is for a "financial sector bailout", like the law they passed says.

One of the things the car makers (and President Bush) want to do is use the $25 billion they've already been given towards operating costs instead of green technology investments. Congress would probably agree to this, except it has the Democrats environmental allies in a tizzy, wanting more green cars, not caring that they aren't profitable.

Congress could make a common sense concession toward the industry, and kill the "two fleet" CAFE rule, which treats North American made cars and imported cars as two separate lines. That would immediately allow Chevy to count it's high mileage Aveo as part of it's fleet, and lower the penalties it pays for the trucks and SUV's that actually make them money. They could then get rid of the money losing Cobalt, or move it's production somewhere that it would be a profitable car.

Wait, they can't do that, the UAW, who doesn't want to help, can't stomach the idea of the Korean and Japanese imports that the Big Three buy being counted in the fleet. It would mean they'd have competition in the company for their jobs.

Here's my idea, the heads of GM and Chrysler, the two automakers most likely to fail soon, need to send Nancy Pelosi and Harry Reid a note. "Drop the two fleet rule, or we file for reorganization, and dump all of our retirees into Medi-Care and the Pension Guarantee fund".

While Congress may think the $50 billion the automakers want is expensive, it's nothing compared to the costs they'll incur if GM decides to file and rip up it's retiree benefits package.

And while the UAW may think that their current posture is best for current and former employees, they'll have to explain to them why they wouldn't work with the automakers to get through the crisis, and why the retirees don't have pensions anymore.

If I were a GM retiree, I'd be looking to some of the former US steel workers for advice on what to tell the union. They were all feed the same lines the UAW is using, and a good number of them lost their pensions.

I don't buy the union line that if any of the car makers file for bankrupcy no one will buy their cars. The airline industry already proved this to be untrue after 9/11 when all the major carriers had to reorganize. They emerged and stayed fairly profitable until fuel costs killed them this year. They proved that consumers are smart enough to know the difference between a liquidation sale and reorganization.

The truth is, the union doesn't want anyone to file because it will mean that their contracts end up under the scrutiny of a judge, who'll get to decide what's best for both parties. That would mean workers and retirees having to start paying some of the costs of their health care, and current workers under the old contracts picking up some more of their retirement costs.

They also lose their biggest bargaining chip, striking, under Chapter 11. The judge can decide if the company can hire permanent replacement workers to keep operating, instead of working under the mirade of state and federal labor laws; or the judge can just order them back to work (more likely), with the power to decertify the union if they don't obey.

Personally, I don't want to see the US car makers fail, even though I stopped buying their products years ago. I mentioned the Elantra above because I bought on in 2005 over a Chevy Malibu, which was about the same size that model year. To get a comparably equipped Chevy would have cost me about $5,000 more, with a lesser warranty.

What I'd like is to see a US auto industry, and UAW, that realize the 21st century is truly a global market place. It's going to take decent, well priced, fuel efficient cars for them to stay in business. The white collar end needs to design them, the blue collar end needs to realize that the cars have to be profitable, and a Congress that realizes some of it's rules are causing these problems.

35 years of eroding market share hasn't taught any of them anything. Maybe a big time failure of one of the (formerly) Big 3 will.

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Blogger cjberger said...

Ron Gettelfinger's figure that states that 8 to 10 percent of the cost of a vehicle does include health care costs, pension costs,etc of the workers(though not for current retirees). So there are 3 major stakeholders in the success of a company, the senior management, the shareholders, and the employees. Without each player there would be no company or its product. If 1/3 are only receiving 10 or fewer percent in wages and all other benefits then something is terribly wrong. It would seem the workers are due for a 20% pay raise.
Tucson, AZ

12:57 PM  
Blogger Crazy Politico said...

Actually, the workers there before the latest contract (95% of the UAW workforce) are averaging $29/hr in wages and a similar amount in benefits. Do the math and that's well over $100k/yr in wages and benefits.

Maybe a 30% pay cut for them would get the ocmpany back on track.

4:41 PM  
Blogger shoprat said...

I'd like to see them in bankruptcy court, so long as it is protective bankruptcy and not liquidation bankruptcy. Someone needs to see what is really going on there.

11:41 AM  
Blogger John Ruberry said...

Good post

10:02 PM  
Blogger Crazy Politico said...

Shoprat, I agree, a managed bankruptcy under Chapter 11 is what they need. Let a judge figure out what's "fair" for both the company, employees, and retirees.

Thanks John!

1:47 PM  

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