Tag Archives: UAW

Impressions of “Sixty to Zero: An Inside Look at the Collapse of General Motors–and the Detroit Auto Industry,” by Alex Taylor III

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To understand what went wrong in the American auto industry, one book and four videos will get you a long way

Who killed Vincent Chin? is narrowly a story of racism and murder, but broadly its a depiction of the unionized, schlerotic, and dead-end workforce that Detroit had bred even by the early 1980s. Who killed the electric car? veers toward conspiracy at times, but is really a story of the incompetence of the management and workers — of GM and the AW — when it came to adopting new technology.

This theme of incompetence is emphasized by Sixty to Zero. It’s written by what is known as a “friendly” or “captive” journalist, basically an a shill paid in access by the industry and in dollars by a periodical. There are plenty of shills across many industries, and this shill’s (Alex Taylor’s) Zhou Enlai-level debasement before the great and powerful allowed him much greater access to Detroit management than he would have otherwise had.

No individual leader, no specific reform initiative, seems that bad in retrospect. But they all were either defensive (reacting to change instead of making it), treating changing economic-political conditions (the market share popularity of small cars, and the political popularity of efficient cars) as irritants to be managed rather than as opportunities to drive profits in other areas.

The Tesla has a non-unionized workforce, outsells comparably priced BMW and Mercedes models, and has received political largess from both political parties. This more than a decade after GM’s bewildering attempt with the EV1. Instead of building up a business and reaping political benefits, GM’s bad management and political unpopularity led it into bankruptcy and now being shut out of the electric vehicle luxury market.

The importance on internal corporate politics, and the inability to recognize new markets, is not unique to GM or the American auto industry. Even generally lauditory books such as histories of Google, Apple, and IBM reveal these issues below the surface. But in GM, you had a company so captured by these problems that progress required waiting for the company ( and union) to burn down financial and regulatory until bankruptcy, to allow new competitors to be born.

Without the context of the films and videos Sixty to Zero is a list of names, dates, and personalities. But Sixty provides a context for these films and videos, a skeleton for the flesh, a reason for America’s auto industry’s descent into the ashes and (in Silicon Valley) a promise of rebirth.

I read Sixth to Zero in the Nook edition. You can read an excerpt at NPR.

The Third UAW Bailout of 2008

The first was for $25 billion.
The second was for $17 billion.

And now, as predicted, GM and Chrysler (cash-conduits for the UAW) are back for more. The only surprise is that they managed to squeeze the third one into 2008.

As Treasury Bails Out GMAC, Is It Overdrawing Federal Bailout Funds? – BusinessWeek
GMAC might not be the end of it for auto financiers and manufacturers: Within a couple days, a Treasury official says, the agency will post guidelines for loans to auto companies generally. No word yet on how broad eligibility might be.

The federal government’s latest bailouts of GM and GMAC will be the Third (of 3) Detroit Bailouts in UAW, as opposed ot the First (of who knows how many) Detroit Bailouts in 2009:

In another curious twist, the GMAC bailout appears to include a loan to let General Motors increase its stake in GMAC — even as Federal Reserve banking rules appear to require it to shed ownership.

Of the $6 billion announced tonight, $5 billion goes to purchase preferred shares in GMAC (with an 8% coupon for the government, a nice bump up from the 5% banks are paying).

But the remainder, of up to $1 billion, is a loan to General Motors — a loan that allows GM to participate in a rights offering from GMAC. That rights offering, of course, is being presented as part of a make-or-break strategy by GMAC to refashion itself into a bank holding company and avoid bankruptcy. The Federal Reserve approved GMAC’s application to become a bank holding company on Christmas Eve — but GM, and co-owner Cerberus, has to give up control of of the lender to comply with bank ownership rules.

You won’t buy the products the UAW builds… so they’ll be taking your money anyway.

Buy their cars, or they’ll take your money

Yesterday the House of Representatives passed the UAW Bailout, setting up the new subsidies for General Motors and Cerberus Capital Management to be the second Bush-Pelosi bailout.

As the line goes, you won’ by their cars, so they’ll take your money anyway (h/t Boing Boing, The Beast, and Smart PEI.

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There are two lines of argument I have read for the UAW Bailout. One is essentially Keynesian, and argues in these bad economic times, buildnig a giant pit and hiding money in it would be a good move, so building cars no one wants is no worse. There’s some truth in this. The other line of argument is that Detroit is the ‘backbone of our economy,’ ‘the American Dream is an American car,’ etc. This is an argument-from-nostalgia, and as such relies on the biases of those who remember their childhood but no one else’s. Thus, we should subsidize Detroit because it was a big-deal in the lives of suburban children of the 1950s, but not national light rail, because that was someone else’s childhood.

This attempt to recreate the Eisenhower years by recreating the Eisenhower economy is stuck in the past. To drive to the future, Detroit needs to fail.

GM: Gaining the political benefits, and Making you pay

Courtesy of Economist’s View, David Leonhart’s article in the New York Times on the possible UAW bailout. David discusses the high costs of labor paid for by the Detroit 3, and seems to be arguing in general that it’s a good idea for the country to subsidize the lifestyle of Michigan democrats.

The interesting point is near the end, where he says GM is a victim of history in the choices those companies made in supporting the UAW:

Economic Scene – Figure Skews Debate of a Bailout for Detroit – NYTimes.com
The calculations show, accurately enough, that for every hour a unionized worker puts in, one of the Big Three really does spend about $73 on compensation. So the number isn’t made up. But it is the combination of three very different categories.

The first category is simply cash payments, which is what many people imagine when they hear the word “compensation.” It includes wages, overtime and vacation pay, and comes to about $40 an hour. (The numbers vary a bit by company and year. That’s why $73 is sometimes $70 or $77.)

The second category is fringe benefits, like health insurance and pensions. These benefits have real value, even if they don’t show up on a weekly paycheck. At the Big Three, the benefits amount to $15 an hour or so.

Add the two together, and you get the true hourly compensation of Detroit’s unionized work force: roughly $55 an hour. It’s a little more than twice as much as the typical American worker makes, benefits included. The more relevant comparison, though, is probably to Honda’s or Toyota’s (nonunionized) workers. They make in the neighborhood of $45 an hour, and most of the gap stems from their less generous benefits.

The third category is the cost of benefits for retirees. These are essentially fixed costs that have no relation to how many vehicles the companies make. But they are a real cost, so the companies add them into the mix — dividing those costs by the total hours of the current work force, to get a figure of $15 or so — and end up at roughly $70 an hour.

The crucial point, though, is this $15 isn’t mainly a reflection of how generous the retiree benefits are. It’s a reflection of how many retirees there are. The Big Three built up a huge pool of retirees long before Honda and Toyota opened plants in this country. You’d never know this by looking at the graphic behind Wolf Blitzer on CNN last week, contrasting the “$73/hour” pay of Detroit’s workers with the “up to $48/hour” pay of workers at the Japanese companies.

These retirees make up arguably Detroit’s best case for a bailout. The Big Three and the U.A.W. had the bad luck of helping to create the middle class in a country where individual companies — as opposed to all of society — must shoulder much of the burden of paying for retirement.

Of course, this is absurd. Not every industry was, and is, unionized to the extent that the Detroit 3 are. Not all of them have these level of benefits for retired workers.

Rather, the Big 3 wanted political favors (such as bailouts and protection from competition) and spending future income on future workers seemed like a good trade to them.

GM, Chrysler, and Ford are failing in part because of their foolish attempts to manipulate the government into protecting them from the market.

General Motors, the stock of the future!

From the September 30, 1916, edition of The Economist:

A Boston correspondent writes: Bethlehem Steel’s amazing market rise has been eclipsed. This week General Motors stock sold at $697 per share, the highest price at which any stock ever has sold on the New York Stock Exchange, with the exception of Northern Pacific. The latter issue sold on one occasion at the record price of $1,000 per share, but this was a forced price during the corner of 1901. The record high price for a stock on the Boston market is held by Calumet and Hecla, which brought $1,000 per share in 1907. The stock market career of General Motors stock has been spectacular in the extreme, surpassing even the rise of Bethlehem Steel. In 1913-14 it sold as low as $25 per share; for many months after the market soared as a result of munition and motor orders, it lagged behind other issues of its class. Even in 1915 it sold for only $82 per share. Then it began to advance under steady buying, and its low point for the present year never went below $405. The advance on September 12th last was an experience to which even old-time traders were unused. The stock rose $52 for the day. Just by way of comparison, Bethlehem Steel, hitherto the premier war stock, gained 24½ points the same day, to 524½, a new high record. Next day General Motors rose $55 per share, to $697, making a gain of $107 for two days, and Bethlehem Steel gained $30¾, to $555, per share, a rise of $55¼ for the two days. The General Motors Company has under way a recapitalisation plan that calls for a 400 per cent stock dividend on the common, equivalent to five shares of non-par value stock for each share of the present capital stock.

If you have access to LexisNexis, there is a fascinating article how the United Auto Workers will sign a radically reformed contract to save the American auto industry. 2001: A union odyssey. (1985). Newsweek, August 5, pp. 8, 50-54. From the article published a generation ago:

The United Auto Workers took on a strong semblance of the union of the future last week when it agreed to a contract for the new General Motors Corporation Saturn plant, where GM will try to build small cars at a profit. The UAW agreed to a drastic reduction in the number of job classifications at the plant, allowing each worker to perform several tasks. And once the plant is in full production, the workers will make just 80 percent of the industry wage — with the gap potentially filled by pay based on such things as profit at the plant and product quality. In return, the workers will have a voice in making decisions from the shop floor on up and an unheard-of measure of job security. The initial Saturn employees will be guaranteed jobs for a lifetime; 80 percent of those hired subsequently will get that guarantee.

The UAW’s approach is a far cry from the “solidarity forever” activism of 50 years ago, when many people saw the union movement as the vanguard of social transformation, but labor may have no choice but to change. “The unions can adapt to the new concepts and prosper,” says David Cole, director of the Office for the Study of Automotive Transportation at the University of Michigan, “or they can disappear.”

GM is a company whose best days may have been 90 years ago. GM and her union have been talking about wrenching changes for a generation. Nothing comes of it. The bad actors (shareholders and unionists) are rewarded, against and again, by the federal government in the form of bailouts, protectionism, and hidden subsidies.

Let GM go bankrupt.

Union Men

The United Auto Workers is the labor union wing of the Democratic Party. The attempt to bail out the United Auto Worker via loans to Detroit automakers is an attempt to bail out an unprofitable wing of the Democratic Party at the expense of the American taxpayer

Of course this does not mean that the United Auto Workers and its allies agree completely with the broader liberal movement. Union men ten to be less educated than liberals as a whole, and its fair to say that comments like this (taken from a featured post at Daily Kos) are perhaps more typical of the UAW than Democrats or liberals as a whole:

All gone, our shared national automotive legacy and collective memories stretching back a century, and millions of jobs, all looted by ultra-conservatives eager to punish generations of American workers for the sin of not voting for the GOP in acceptable numbers. Gone forever. In their place will be rice burning Nissons and Toyotas, maybe the occasional German model. Models that legions of newly unemployed Americans, standing on the precipe of Bush’s Depression, will never be able to afford

Empowering the UAW empowers an uneducated, nativist, protectionist, and frankly violent strain in American politics that has no place in our society. Detroit is a union town, GM is a union company, with a union view of globalization

“It’s because of you little motherfuckers that we’re out of work,” witnesses later remembered Ebens yelling at Chin.

Chin struck Ebens, and an altercation ensued. Ebens’ stepson, Michael Nitz – who had been recently laid off from his job at an autoplant – jumped in. But it was soon broken up by a parking attendant. Chin and his friends left the bar and went their separate ways. Twenty minutes later, Ebens and Nitz caught up with Chin in front of a fast-food restaurant. Ebens grabbed a baseball bat and delivered a blow to Chin’s leg. Nitz held the wounded Chin, while Ebens struck his head with the bat, bashing his skull in.

Before he slipped into a coma, Chin murmured to a friend, “It’s not fair.” Four days later – and five days before his wedding – Chin died as a result of the injuries he sustained during the beating.

and union opinions of police protection and justice

Ronald Ebens was arrested and taken into custody at the scene of the murder by two off-duty police officers who had witnessed the beating.[5] Ebens and Nitz were convicted in a county court for manslaughter by Wayne County Circuit Judge Charles Kaufman, after a plea bargain brought the charges down from second-degree murder. They served no jail time, were given three years probation, fined $3,000 and ordered to pay $780 in court costs. In a response letter to protests from American Citizens for Justice, Kaufman said, “These weren’t the kind of men you send to jail… You don’t make the punishment fit the crime; you make the punishment fit the criminal.

There are people ready to make serious contributions to the American auto industry, if they are supported. From Silicon Valley startups to crowding-in spending, from a geogreen stimulus to a rebated gas tax, many auto-related causes deserve our support.

But not the union men.

GM + UAW: Not a winning combination

Brilliant:

Big Three Bailout? Not So Fast, Declan McCullagh Says A Better Solution Is To Let The Automakers Declare Bankruptcy – CBS News
One of the best reasons why Detroit automakers should not receive a bailout can be found in a General Motors “Jobs Bank” program that, bizarrely, pays employees not to work.

A beneficiary of that program was someone named Jerry Mellon, who worked for GM until his division merged with another in 2000 and he was no longer needed. Except for a brief period in 2001, Mellon received his full salary for not working, which reached $64,500 a year by 2006. Include benefits, and the annual cost to GM exceeds $100,000.

To earn his pay, Mellon was given the formidable task of showing up in a windowless shed, sitting at a table, and doing nothing for eight hours a day for six years, according to a profile in the Wall Street Journal. Jobs Bank employees have the option of attending classes teaching such important manufacturing skills as dealing blackjack and poker. Mellon spent part of his time reading Reader’s Digest, learning how to play Trivial Pursuit, napping on a makeshift bed of chairs pushed together, or simply staring at the wall for hours at a time.

We can’t afford to have companies like GM around, or unions like the UAW.