Economics

Surprise: Auto Bailout, Like My Old '79 Malibu, Dies in Senate Driveway

|

There's nothing like an incoming Democratic administration to stiffen the spines of Republican senators, is there? It's like partisan Viagra or something, I tells ya. The latest on the auto bailout:

A bailout-weary Congress killed a $14 billion package to aid struggling U.S. automakers Thursday night after a partisan dispute over union wage cuts derailed a last-ditch effort to revive the emergency aid before year's end.

Republicans, breaking sharply with President George W. Bush as his term draws to a close, refused to back federal aid for Detroit's beleaguered Big Three without a guarantee that the United Auto Workers would agree by the end of next year to wage cuts to bring their pay into line with U.S. plants of Japanese carmakers. The UAW refused to do so before its current contract with the automakers expires in 2011.

The breakdown left the fate of the auto industry—and the 3 million jobs it touches—in limbo at a time of growing economic turmoil. General Motors Corp. and Chrysler LLC have said they could be weeks from collapse. Ford Motor Co. says it does not need federal help now, but its survival is far from certain.

More here.

Btw, isn't it time they update the number of jobs the auto industry "touches" to every job in America, since at some level everyone is auto-dependent? And by the same calculation, is any industry more vital to American security than the dry-cleaning industry?

I'm glad to to see the auto bailout go down for this round (though I wish the same had happened to the financial services bailout in the version that passed). However, I find it troubling that Republicans are also interested in dictating terms to any business (the story says they would have passed it if they figured the deal would break the unions more than the passage of time already has). That just isn't Congress' job and it's been part of the problem in the U.S. for at least 80 or so years. The federal government has intervened in labor markets for decades in major ways, rigging the negotiations for labor or management (two terms that increasingly fail to reflect current workplace conditions anyway) depending on the moment.

Something to consider: The United Autoworkers did negotiate a very different deal with Ford, GM, and Chrysler last year, a deal that basically brings labor costs for new employees into line with industry averages (averages, I rush to point out, that are being in other parts of America to American workers; one problem with this whole discussion is that it's premised on the notion that there are "domestic" and "foreign" car companies). The Big 2.5's problem is that it needs to jettison the more expensive workers, and quickly, to have a future.

To be honest, I'm as worried at the idea of Congress dictating labor terms for industry as I am about them simply throwing gobs of money at failing companies. None of it is good and the discussion needs to proceed along very different principles, I think. Which is to say that, if government is going to be handing out bailouts (never a good idea), they should be done at the individual level rather than at the corporate or industry level.

Look for the next round of negotiations on an auto bailout to center on how to offload pension and health care costs on to U.S. taxpayers. Oldsmobile and Plymouth may be a thing of the past, but guess who is going to be for the retirements and oxygen machines of the folks who built those behemoths? To paraphrase Mick Jagger, it is you and me.

NEXT: Friday Funnies

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. They got the spine to block the 15 million for a working class largely union-employee company but not for the 700 billion for the white collar companies. Yep, the GOP is still the GOP.

    I hope the Dems ram this through next year and pay for it by taking federal infrastructure funds from the Southern states.

  2. Class envy is so sexy.

  3. MNG, by your logic, since Congress voted for one bailout, they now must vote for EVERY bailout because it wouldn’t be fair otherwise.

    Your Democrat friends were pushing the financial sector bailout too, so pipe down.

  4. Keeping the federal government out of the labor relations business is all well and good now, except when that UNION$ have already had their way with Congress.

  5. Also, Nick fails to note that the White House is suddenly said to be “considering its options” with regard to siphoning some money out of the $700B that they formerly thought was sacred to financial companies, to give to the auto companies. So the automakers still might get a bailout, regardless of what Congress does.

  6. However, I find it troubling that Republicans are also interested in dictating terms to any business

    They’re not dictating terms to a business, they’re putting conditions on federal aid to a business. That business is free to go without the federal aid if they don’t like the conditions. Unless you think car companies have some sort of existential right to this bailout.

  7. There is a big difference between recapitalizing banks, and giving cash to a flailing metal shop. I’d be willing to bet that the median wall streeter is making less than a senior Union autoworker this year.

  8. I live in Michigan.

    In 2005, Michigan’s economy ranked last in the fifty States.

    I cannot wait for these cunts in the “auto industry” to die screaming in their own blood.

  9. Yesterday I heard a guest on one of the early-evening gab-fests say, with a straight face, that the southern legislators were union-busters because of their lingering disappointment over the Civil War. Get it? The show’s host didn’t, and let it pass, stating he would not care to guess their motives. Sheesh, is everyone on TV brain-dead?

  10. Senator Richard Shelby(R) of Alabama has led opposition to both the auto and financial bailouts.He got enough votes to stop it this time.

  11. ed, I didn’t see that, but it sounds like the host was trying to avoid wrestling with a pig. Sometimes the best response to a moonbat quote like that is just to change the subject.

  12. BTW, a lawyer buddy of mine pointed out that the proposal that the government loans would be considered senior to existing secured debt holders is fraught with 5th Amendment takings issues.

    So while it’s very possible that this thing could get revived with a couple shots of pork, there still could be significant resistence from the Supremes.

  13. Props to Sen Jim DeMint (R-SC) who beat them to the hyperbole punch with his threat of riots if it passed by Americans opposed to the bailout.(He opposed the Wall Street bailout as well)

  14. it sounds like the host was trying to avoid wrestling with a pig

    Nah, his guest said it with such a straight face that the host didn’t realize it was a joke (albeit a lame one). So much for actually listening to what your guests say. Everyone is on a script. Stupendous factual errors are uttered hundreds of times a night, with few of the “journalists” ever questioning them. That profession truly is at a low point, and it doesn’t bode well for the nation.

  15. Bush should do nothing, so, like an idiot, he’ll go ahead and bail them out. Let Obama do it. Let a completely Democratic Executive and Legislature spend taxpayer dollars to save wildly over-paid UAW jobs.

  16. I was glad to see this shot down. Although I am not holding out much hope for it completely being shot down. I am sure Bush will do one more (at least) stupid thing while in office.

    While I agree with you Nick that the government has no right to tell companies how to run their business, as someone has already pointed out, they aren’t exactly. These companies are asking for money because they are failing, you shouldn’t just get billions of dollars without any strings attached. When you are paying your workers almost double what your competitors are, and you are losing money on your product you are selling… something has got to give. I am not saying that it is all unions fault for what is going on. Clearly these CEOs aren’t the best and the brightest, but just like the American people deserve much of the blame for the economic recession, so do the UAW workers for their companies pit falls.

    Full disclosure here I should add that I am very anti union.

  17. wages are almost identical for big three automakers and the Japanese companies – around $30 an hour + or – a few dimes. Costs of labor on the other hand are over $20 higher for the big three. This is 100% totally and completely because of their pension liabilities.

    Let the companies restructure in bankruptcy, or bail them out – the taxpayer is going to pay off those pensions regardless.

  18. Excellent point domo, I forgot to clarify my assertions.

  19. From the Detroit Free Press:

    …the UAW has spent more than $10 million to elect Democrats and defeat Republicans…. Sens. Richard Shelby of Alabama, Bob Corker of Tennessee and Minority Leader Mitch McConnell of Kentucky represent states where foreign automakers have significant operations and the UAW has less sway than in Michigan or Ohio. Each also has been the target of considerable political support from the automakers’ union flowing to Democrats who have opposed the senators in elections.

  20. a lawyer buddy of mine pointed out that the proposal that the government loans would be considered senior to existing secured debt holders is fraught with 5th Amendment takings issues.

    This is an excellent point. I thought the idea of the government jumping the line was dubious, but I couldn’t come up with a specific reason. The Fifth would certainly be a good place to start.

  21. How much does Ron Gettlefinger get paid?

  22. Republican spines only stiffen when they’re not getting what they want. All the Dems have to do is throw a few bones and those spines will go limp like your dick after seeing Sarah Jessica Parker.

  23. I’d be willing to bet that the median wall streeter is making less than a senior Union autoworker this year.

    Well, nothing’s more helpful to a policy discussion than an admittedly uninformed apples-and-oranges comparative guess.

    One of Forbes magazine’s writers was pointing out that although Chrysler may be low on cash, one of its major investors, Cerberus, is not, but is probably just rent-seeking to minimize their exposure.

  24. I find it increasingly hard to get worked up over the next bailout or pension nationalization. Why? News flash: the US government is living literally on borrowed time at the moment. It has spent far beyond its means, and encouraged its citizens to do the same. It can make all the promises it wants to retirees, old people, college students, etc. and raise tax rates to the Laffer curve maximum or beyond; the numbers simply won’t allow those *promises* to be fulfilled, because even if the dollar is devalued enough to allow the government to cover the nominal cost of those promises, you’ll need $15 to buy a loaf of bread.

    And that (modest?) level of price inflation presumes other countries are still dumb enough to hold our debt and don’t just dump them in exchange for natural resources and precious metals, terminating the Mexican standoff that is the only thing keeping the dollar afloat today. If that happens, you might see the government lopping off one or two zeroes in a few years, Argentina-(or Zimbabwe-)style.

    To everyone who doubts this outcome: do the research and understand the numbers for yourself. I did, and the truth that you won’t read in the establishment media (or even in Reason) is staggering.

  25. I read somewhere (here?) that a few lame duck republican senators were paying back the UAW for supporting democratic rivals. To me that makes the most sense, since the “opposition” to financial bailout was easily bought.

  26. limp like your dick after seeing Sarah Jessica Parker

    My dick was already limp, but there goes my appetite.

  27. It’s interesting to read the Southern state bashing in the Detroit Free Press this morning, and it is true that some of those states have heavily subsidized the ‘foreign’ car companies who have facilities there.
    I really do wonder, however, what will happen if this really doesn’t pass. Will GM simply shut the doors and send everyone home like a suddenly bankrupt airline (say ATA) or will they declare bankruptcy and start serious restructuring and renegotiation. I live in the Detroit area and, much as I’m against the bail-out, I worry what will happen to my city if one or more them actually just plain shuts down.
    Not to mention my job. (Wayne State is a public university, although the state pays well under 50% of its expenses).

  28. It’s interesting to read the Southern state bashing in the Detroit Free Press this morning

    We’re used to it.

  29. nameless,

    Well, nothing’s more helpful to a policy discussion than an admittedly uninformed apples-and-oranges comparative guess.

    Ha! fair enough – just trying to counter MNG’s populist whining…

    Squarooticus,

    Some Helpful Hints courtesy of some likeminded people out west. Don’t forget the tinfoil…

  30. dugg for partisan viagra – oops wrong site

  31. I agree that it would be best for gov’t to keep out entirely. But if there is to be gov’t funding, there have got to be serious conditions (such as those in the Corker Amendment-here in PDF form: http://tinyurl.com/corkeramendment). One is undoing the warped labor cost structure imposed upon domestic automakers over decades of gov’t stacking the deck in favor of the UAW. I don’t favor meddling by the gov’t, but it can hardly be claimed that gov’t meddling (including decades of protectionist measures that allowed the domestics to get flabby) did not play a major role in bringing us to this juncture.

    While I also opposed the loans to the big banks, I think there is a clear distinction between the attempt–however unnecessary or misguided it might have been–to maintain liquidity throughout the economy and the attempt to rescue a few players in a market served by numerous other, less imperiled, producers. There may have been a risk that we would run out of money. There is no risk that we will run out of cars. (To the contrary.)

    While executive compensation is an issue that deserves ongoing scrutiny by shareholders and creditors (and NOT the gov’t, as such), it is a distraction from the real issues at stake in these debates.

  32. “It’s interesting to read the Southern state bashing in the Detroit Free Press this morning”

    Our economy in the South is in much better shape than theirs, been that way for years. I little haternation coming from them is not only expected it is pretty much a transparent joke at this point.

  33. Hahaha..”Our economy in the South is in much better shape than theirs”. Have you ever read one of the governmental reports on the states that suck up the most gov’t dollar? If you had, you would not say that. About 8 of the top 10 states that take in more money from the federal gov’t than they pay out are your vaulted southern states. Hahah

  34. About 8 of the top 10 states that take in more money from the federal gov’t than they pay out are your vaulted southern states.

    Sounds like they’re getting something for nothing. Who’s the dumb one?

  35. vaulted southern states.

    As I recall, southern architecture favored the use of columns…

  36. Let the workers eat cake and pay for their own fucking by-pass operations.

  37. Funny this whole southern states vs. Michigan meme.

    The domestic auto industry sticks it to the rest of the country for years via gov’t concessions like protectionist trade measures, regulatory standards (such as mandatory airbags) and labor union prerogatives that lead to very bad value (in the form of higher prices and/or lower quality) to consumers and is stunned to encounter a lack of sympathy in (typically right-to-work) states that have marshaled the resources of their own citizens (nobody in MI is paying for the concessions TN and its cities paid to VW and Nissan, though I confess I do not know if and to what extent federal $$ might have been sprinkled in) to attract competitive and sustainable producers.

    I am not a big fan of any gov’t concessions at any level to attract industry, but much prefer that they be borne at the state and local level than worked into the inscrutably stacked deck in D.C. All such concessions warp the economy and concentrate more power in the hands of gov’t. The local level holds out the prospect of accountability not possible at the federal level, making it, perhaps, the lesser evil.

  38. so now that TARP funds are going to be used, does congress feel saved or emasculated?

  39. This is a total reprise of the Civil War. Ah, how the tables have turned! Now the manufacturing is in the South and they can’t grow cotton in the North! Except now the West is the wild card, but they’re all too high on environmentalism to care. Howzit gonna go down? I’m takin’ bets!

  40. Executive compensation should get very strict scrutiny if they get a penny of public funds. They should be strupped of their personal property and tossed out on the streets like the fuck-ups that they are.

  41. The Big 2.5’s problem is that it needs to jettison the more expensive workers, and quickly, to have a future.
    Well technically they have to jettison their retirees (and dumping the high paid workers may save money in the short term but create more of these). But absent a Matlock marathon sponsored by the Soylent Green corporation, I don’t see any easy (nor non-ethically dubious) solution.

  42. Wait, how is this turning into a South-bashing party? Because our factory workers actually do work?

  43. And flogged with motorcycle chains.

  44. But absent a Matlock marathon sponsored by the Soylent Green corporation, I don’t see any easy (nor non-ethically dubious) solution.

    love it – let them eat geezers…

    dumping high paid workers probably isn’t great either – I think green employees are less productive per $ of wage.

  45. I just made a doody in my pants. Tee hee!

  46. To be honest, I’m as worried at the idea of Congress dictating labor terms for industry as I am about them simply throwing gobs of money at failing companies.

    On the one hand, it is perhaps significant that a bankruptcy judge will have powers to dictate some labor (and other) terms for the companies. OTOH, that’s actually the job of bankruptcy judges and they have experience in that sort of thing. It is the normal process.

  47. “a deal that basically brings labor costs for new employees into line with industry averages” — unfortunately (for all concerned) is that deal basically doesn’t kick in at all until 2010 (for pension health benefits) and 2011 for most of the rest and doesn’t begin to get traction on the current employee total compensation for even more years.

    I realize that the UAW keeps trying to claim (or make it sound like) they’ll “be in line” in 2010 or so, but it just isn’t true. Fundamentally, most of it apart from the VEBA agreement only applies to new hires. Duh. How much new hiring will the Big 2.5 be doing for, say, the next 10 years?

    Look. The Big 3 and the UAW made insupportable promises to workers about retirement benefits. The rest of us were not parties to that stupid agreement. Why should we pay? I certainly would not have supported the behaviors of either the auto companies or the UAW over the past 30 years (except for buying some of their products when that appeared to benefit me).

    If they get my money, I should get some say. I’m tired of third parties making promises they intend to pay with my resources (I absolutely include governments and their idiot pensions plans, too).

    Oh, and I’m a (forced) union member in Michigan.

  48. With so many businesses struggling, it is very challenging for almost any B2B salesperson to succeed. I keep hoping for some good news, but it isn’t coming, and I for one don’t want to just wait for the economy to turn around. I want to do something about it. If you are looking for solid, practical information on how to sell in a down economy, visit this blog:

    http://www.blog.sellupinadowneconomy.com

  49. for a working class largely union-employee company

    Working class people don’t make $73.00 per hour.

  50. I can’t help what CONgress does or doesn’t do with my tax dollars but I have another choice and I will never buy a vehicle made by Ford, GM, or Uncle Iacocca’s Love Child.

  51. I can’t help what CONgress does or doesn’t do with my tax dollars but I have another choice and I will never buy a vehicle made by Ford, GM, or Uncle Iacocca’s Love Child.

    I’ll second that–my first car is an Audi (which I love, even though it’s currently in the shop, again). We’re in the market for a second, which will either be a Miata or a Mini.

    I’ve yet to drive an ‘American’ car I really thought could touch the good Japanese or German cars, wherever made.

  52. The United Autoworkers did negotiate a very different deal with Ford, GM, and Chrysler last year, a deal that basically brings labor costs for new employees into line with industry averages

    This doesn’t really mean much for businesses that aren’t hiring many new employees, does it?

  53. Nick, your ’79 Malibu died in the Senate driveway? Does the Senate even *have* a driveway? Nice try, but … no.

  54. I’ll second that–my first car is an Audi (which I love, even though it’s currently in the shop, again). We’re in the market for a second, which will either be a Miata or a Mini.

    Expect to see that Mini in the shop a few times, too. If you go that route.

  55. Well, now we get to see “the edge of the cliff” from the other side. Interesting to find out if GM/Chrysler were bluffing about bankruptcy, and if all hell will break loose or not.

    On the other hand, the administration will probably fudge some kind of a bailout anyway. In a crisis THIS BIG, not even the Legislative Branch can be trusted to make a decision!

  56. In a crisis THIS BIG, not even the Legislative Branch can be trusted to make a decision!

    And this administration is incapable of implementing one! We are surely doomed!

  57. Working class people don’t make $73.00 per hour.

    Neither does anyone employed by the UAW.

    Home come I don’t know what line employees at AIG earn? Hell, I don’t even know any phoney-baloney numbers like the “$73.00/hr” people keepo repeating.

  58. It’s things like this that always remind me of how important survival things like emergency food storage are! If you would have been in the middle of nowhere, would you have been prepared?

Please to post comments

Comments are closed.