Good Auto Industry Fight Thoughts

by: Chris Bowers

Fri Dec 12, 2008 at 16:08


First, Josh Orton points out that if the Bush Administration steps in and uses TARP funds, it will be a big victory for Senate Democrats. After all, Senate Democrats originally just wanted to use already approved TARP money to pay for the auto industry loan, but the Bush administration refused. If the auto industry loan is paid for by TARP then, among other things, the punitive measures against the unions don't apply, money is taken away from Wall Street, and the fund to promote fuel efficient vehicles remains intact. In other words, as Josh notes, Harry Reid and Senate Democrats will have actually won a game of chicken with Senate Republicans, not the other way around. Clearly, it helps a whole lot to have the White House on your side. Hopefully, this is a harbinger of legislative fights to come.

Second, Joseph Stiglitz points out that Wall Street is actually to blame for the demise of the Big three, not unions or even executives:

The debate about whether or not to bail out the Big Three carmakers has been mischaracterised. It has been described as a package to help the undeserving dinosaurs of Detroit. In fact, a plan to bail out the carmakers would benefit shareholders and bondholders as much as anybody else. These are not the people that need help right now. In fact they contributed to the problem.

Financial markets are supposed to allocate capital and monitor that it is used to good effect. They are supposed to be rewarded when they do that job well, but bear the consequences when they fail. The markets failed. Wall Street's focus on quarterly returns encouraged the short-sighted behaviour that contributed to their own demise and that of America's manufacturing, including the automotive industry. Today, they are asking to escape accountability. We should not allow it.

In the rest of the article, Stiglitz goes on to call for a Chapter 11 restructuring of the Big Three.

It is refreshing to see these different perspectives. Any more good auto industry thoughts out there?

Chris Bowers :: Good Auto Industry Fight Thoughts

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Good Auto Industry Fight Thoughts | 22 comments
Giving Reid too much credit (4.00 / 1)
I sense that this is more a case of a blind squirrel finding an acorn than Reid playing a brilliant game of political chicken.

I also agree 100% with Stiglitz (and that must be a tremendous relief for him).  Even in the comments of Open Left, I have read numerous statements to the effect that the Big 3 brought this debacle upon themselves.

Too bad Stiglitz won't be Treasury Secretary.

Stiglitz (4.00 / 1)
I think Bernanke's term is up in 2010. Stiglitz would be an inspired choice. Check out his piece in the Vanity Fair if you haven't read it already.
[ Parent ]
While some Democrats fought like hell to help the autos, (4.00 / 2)
others were bad mouthing them and repeating the same talking points the Republicans were using to set up the autos and the UAW.  Same thing on the blogs by some.  

Just heard a tape of Ron Gettelfinger on the Ed Schultz Show.  He was reading an email he had been given.  It was to Senate Republicans from someone whose name had been blacked out by the person who gave it to him.  It was a call to arms.  It said it was pre-emptive against the unions, pay-back for them supporting Obama, and a nail in the coffin of organized labor.  It gave the talking points demonizing Detroit corporations and CEOs to push to the press, it asked them to attend the McConnells press conference, and it asked for their full support.

I can't believe how many people got suckered by the spin. Fool you once...  

[ Parent ]
One other point. (4.00 / 3)
"Senate Democrats will have actually won a game of chicken with Senate Republicans.."  

I don't think so.  If they win, it will be because Ron Gettelfinger stood up and called their bluff.  It was Gettelfinger who said enough is enough and walked away from the deal.  He is out there now, speaking his piece loud and clear.   He has a Republican email on this that is also making public.

Many, many people in MI were hoping all three would do just what Gettelfinger did. We talk about standing tough and then are afraid to even stand up.  Lots of people are calling GM Corporate and asking them to shut down plants in Tennesee, Kentucky and the rest of the GOP states first and most.  We are encourging them to reward the states that supported them and to make their cuts in the states that would just as soon they died.  

Leave it to the unions to have the balls to do what needs to be done.  

[ Parent ]
One thing that occurred to me... (4.00 / 6)
If the Bush administration is willing to use the TARP money now to save the Big 3, then they probably were willing to all along, even though they wouldn't say so. Sure, they wanted to try to fleece the UAW for as much as they could, but ultimately, letting the auto companies go down wasn't an option for them. So, had the Senate Dems just fought the White House harder, and called their bluff, the White House would have lost that game of chicken as well. Then all the terrible compromises could have never even been thrown out as an option and the Dems would look strong and have a bit of a media coup.

Maybe in the end, it's better to have the Republicans on record for opposing helping the auto industry, as it perhaps helps solidify our hold on those midwestern states, but still, if just for an illustration, it's clear that if the Dems would just fight a little harder, they could be winning more battles than they seem to think and this is finally hard proof of it.  

This endgame is politically perfect. (4.00 / 1)
Bush is forced to use TARP, going against his own party. He gives cover to the next administration, who will, after all be building on what he started. At the same time, GOP is the bunch that tried to kill the US auto industry, the unions, and ruin the lives of middle class American workers. So Obama and the incoming Dem Congress get a lot more wiggle room than if they had to defend the carco bailout on their own and yet get to ride in on their white mustangs saving the day for the real Americans. Win-wins don't get a lot better than that.
[ Parent ]
I definitely suspect that the Big 3 were in on this all along (4.00 / 1)
If they knew that Bush would fork over the $15b out of TARP no matter what, then why not go for the big prize and try to engineer the destruction of the UAW as a bonus?  The only threat of failure was getting no bailout at all -- but with the TARP money as an insurance policy, they could play out their little Shock Doctrine scenario and see if they could get the UAW and the Dems to cave.

It almost worked, too.

[ Parent ]
Big 3 still culpable (4.00 / 1)
While I agree with the assessment that, once again, the Dems lacked the balls to do what was necessary, I disagree with the distinguished Stiglitz blaming everything on Wall Street.

This is not the first time the Big 3 were faced with a crises caused by oil prices.  They did not respond effectively in the 70's and got caught with their pants down in the 2000's.  They refused to join with the UAW in demanding a single payer health plan, most recently after the negotiations to set up the health fund.

Yeah, wall street contributed, but the leadership of the big 3 get the lion share of the blame.

I live in a true blue state--I will have a choice in November

He doesn't blame just Wall Street (0.00 / 0)
He blames the car makers too:

It is the cars and carmakers themselves - and the dismal performance of their executives - that have undermined confidence. [...]

The failure lies with the managers of US carmakers and America's financial markets, which failed in their oversight and encouraged short-sighted behaviour. The "bridge loan to nowhere" - the down payment on what could be a sinkhole of enormous proportions - is another example of the short-sighted behaviour that got us into this mess.


[ Parent ]
Seems like a long way of saying (0.00 / 0)
the crooks and dumbshits that control America's economy don't know their asses from their elbows and have no business running this country.
[ Parent ]
Hey Lee, you heard of the Shock Doctrine?? (0.00 / 0)
You are blaming the big 3, which I am sure Mgmt has a lot to answer for, but as a Liberal, all I care about are 3 million jobs.

This economic crisis is the root of the problem, and the Repugs wanted to use this to screw the unions and the workers. If you are for that, you sure are in the wrong place.

Wake up, and look at what is happening, just like Naomi Klein said, the rich and powerful are using this excuse to try to screw working class people. My brother works for GM, and I don't want him to get screwed. Ford has been making some good decisions as a worldwide car company, (not enough, but at least starting to head in the right direction).

Tired of all you folks who have bought into right wing talking points, wake up and pick a side.

Liberal and dam'n proud of it.

[ Parent ]
Chapter 11 (4.00 / 1)
Wouldn't a restructuring under Chapter 11 lead to an invalidaton of the UAW's collective bargaining agreements? I'm all for better management and organization but I don't support further erosion of worker's rights. It is absurd that the right gets away with demonizing the American worker.
I think it might also lead to a renegotiation of pension plans (0.00 / 0)
if not an outright dropping of them.  

"It sounds wrong...
     ...but its right."
[ Parent ]
good question (0.00 / 0)
Not sure what it means to existing labor agreements, but maybe the issue could be worked out ahead of time, if necessary. As Stiglitz points out:

The US car industry will not be shut down, but it does need to be restructured. That is what Chapter 11 of America's bankruptcy code is supposed to do. A variant of pre-packaged bankruptcy - where all the terms are set before going before the bankruptcy court - can allow them to produce better and more environmentally sound cars. It can also address legacy retiree obligations.

[ Parent ]
Nationalizing the Auto Industry? (4.00 / 2)
I understand that it's not politically possible, but I think it would be a pretty good idea policy-wise for the government to temporarily nationalize the auto industry instead of bailing it out. It would be cheap (I think the total market capitalization of the Big Three is something like $13 billion, and it would enable us to force the changes everyone wants (i.e. retooling factories to produce smaller, greener cars, side-stepping incompetent or corrupt management, and protecting workers). Also, the nationalized companies would have a few years to make these (radical) changes without having to turn a profit, whereas if we just bail them out there would be an expectation of getting our money back really quickly. I imagine this might break some of our trade agreements, but I think a bailout does that already anyways.
Democrats in Congress, sadly, proven wrong again (0.00 / 0)
I wish the Democrats in Congress would give Stiglitz a phone call before deciding to give away our money foolishly. How hard can that be?

First, Stiglitz pointed out all the flaws in the $700 billion bailout bill that Chris Dodd and Barney Frank pushed through Congress. Now, he's explaining how the auto industry bailout rewards "shareholders and bondholders" without solving the underlying problem of the auto industry. (Now I see why Bush wants to use the TARP funds for the auto industry bailout -- to help shareholders and bondholders.)

Stiglitz even considers the pension fund:

Some will talk of the pension funds and others that will suffer. Yes, but that is true of every investment that has diminished. The government may need to help some pension funds but it is better to do so directly, than via massive bail-outs hoping that a little of the money trickles down to the "widows and orphans".

I highly recommend reading the whole article. The rest of Congress should read it too.


bankruptcy (4.00 / 1)
I'm probably not the first one to come up with this... (4.00 / 1)

 ...but here's a talking point we could use:

 "Democrats want to spread the wealth. Republicans want to spread the poverty."

 Doesn't just apply to the auto industry...  

"We judge ourselves by our ideals; others by their actions. It is a great convenience." -- Howard Zinn

Chapter 11 (0.00 / 0)
This is the best thing for these automakers in the long term.  Yes, it will involve substantial renegotiations with the UAW, but this will be a highly politicized process in which the government will have a huge role to play in bringing different parties together.  The UAW would almost certainly give up more than they want, but they would not give up the right to collectively bargain and it is extremely unlikely that benefit/wage levels would be brought to absolute parity with those of Toyota/Honda.

There's going to be pain in this process, for a lot of people.  But Chapter 11 at least gets at the root of the problem - terribly managed companies that cannot be trusted to restructure themselves and have shown little ability to adapt to changing market conditions.  And it wouldn't be the end of the world for the UAW as long as the Obama administration is committed to guiding the process such that it ends up with a labor compromise, rather than just a deunionization.

John McCain: Health insurance for low income children represents an "unfunded liability."

Bankruptcy won't work very well (4.00 / 1)
As I understand it, if GM was in bankruptcy for more than a few weeks, then it might stop paying its suppliers. If the suppliers aren't paid, then they are likely to stop producing and might shutdown or go into bankruptcy. If the suppliers stop producing, then companies like Toyota and Nissan might not be able to get essential parts. So this might result in the whole industry shutting down.

Bankruptcy would have to be structured very carefully in advance so that no major disruption of this industry occurred.

Also, the first things to go in a restructuring are likely to be research and development (of green cars) and other socially useful things. Unless the bankruptcy is done well, we could have an even worse focus on short-term profits over long-term development of the company.

[ Parent ]
Some resources (0.00 / 0)
Structured bankruptcy (0.00 / 0)
This sounds as though that is the solution.  

Everyone has rather "arrived" at this.

Good Auto Industry Fight Thoughts | 22 comments
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