What To Do About GM?
by tgirschNovember 14th, 2008
Seems to me that both parties are demagoguing the holy shit out of GM’s woes and what, if anything, to do about them. Speaking for myself, I’m open to being convinced in any direction. On the one hand, I’m not in love with the idea of bailing out a company that has made mistake after mistake after mistake and whose business model is almost certainly unsustainable; on the other hand, I’m not eager to screw a bunch of workers and pensioners out of their retirements or do away with the country’s 8th largest employer, either. So what to do?
Blindly partisan crap from either side need not apply. I’m looking for even-handed, well-reasoned arguments about what to do, not demagoguery. Anyone aware of some good essays?
Categories: Blegging, Economics, News & Current Events |
I don’t know of any good essays; I do know that the middle of a crisis is both a lousy time to be looking for fundamental changes but, sadly, the only time we think about them.
I expect GM will require some sort of bailout at least in the short term. But pretty much off the top of my head, there are some points I’d like to see as part of such assistance.
1. Confirm the crisis. If GM wants a bailout, it has to open its books so some appointed person or persons can determine that yes, there is a need for help and I/we estimate this much will be needed.
2. Keep promises. Bailout funds, however they are provided, must first be used to keep commitments already made to workers. That would include pensions and health insurance.
3. The fish rots from the head, or workers before management. There needs to be a major shakeup among GM’s top managers. They are the ones who made the decisions that contributed to the company’s crisis, so they should be the first to suffer when things go sour.
4. Who pays the piper. Public investment should mean public influence within the corporation. GM must agree to certain conditions on how it conducts business, including a real say in what kinds of vehicles it produces. No more “small car means small profit” thinking, especially when the issue isn’t profit maximization but corporate survival.
Attached to all of this there need to be performance standards and mechanisms for oversight to determine if they’re being met. No more financing AIG junkets or JPMorgan Chase acquisitions.
The other problem with letting GM fail is that if the Chevy Volt doesn’t hit the market in 2010 or 2011, I think the US can kiss off any hope of leading the world to an effective electric car.
One big problem is the union agreements. I agree it is important to protect the workers but the union agreements for the big three are guaranteed company killers when the other makers are not hamstrung by such onerous employee demands. (And yes, employees in other companies are well paid, just not stupidly so).
The executive and management needs to be gutted as the leaders obviously have failed miserably in their duties.
And, unfortunately, the media needs to change their tunes. I have seen identical cars produced under different names (i.e. one under Ford and an identical one under Mitsubishi) and the foreign vehicle will get rave reviews while the North American one gets ripped.
There is very little that can be done that will help the North American auto makers as the media and the public have decided foreign auto makers are better. And as that is unlikely to change, the North American companies are toast. Let them merge, die or whatever because the public simply does not care and any money spent will never be returned.
LarryE, I don’t think you can honestly argue that GM needs to make any more data available to demonstrate that they need help. They’re reporting a loss equal to more than a quarter of their total assets last year, and they’ve had similar issues before. Likewise, I can’t see any amount of information they could provide that would tell us exactly how much help they need. They’ve got a 2000+ USD cost per unit ‘handicap’, a product that is far from stellar, and are in a field where (even should they pull a rabbit out of a hat) competitors can get into any successful market or apply a similar version of any successful innovation within a year, at most.
Mr Tomblin, the Volt is neither technologically nor economically innovative. If there’s anything of value there, other companies can take up the slack. Even if there isn’t, I’d expect someone to strongly encourage the movement of the funds going toward GM’s support of the vehicle to another company. Worst case, GM going under may slow the deployment of those devices, but it’s unlikely to do much meaningful as to whether or not the world is lead to hybrids with larger batteries, or even whether America is the one leading, only the matter of what logo goes on the back of the boot.
If GM was producing something unique or valuable, or could be saved, bailing them out would make sense. They’re not, though. I’m not a fan of corporate welfare (in the actual ‘give-money-without-good-or-services-offered’ definition) in the best of situations, and doing so for a company that’s almost certain to repeat the same incidents in a decade or two and not produce anything uniquely worthwhile in the meantime is far from a good reason.
Gattsuru -
I don’t think you can honestly argue
Yes, I certainly can since what we know is what GM has told us. The deal is, if you want the help, you open the books so we (i.e., the government as representative of the public) can make an independent determination of how bad things are and how much help is actually warranted - if only to confirm that things have not already gotten so bad that help would be unavailing.
I can’t see any amount of information they could provide that would tell us exactly how much help they need
Not without seeing the books, certainly not.
Big U -
onerous employee demands
That’s the song we always hear when some company gets in trouble: It’s all the workers’ fault. If only they would accept lower pay, slashed benefits, less job security, layoffs, “flexibility,” and more responsibilities all at the same time - that is, if only we could pay them like Wal-Mart and treat them like McDonald’s - everything would be fine.
We’ve heard it over and over again with regard to the so-called Big Three, even when they were still profitable and even when they were losing market share to imports because they refused to re-tool to meet a changing market and because they insisted on a higher return on investment than Japanese companies were willing to accept - and even though total compensation is not that different between workers on domestic and imported cars (and Japanese autoworkers, whose pay is well above national standards, recently got raises).
(I even recall a case a while back where Japan had to devalue the yen, driving up the price of imported Japanese cars - and American automakers responded not by underselling those imports but by raising the price on domestically-made cars.)
Well, I say that after management sees their pay cuts, their slashed benefits, their eliminated bonuses, their firings, then and only they do we look to put the onus on the workers who had no say in the corporate decisions (such as, in GM’s case, a stubborn insistence on relying on over-priced, over-sized gas guzzlers) that produced the mess.
LarryE, you are the perfect example of the type of myopic left wing individual that is not interested in hearing everything but rather only what they want, which often starts and ends with “all corporations are bad and are liars whose goal is to take advantage of poor under-appreciated worker”.
The fact is, I cited three things. I guess for your sake I should have started with my criticism of management.
Here is an article comparing Toyota to GM showing why GM is unable to make necessary moves: http://www.scdigest.com/assets/NewsViews/06-05-25-2.cfm?cid=714&ctype=content
Big U
I woouldn’t be so quick to call the kettle black, my friend. You cited, without any evidence, onerous employee demands. The employee demands are not onerus - -they take people who do hard work and give them a lower-middle to middle class lifestyle. Dare I say that anyone who would think that constitutes onerous would be nothing more than a myopic right wing indivdual interested in hearing only what they want to believe?
Here, by the way, is a more compelling discussion of the changes that GM has already made to become a better business:
http://www.tnr.com/politics/story.html?id=a4893b49-36df-4784-9859-2dfa3a3211bf
Kevin, I cited three distinct things. The only one responded to was the employee packages, which historically have severely handcuffed the big three and continue to do so at GM. I’m not saying just lower the wages, though that needs to happen in some circumstances. What I am saying is that some of the deals that have been structured make it difficult to adapt to change (the article I cite indicates the type of handicapping that takes place). I am fully in agreement that management needs to be trimmed, if not replaced completely, and the North American market needs to realize that quality is being produced.
As an example of overpayment, the hourly cost of a new hire for GM in 2007 was $73.00 per hour. Just a tad high to be competitive. Also, the company fully funded health-care for all retired employees up till 2005 and also had a job bank in place that paid any workers that were laid off while they were jobless. Those are three examples of what I would classify as onerous for a company such as GM.
Big U
Cite the number please, and then tell me how much Honda/Toyota pay for a new hire in a similar position, and the tell me how much of the local government pick up the tab for things that GM has to account for. You cannot make a statement about competitiveness without knowing that information, and yet you do.
And from the article I cited talks about how the new labor contracts offer more flexibility and that the most efficient plant in North America is a Jeep plant. It seems a shame to kill that because of incorrect notions about current labor and management.
So whatever sins
Big U -
you are the perfect example
And you are the perfect example of someone who prefers arguing by extremes to even attempting a response to arguments actually raised.
I said nothing about “all corporations are bad and liars.” That is both a gross distortion and an irrelevancy, so much so that I can only assume it was done deliberately.
Your only criticism of management was that they “have failed miserably in their duties” without any indication of what those duties were. Do those failures include ignoring, indeed refusing to face, a changing market? Or focusing on short-term profit (what Leonard Silk, long time economics editor at the NYT, called “the tyranny of the short-term”) while ignoring long-term interests and market share? Do they include embracing “small car equals small profit” thinking?
Do they include, that is, failures that have been on-going for at least decades?
Do they include invariably trying to make workers bear the brunt of the effect of their bad decisions while protecting their own interests? (GM CEO Rick Wagoner is to be paid over $2 million for 2008, not counting incentive payments and stock options; in 2007, as GM lost nearly $40 billion, he got total compensation worth over $14 million.)
Or did they consist of laying off enough workers or not being tough enough with the UAW?
For me, I’m just sick to death of every time the troubles of the domestic auto industry are brought up - and I would remind you this is not a new crisis and not the first time this has been argued - every time it comes up, the first words out of someone’s mouth are “overpaid workers” making “onerous” (or “inflated” or “unrealistic”) “demands.”
I say again: Only after those who made the decisions have paid the price, only after there has been a complete change in management - and note I do not say managers, I said management, a change not only in personnel but in the way the company does business - only then do we get to bear down on those who had no part in the stupidity that brought GM to this pass.
Okay LarryE, let me make it simple for you. Including legacy costs (pension and health care from past and current contracts), GM’s current labor rate per hour is between $73 and $81 while Toyota’s is somewhere in the $35 per hour range (see article I cited as well as many others on the internet). This is an onerous disadvantage.
I have no problem saying management has made stupid decisions in the past and should pay the price. I also have no problem agreeing with how idiotic executive compensation is. For me that goes without saying but I guess I need to spell it out.
I hear what you’re saying Big U, and it’s a great argument against the free market. Because the free market ultimately results in a race to the bottom — increased competition drives wages down, not up. So why should the working class be in a rush in that direction?
And for what it’s worth, Toyota’s labor cost advantage isn’t so great as you claim. Their per-hour, per-US-worker average total labor cost (including) is $48 and rising. GM’s is $62 and falling, thanks to — guess what! — concessions from the union. Back in April, estimates showed that Toyota’s US labor costs would exceed GM’s by 2011. Recent developments are likely to accelerate that trend, bailout or not.
Big U -
I will end with this:
The article you linked praised the auto industry for supposedly changing its ways - but most of the changes involved givebacks by unions. It was the unions that were being “flexible,” not the corporations.
More importantly, including so-called legacy costs in calculating per-hour labor costs is deeply misleading as it takes all costs from retired workers and treats them as if they were payments to current workers.
What’s wrong with that should be obvious: First, it grossly and falsely inflates the wages/benefits supposedly received by current workers. Second, it distorts inter-company comparisons: Even if two companies of equal size have precisely equal pay and benefit levels, if one has been around longer (and therefore has more retirees) it will by this method display higher per-hour labor costs.
Whatever use including legacy costs in calculations may have in examining an individual company’s distribution of costs, it’s validity as a comparison between companies is inversely proportional to the difference in the length of time those companies have incurred such costs - in other words, in comparing GM to Toyota in the US, it means almost nothing.
Two last things: The article you cited said health care costs for retirees accounted for “about half the gap in compensation between unionized workers for the Big Three and non-unionized workers for foreign-owned automakers.” So is the real problem with the unions? Or with the fact that those others aren’t unionized?
Finally, I asked you before just what decisions it was that constituted management’s “fail[ing] miserably in their duties.” You didn’t answer, so I’m repeating the question.
What were the “stupid decisions in the past? How do givebacks undo those decisions? And what should be done about those who made those decisions that does not involve simply replacing them with other executives who will pursue much the same course?
Stupid decisions?
#1 - caving to unrealistic union demands that were guaranteed in the long term to destroy the company’s ability to compete with any newcomers.
#2 - creating a high level management salary and bonus structure that was guaranteed to hinder the company
#3 - trying to place plants all over the country rather than localizing production in one region to take advantage of qualified workforce.
Now, while legacy costs do not relate to the current labor cost, they do contribute significantly to the amount needed to make a profit. The legacy costs are what is crippling GM. And the fact is that those legacy costs destroy new employees’ chances to make better wages. Now, as tgirsch has pointed out, concessions have been made by the unions. It is likely that the end result will place GM in a position to be competitive IF they survive. As I failed to lay out in my original post, I did not mean for “onerous demands” to be related only to “wages currently being earned by new hires”. The demands were far more all-encompassing and in reality, the wages paid on the assembly line are not the biggest issue.
However, it is critical that management be forced to make huge wage concessions as well (that a CEO of a company that LOST billions would be paid that much is ludicrous and a sign of idiocy), that GM significantly reduce it’s models and potentially do away with some of the lines (my suggestion would be to start by dump the GM and Pontiac lines).
Big U:
The legacy costs are a big problem, but again, you’re putting too much blame in the wrong place. The reason pension costs are such a problem is because GM woefully underfunded the pension plan when times were good. So now that those pension bills are coming due, they find themselves without enough reserves to cover them, and that translates into losses now. If they had properly funded the pension plan in better times, rather than taking all of that as short-term profit, they wouldn’t be in as big a mess.
But somehow this is all the union’s fault for negotiating for those pensions in the first place? And the retirees should be the ones to suffer for it? If I make contractual commitments to pay for something, you can damn well bet somebody’s going to hold me to those commitments. So why should a corporation be held to a different standard here?
The other big part of the “legacy cost” equation is health care, and that’s hitting everybody, not just the “Big Three.” And there, of course, the solution is simple (if a “dirty word” in US politics): single-payer health care. By implementing that, yes you’d increase taxes, but you’d also eliminate one of the largest and fastest-growing cost centers of every major employer.
Then again, as a Canadian, the concept of employers having to fork out as much as $12,000 per employee per year in health care premiums alone is likely absolutely foreign to you. For sake of comparison, in 2003, Canada spent $2,998 per person in total health care expenditures. Here in the US, that figure was $5,711 per person. (Source.) And at the time, we had over 10% of our population without health coverage of any kind. (Today, we’re at over 15% and still climbing.)
Oh, and for what it’s worth, there’s already talk of getting rid of the Pontiac label. They’ve already 86ed Oldsmobile.
Don’t just look at the dollars for health care when comparing US to Canada (I know, this could easily morph into another topic). One example? If I want an MRI, I can drive to a clinic just across the US/Canada border and get one that day. To get one in Canada, I need to be referred by a specialist and it can take anywhere between 2 and 12 weeks depending on how busy things are. There is a reason why spending per person is low in Canada compared to the US. We get, for the most part, incredibly slow service. Also, at this time, it is virtually impossible to get a family doctor. I am fortunate that I have one. And if something happens to me where I need to see him, he can slot me in sometime in February. However, my 17 year old daughter does not have access to a doctor because the doctor she was going to only sees children to the age of 16 and my doctor is not taking any new patients. She is currently on a waiting list for a number of doctors in the city but will likely not get one until she is close to 20 years old.
I know it has nothing to do with the discussion, but I thought I’d throw that out there.
Big U:
You’re right, if you want an MRI, you can drive to the US, and for about $1,500-$2,000, get yourself an MRI. Or you can wait a few weeks and get one in Canada without such an expenditure of time and money. Here in the US, our choices are to either pay full price for an MRI out of pocket, or to jump through a long series of hoops imposed by the insurance company. The choice usually winds up being the latter, because most people can’t afford to drop $2K out of pocket for something like that.
I’m intimately familiar with how this works, because a few years ago, my wife had a back injury, for which her doctor requested an MRI. But the insurance company refused to approve it, and insisted that we first try to treat the problem — which the doctor hadn’t identified, because he didn’t have an MRI — with medication. She went through three different kinds of medication over a period of about four months before the insurance company finally approved the MRI. So you seem to think that the US system is largely immune to long waits and hellish red tape, when in fact, nothing could be further from the truth.
Making this problem even worse, for most people in the US who have health insurance, their health insurance is provided by their employer. So if they change jobs, they have to change health plans. And when they change health plans, their new insurance provider can legally refuse to provide coverage for any pre-existing conditions. So people with chronic health issues are left with the hellish choice of either being tied to a particular job, or having to pay completely out of pocket for treatment of those problems.
Believe me, I understand that the Canadian system is far from perfect, but your systems problems are a lot easier to fix than ours (primarily, though conservatives hate hearing it, by throwing money at it). You need more doctors? Hire more. If that costs more money, then it costs more money. But for my money, it still beats what we have down here, where decent health care is quite literally a luxury of wealth.
You may have to wait for services up there, but everyone can get them. Here, that simply isn’t the case. In the US we’re rapidly approaching 50 million people without health insurance, and an even larger number who are underinsured. For a country that’s purported to be one of the wealthiest, best countries in the world, that’s unconscionable.
T. -
I have to correct one thing you said, that about pre-existing conditions.
Under the Health Insurance Portability and Accountability Act (HIPAA), carriers can impose a waiting period of not more than one year for coverage of a pre-existing condition, defined as one for which you were diagnosed and/or received treatment within six months prior to enrollment.
Further, and this is the important part, when you change jobs, the time you were covered under your old plan must be credited toward any waiting period under the new one (provided that coverage was “continuous,” defined as a gap of no more than 63 days).
So if your new plan has a full one-year waiting period but you were covered for, say, nine months under your old plan, there is only a three month wait under the new one.
That also means, of course, that if you were covered for a year or more, there is no pre-existing exclusion period under the new plan.
It’s not entirely that simple of course, there can be a few wrinkles, but for the vast majority of people moving from one employer-provided plan to another, that’s the story.
LarryE:
Thanks for the clarification.
just so we’re clear tgirsch, I’m not saying the US system is better than Canada’s or even good. All I was trying to do was advise that the supposedly “everyone has access” system here in Canada has significant flaws as well.
Re: Doctors - the medical system is run socially and as a result controls who can become a doctor and where. Many of the doctors go to the US because of a number of factors. Medical schools have an arbitrary ceiling on how many students they take on. Not because of lack of teaching, but because of political decision-making. We have several doctors here wanting to set up clinics to run MRI machines and do simple surgery but they are not legally allowed to do so because it violates the federal laws which state all provinces must deliver similar services. To me, that is a failure of our system. I think it would be wise for both Canada and the US to look around the world at all systems and work on developing a hybrid that works for everyone in North America but that seems to be too politically charged on both sides of the border. Anyways, sorry for hijacking the thread. Back to GM……………